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A long awaited expansion of the Panama Canal looks set to reshape the dynamics of global trade – so long as Panamanians approve the project in a referendum next month

Panamanians go to the polls next month for a referendum whose outcome could change the dynamics of trade between Asia and the Americas.


The historic vote on October 22 – on whether to give the go-ahead to an ambitious $5.25 billion project to build a wider set of locks at the Panama Canal – could in effect double the trade route’s size. The poll – widely expected to pass – will dictate how shipping and manufacturing industries organize logistics and sea routes for the booming maritime trade between China and northern Asia to the east coast of the United States.


The case for expansion is simple. Given trends in growth of trade, the canal, which is almost a century old, will be saturated by 2012 and perhaps sooner. The canal today handles 4% of world maritime trade compared with 6% for the Suez Canal, which is wide enough for modern, larger vessels, and is operating at 93% of its capacity, which last year totalled 12,600 transits.


“We feel the canal expansion is necessary to cope with growing demand and to keep the canal’s share of maritime traffic,” says Bert van Grieken, managing director of Maersk shipping line in Panama. If the number of vessels using the canal grows by 3% annually, the canal’s current improvements to increase capacity would be exhausted by 2008, according to a study by Drewry Shipping Consultants commissioned by APL container services.The shipping industry, eager to speed up shipments, get around clogged terminals and use ever bigger vessels, is eagerly supporting the expansion project. “As one of the largest vessel operators, there is no question that the world’s trade requires this expansion, not only for container traffic but also for roll on/roll off, bulk and other important trading commodities vessels,” says Peter Keller, chief operating officer of NYK Line based in Tokyo.


ASIAN GAINS

For Asian producers and manufacturers, an expanded canal – which would be wide enough to accommodate today’s super-sized ships that can carry up to 8,000 (20ft x 20ft (TEU) containers – could offer important advantages. According to Panama Canal Authority’s president, Ricaurte Vasquez, the new locks “would allow Asian products to get to the destination market in a more efficient way, [offer] benefits in both directions as economic conditions in Asia improve and aggregate demand increases”. Also, when ACP launches financial instruments for funding the megaproject, “Asian financial markets have a role to play,” he tells Emerging Markets.


For countries like Singapore, the critical role of the canal to Asian trade is clear. “Panama’s importance will only increase with the expansion of the canal and the increased capacity to handle larger vessels and heavier traffic,” says Satvinder Singh, regional director of international operations (Americas) with International Enterprise Singapore, the government’s foreign trade development agency. Panama-Singapore bilateral trade totalled $3.3 billion last year.


VITAL ROLE

The canal is vital for US trade, especially burgeoning container trade, which has more than doubled at the canal since 1995. About $100 billion of containerized goods pass through the canal each year, and about 70% of that trade is bound for or departing from the US, an APL-Drewry Shipping Consultants study shows.


The project would build two locks, one each at the Atlantic and Pacific ends of the canal. One of the reasons the canal gets clogged is that modern container ships can barely squeeze through. Each new lock would measure 180 feet (55 metres) across, 60 feet deep and 1,400 feet long, to allow through modern “post-Panamax’’ ships, which carry up to 12,000 standard-sized cargo containers. The two existing lanes of the Panama Canal are 110 feet wide, 50 feet deep and 1,000 feet long and let most of the world’s maritime fleet pass, including Panamax ships, which carry a maximum of 4,500 containers.


Since the canal was turned over to Panama in 1999, its share of the shipping on that route has more than tripled to over 40%, while traffic on the congested US intermodal system has declined from 85% to 58% of the commerce.


For Panama, the project is mammoth by all standards, and its impact will be felt throughout the small country and for generations to come. The price tag of $5.25 billion is equal to nearly half the country’s GDP – and the cost could rise steeply, although the ACP points out that its estimate assumes a 30% cost overrun.

Getting enough workers will be a challenge in the nation of 3 million. The government launched a jobs training programme in March to be sure the 7,000 workers needed at the peak of construction would be hired locally.


The scale of the project creates visions of employment, income and new consumer spending on a massive scale. President Martin Torrijos has said the expansion would transform Panama into a first world country. However, with 40% of the population living in poverty, it will take more than a new set of locks to create equity and opportunity in Panama.


CRITICISM

But widening the canal is not uncontroversial. Critics say that the Torrijos administration and the ACP are at fault for not reaching out to citizen and community groups while preparing the master plan, which encompasses 120 technical studies. The government “should have developed a consensus, and that would mean that civil society and the government would make the cost-benefit study,” says Fernando Manfredo, former deputy administrator of the canal.


The voluntary referendum requires a simple majority to pass, and at present support for the project “has consolidated around 54%”, according to Leopoldo Neira, president of Dichter & Neira, a leading Panama City polling agency.


“The government must be sure not to politicize the issue because that would create many disadvantages for the proposal,” Neira says. The number of undecided voters rose to 28% in August, but Neira feels many would shift to favour the project as the pro-expansion campaign, led by business chambers including engineers, architects and other professionals, gets underway.

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