Thursday, August 24, 2006

Panama Canal - What next?

Speculation about the Panama Canal's future continues to stir dialogue between the Panamanian government, The Panama Canal Authority (ACP), and local economists.

But for the time being, the 20th-century anachronism is capably and safely meeting the capacity demands of its most important constituents -- global shippers.

This is evident in ACP's second quarter 2006 metrics:
Panama Canal/Universal Measurement System tonnage increased 5.7 percent to 75 million tons from 70.9 million tons in 2005.

Total Canal transits increased 3.5 percent to 3,862 transits.

Despite tonnage and traffic growth, accidents dropped 3.4 percent to 1.04 accidents per 1,000 transits. In 2005 there were 1.07 accidents per 1,000 transits.

Still, one ominous sign of future capacity constraints persists: Canal Waters Time (CWT) -- the average time it takes a vessel to transit the Canal including waiting time for passage -- increased 15.8 percent to 30.08 hours.

In 2005, the average dwell period was four hours shorter. CWT for booked vessels (ships holding reservations) also increased 3.4 percent to 16.85 hours from 16.3 hours.

Three factors contribute to this anomaly, first, world trade is booming and demand for the Canal's services has increased.

Second, grain exports through Gulf Coast ports to Asia have increased significantly since infrastructure in the New Orleans area has begun recovery from Hurricane Katrina.

Third, the additional surge in traffic occurred during the Canal's peak season, creating a backlog.

Global growth trends, however, indicate this problem will likely worsen before it gets better. The Canal is currently operating at 85 percent capacity and will potentially reach its threshold as early as 2009, economists predict.

To accommodate increasing container volume between Asia and the United States, the ACP and Panamanian government are floating a $5.3-billion expansion plan -- which Panama's citizens will vote on later this year -- that would add a third lane to the Canal. The expansion project would dig two new channels and larger locks on both ends of the canal, capable of carrying larger post-Panamax vessels.

Some officials are skeptical of the proposed cost and scope of the plans. They argue that the numbers are too conservative while also questioning whether future profits would be directed to the welfare of the country or to foreign enterprises.

But both global ocean carriers and shippers -- who will ultimately foot the bill through scaled toll increases and pass-along surcharges -- are positive about the proposed plans.

The expansion will enable more ships to utilize the Panama Canal. It will strengthen Panama financially by bringing considerable revenues, promote development of Panama's maritime industry, and ensure Panama's position as a regional maritime center. It would also benefit the growth of regional and world trade.

If the referendum passes, the ACP anticipates starting the dig in 2007 and completing the expansion in time for the Canal's centennial in 2014.


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