Crunch time for Panama Canal

PANAMA CITY - On a hot, drizzly day in July, the Aegean Leader sailed through the Panama Canal, its 32m-wide hull barely clearing the waterway's locks.

The vessel, which carries Japanese cars to the United States' east coast, is the biggest that its owner, Nippon Yusen, sends through the canal linking the Pacific and the Gulf of Mexico.

Nippon Yusen and Wal-Mart are among companies pressing Panama to enlarge the 91-year-old waterway to take bigger ships at a time when growing exports from Asia clog US Pacific ports.

Asaf Ashar, a professor at the National Waterways Institute at the University of New Orleans, said if the country did not spend the US$10 billion ($14.15 billion) needed to expand the canal, it would lose income as ships took routes such as the Suez Canal to reach the Atlantic seaboard.

"People will still use it, but it will have secondary status," says Ashar, who estimates that, without expansion, annual toll revenue would fall 21 per cent or US$210 million. The canal authority says the US accounts for about half the cargo transported through the 84km canal. China is the second-biggest user; Japan is the third.

Vessels that are too big use other routes between Asia and the US east coast. Some take the Suez Canal and cross the Mediterranean to reach the Atlantic. Alternatively, goods are unloaded at west coast ports and transported by road or rail across the US.

Robin Lanier, director of the Waterfront Coalition, a Washington trade group, said enlargement of the canal, which would take nine years and involve building a third channel, should begin as soon as possible.

He said without expansion, rising congestion at west coast ports would slow growth of trade and add to companies' costs.

The Southern California Marine Exchange said congestion at Los Angeles and Long Beach, which handle about 40 per cent of containerised US imports, diverted more than 115 incoming ships to other Pacific harbours last year.

The authority expects to present an expansion plan to its board within a few months. If the board approves the plan, it will have to be passed by Congress before going to a national referendum.

But some Panamanians feel the US$10 billion expansion cost could be too big an expense for a country of 3 million people.

At the end of July, the country had US$7.2 billion of foreign debt. Tolls, which were raised 60 per cent in May, would probably have to double to pay for the work.

Last year, the canal had revenue of US$1.06 billion and produced royalties for the Government of US$183.7 million.

The cost of shipping goods from Asia through the canal to the Gulf of Mexico is about 20 per cent less than unloading at west coast ports and sending them by train to cities such as Houston.

And then there is the ever-increasing size of ships. Most cargo carriers now being built will be too big to use the waterway. "Fifty-eight per cent of ships on order can't transit the canal," says a Maersk SeaLand spokesman. His company already has 22 ships that are too big.

Ashar says without a third channel, toll revenue from companies such as Maersk and Tokyo-based Nippon Yusen, which has 19 ships too wide to pass through the canal, may fall by as much as 70 per cent as they turn to alternative routes. Container lines paid more than US$300 million in tolls last year, making them the biggest user.

Chris Koch, president of the World Shipping Council, says: "If the canal chooses not to expand, trade will continue to flow and go elsewhere."

Costly short cut

The US completed the Panama Canal in 1914.

Construction cost US$375 million and about 25,000 lives, mostly to disease.

The waterway was ceded to Panama in 1999.

Last year, the canal had revenue of US$1.06 billion, producing royalties of US$183.7 million.

- BLOOMBERG