Panama Canal Expansion Quandary
By James Donahue
For the past seven years contractors have been busy completing a $6.9 billion expansion of the Panama Canal. The massive project involved dredging, land-blasting, deepening and improving the existing locks and construction a second deeper canal with 16 larger locks and 100-foot-tall sluice gates to accommodate the new container carriers now hauling freight on the high seas.
Such ships were never heard of when the canal was first constructed in 1914. The new canal locks are expected to change global trade patterns and prove extremely profitable for the Panama Canal Authority, which took control of the canal from the United States in 1999.
Even without the expansion the canal was still handling about half of the traffic between Asian ports and the East Coast of the United States. The big container did not fit in the old locks so they were forced to unload on the West Coast and ship by rail across country to reach the East Coast.
The Authority held its grand opening of the new canal in June, 2016 and there was much fan-fare. But broiling beneath the surface of all the festivity has been concerns that the new locks may still be too small, the concrete used is inferior and already leaking, the project proved more costly than expected, and the timing of such construction couldn’t have been worse.
Here is how the world is changing and why it may already be affecting profits at the Panama Canal:
--The construction cost exceeded the original budget. The project was financed by loans from national and multinational creditors. A New York Times story said contractors were still awaiting $3.4 billion in payments for excess costs. The Canal Authority charges $500,000 for each ship passing through the system, so we are looking at high finance.
--Lower oil and fuel costs are making it possible for the big container ships to take the longer trip around the South American coast or choose rail service rather than pay the high price of moving through the canal.
--A severe drought in the region has created a critical water shortage, which in turn is hitting the operation of the canal. The water level in Gatun Lake, a man-made portion of the 50-mile-long passage has dropped to a point where it is affecting the allowed draft of ships that move through it. This means that the big 1,000-foot vessels must reduce their cargo if they are to be allowed through the canal. Thus there is more reason to choose the alternative routes.
--There are signs that those “ultra-large” container ships that the new canal has been designed to handle are losing favor with shipping companies. This is because they are so large and carry so much cargo they create port congestion. The situation is so serious only a few ports will accommodate them. Consequently ships are sitting idle, waiting to unload, which is costing the shippers money.
--While nobody is talking much about it, if global warming continues to melt the ice around Northern Canada, shippers may soon be following ice breakers through the long sought Northwest Passage. This will have a major impact on most of the traffic now using the Panama Canal.
Two other problems facing canal operations:
--The shortage of water may also affect the capability of the new and larger locks to raise the ships during passage.
--In designing the new locks, engineers apparently forgot about the tugboats that must fit within the locks with the monster ships during the trip. The big ships cannot move under their own power so it is necessary that tugs are used to carefully push and pull them along. When the big 1,050-foot-long ships are in the lock, there is barely enough room to fit the tugs. Clearance is measured by mere inches. Because they are so small in comparison to the ships they pull, there is concern for the safety of the tug boat crews.
There was a lot of controversy when the U.S. government chose to turn ownership of the Panama Canal over to the Panamanians in 1999. It now appears that the people making those decisions were either very lucky or they had some foresight into the future of high seas shipping.
By James Donahue
For the past seven years contractors have been busy completing a $6.9 billion expansion of the Panama Canal. The massive project involved dredging, land-blasting, deepening and improving the existing locks and construction a second deeper canal with 16 larger locks and 100-foot-tall sluice gates to accommodate the new container carriers now hauling freight on the high seas.
Such ships were never heard of when the canal was first constructed in 1914. The new canal locks are expected to change global trade patterns and prove extremely profitable for the Panama Canal Authority, which took control of the canal from the United States in 1999.
Even without the expansion the canal was still handling about half of the traffic between Asian ports and the East Coast of the United States. The big container did not fit in the old locks so they were forced to unload on the West Coast and ship by rail across country to reach the East Coast.
The Authority held its grand opening of the new canal in June, 2016 and there was much fan-fare. But broiling beneath the surface of all the festivity has been concerns that the new locks may still be too small, the concrete used is inferior and already leaking, the project proved more costly than expected, and the timing of such construction couldn’t have been worse.
Here is how the world is changing and why it may already be affecting profits at the Panama Canal:
--The construction cost exceeded the original budget. The project was financed by loans from national and multinational creditors. A New York Times story said contractors were still awaiting $3.4 billion in payments for excess costs. The Canal Authority charges $500,000 for each ship passing through the system, so we are looking at high finance.
--Lower oil and fuel costs are making it possible for the big container ships to take the longer trip around the South American coast or choose rail service rather than pay the high price of moving through the canal.
--A severe drought in the region has created a critical water shortage, which in turn is hitting the operation of the canal. The water level in Gatun Lake, a man-made portion of the 50-mile-long passage has dropped to a point where it is affecting the allowed draft of ships that move through it. This means that the big 1,000-foot vessels must reduce their cargo if they are to be allowed through the canal. Thus there is more reason to choose the alternative routes.
--There are signs that those “ultra-large” container ships that the new canal has been designed to handle are losing favor with shipping companies. This is because they are so large and carry so much cargo they create port congestion. The situation is so serious only a few ports will accommodate them. Consequently ships are sitting idle, waiting to unload, which is costing the shippers money.
--While nobody is talking much about it, if global warming continues to melt the ice around Northern Canada, shippers may soon be following ice breakers through the long sought Northwest Passage. This will have a major impact on most of the traffic now using the Panama Canal.
Two other problems facing canal operations:
--The shortage of water may also affect the capability of the new and larger locks to raise the ships during passage.
--In designing the new locks, engineers apparently forgot about the tugboats that must fit within the locks with the monster ships during the trip. The big ships cannot move under their own power so it is necessary that tugs are used to carefully push and pull them along. When the big 1,050-foot-long ships are in the lock, there is barely enough room to fit the tugs. Clearance is measured by mere inches. Because they are so small in comparison to the ships they pull, there is concern for the safety of the tug boat crews.
There was a lot of controversy when the U.S. government chose to turn ownership of the Panama Canal over to the Panamanians in 1999. It now appears that the people making those decisions were either very lucky or they had some foresight into the future of high seas shipping.