Panama Canal prepares for bigger vessels

“Time now is money, and a lot of money,” said Panama Canal tug captain Luis Estribi as sunlight danced on the water near the Panama Canal’s Pacific entrance at Ciudad de Panamá.

Estribi was guiding a vessel from China, the Tai Prosperity, through the canal's Pedro Miguel locks to the Port of New Orleans. The Tai Prosperity, a carrier of bulk commodities such as grain, is classified as a Panamax ship.

Panamax is a worldwide maritime shipping  measurement that refers to the maximum-sized vessel that can pass through this canal.

But today, Panamax is passé. Now, it’s all about post-Panamax, vessels that can carry up to three times the cargo as Panamax vessels. But post-Panamax vessels are too wide for the existing Panama Canal. 

And that’s a challenge for the Panama Canal, a 101-year-old force in worldwide commerce. The canal is strategically located at the intersection of two oceans and two continents. It’s responsible for 15 percent of Panama’s GDP and its No. 1 customer is the United States.

But the Panama Canal needs wider and deeper locks to remain commercially relevant. The U.S. Army Corps of Engineers says post-Panamax ships now carry 45 percent of the world’s cargo. The Corps also says by 2030, post-Panamax vessels will account for 60 percent of the world’s container shipping.

Following a 2006 referendum by the Panamanian people approving the construction of post-Panamax locks, the expanded locks project has seen multiple delays, legal disputes, and huge cost overruns.

“The project has been challenged in all senses,” said Oscar Bazan, executive vice president of business development at the Panama Canal Authority.

“With the contractors, legal issues, claims, but I mean, we are moving forward,” he said.

Tug captain Lew Stabler said that is long overdue. Stabler was born in the Canal Zone that the U.S. ceded to Panama as part of the Torrijos-Carter Treaty, also known as the Panama Canal Treaty.

The canal was jointly run by Panama and the U.S. until Panama took full control on December 31, 1999.

“They had to do it,” said Stabler of the expansion. “It’s like being an airline and deciding, ‘Well, I don’t really want to use jets. I’m going to stay with the props.’ You’re not going to have the customers, not going to have the business. You’re just going to go belly up."

The United States is also preparing for the expanded canal. 

In Charleston, South Carolina, rail already takes post-Panamax cargo from Europe and sends it inland. From New York/New Jersey to Baltimore, Savannah and Miami, workers are dredging, raising bridges and upgrading docks. 

“We will deepen our harbor from 42 to 55 feet to accommodate this tremendous new trend toward big container ships,” said Jim Newsome, president and CEO at the Port of Charleston.

Tugboat captain Luis Estribi helps guide the bulk commodity carrier Tai Prosperity through the Panama Canal’s Pedro Miguel Locks. (Lorne Matalon)

There will be winners and losers, said Noel Maurer, professor of international affairs and international business at George Washington University, and the co-author along with Carlos Yu of “The Big Ditch,” an economic history of the Panama Canal.

Among the winners, said Maurer, are U.S. exporters of grain and cotton. 

“You’re talking about a drop in shipping costs equal to about 3 percent of the market value of the product. That’s big,” said Maurer.

He also predicted that the cost of shipping coal to China for electrical generation there will fall by approximately $10 per ton.

“And given that steam coal goes for about $50 a ton in China,” he continued, “it’s a huge benefit to Eastern coal producers who are going to able to ship their product much more cheaply to China.”

However, Maurer said perhaps the biggest winner in the short term will be U.S. agribusiness. 

“American cotton and grain that is currently not competitive in Asian markets will become competitive. So for American agriculture, that is a big deal,” he said.

For U.S. importers on the East Coast, shipping by water will still take longer than sending cargo cross-country by rail from the West. But the water route will cost less. The Panama Canal expansion may threaten some of the 4 million jobs in California, Oregon and Washington specifically tied to Asian imports. Many of those jobs are in the ports of Seattle, San Francisco/Oakland and Los Angeles/Long Beach.

Michael Nacht, a professor at the Goldman School of Public Policy at the University of California at Berkeley, and his collaborator Larry Henry, the founder of ContainerTrac Inc., a company that tracks shipping containers for the seaport and rail industries, have researched the potential impact on West Coast ports from the Panama Canal expansion project. 

Writing recently in the San Francisco Chronicle, they said that the impact could be profound: 

“The West Coast ports, including the Port of Oakland, have enjoyed decades of success serving as the point of entry for billions of dollars worth of goods, mostly from China and East Asia. Imports from Asia to the United States generated 9 million American jobs, 4 million in California, Oregon and Washington, in 2014, according to the Pacific Maritime Association. Cross currents in international trade, however, suggest a highly turbulent period lies ahead.”

In Panama, tug captain Luis Estribi is frustrated by all the delays. But he’s proud of the expansion and the legacy of the 101-year-old Panama Canal. 

“We are still nowadays, we are wondering how these engineers, how they built it. It was just amazing how they [thought of] every single detail. Every part of the canal has its own story, and good ones," he said.

Estribi and other captains are looking forward to training in the new locks. The union representing tug captains and deckhands, known by its Spanish acronym UCOC, has said repeatedly that its members have not received training. The Panama Canal Authority, known by its Spanish acronym ACP, or Autoridad del Canal de Panamá,  has denied that, saying that some training has taken place in simulators.

But that battle between UCOC and the ACP is just a footnote for senior managers of U.S. ports. They are counting the days until the new locks become operational.