Panama’s shipping forecast

Kylie Field

The Panama Canal celebrates its 100th birthday this year. A project to expand the canal will allow more traffic through – but all has not gone to plan

For a country that licences close to a third of the world’s shipping fleet, and harbours one of the greatest engineering feats of the modern age, Panama is a major player in the global shipping industry. 

Snaking its way through 77.1 km of the Panamanian countryside, the Panama Canal has, for 100 years, intrinsically linked the Pacific Rim with the Atlantic Ocean, opening up avenues of trade and integrating places around the area to the world economy. When it was first constructed, the canal saw around 1,000 ships through its locks each year, but 100 years on this has increased to well over 15,000, with the aptly titled Panamax being the largest ship the canal can currently accommodate. However, a change in shipping patterns, especially the increasingly larger-than-Panamax ships, has necessitated a major expansion of the canal. 

In 2006, the Panamanian government announced plans to expand the Panama Canal, known as the Third Set of Locks Project, which is intended to double the capacity of the Panama Canal by 2015. The growth in the canal’s usage has primarily been driven by US imports from China to ports on the East and Gulf coast of the USA. Fast forward to 2014 and the expansion has been plagued with problems. Only recently, the Panama Canal Authority (ACP) agreed to end a dispute over US$1.6 billion cost overruns that had delayed the expansion. 

But according to Eric Jackson, chief editor of the Panama News, the project has been a mess since the beginning. “First of all, the economics of the proposal were wildly unrealistic and clearly so from the outset. They projected US imports from China would continue to grow at the same rate of increase as prevailed between 2000 and 2005, all the way through to 2025. That means the United States exporting all of its industrial production to China and still having money to buy things abroad. Within less than two years that projection was shattered to tiny pieces, with the ACP pleading that nobody could have foreseen the fall of Lehman Brothers. But they had campaigned on a purported institutional gift of prophecy to see the world economy decades into the future. They claimed that with a multiplier effect, a quarter of a million jobs would be created for Panamanians, in our country of about 3.5 million people.” 

He believes problems with financing the project stem from the fact that essential parts of the job – costly ones – were left out of the proposal. The government proposed a model that would be self-financing, but in the end took out loans from international banks. 

“An underlying presumption of the macro-economic projections was little or no competition,” says Jackson. “The Canal Board is primarily made up of politicians and businesspeople from, or with close ties to, construction and banking, rather than from shipping or people who came up through PanCanal ranks. They will always have some expensive new construction gig in mind because the concept of fiduciary duty is underdeveloped here. So it’s behind schedule, over budget, with problems that will need to be fixed. The corruption is just gravy.” 

However, Jackson believes it’s crucial to Panama to maintain and upgrade the canal to modern standards. 

“It’s our principal industrial asset, on which our position as a major commercial centre depends. Any terrible financial debacle in the canal expansion gets passed on in one way or another to the Panamanian taxpayers. There is a lot at stake. There were tough decisions to be made in 2006, but these were not discussed because the proposal was dishonestly presented. The consequences of the GUPC [Grupo Unidos por el Canal] lowball bid that was accepted by a canal administrator, who surely knew better but had a financial conflict of interest, have been a wake-up call to the world.” The new locks are expected to open for shipping traffic in 2015, but reports are suggesting that, due to the industrial dispute between the government and the GUPC, it’s more likely to be 2016 before the locks are fully operational. But in the meantime, for the Panamanian people and the wider maritime community, August 2014 will still be a time to celebrate the 100th birthday of one of the world’s most important shipping routes. 

About the author:

Kylie Field is an Australian journalist based in Sydney and Cambridge, UK


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