By Leo King
When the new 48-mile Panama Canal opens in 2014, many, many Florida ports will be vying for business from South America as well as the Far East and the world. Some have already begun. That includes Miami, which Gov. Rick Scott has authorized for deepening, and Jacksonville, which is also preparing for deeper-draft ships.
Not only will Florida’s ports be looking for new business by deepening their ports, but so will many other ports along the Gulf of Mexico, and that includes Alabama, Louisiana and Texas. North of Florida along the Atlantic seaboard, ports from Savannah northward will be competing.
The expansion of the Panama Canal, also called the Third Set of Locks Project, is a project proposed by the Panama Canal Authority (ACP), that will double the capacity of the Panama Canal by allowing more and larger ships to transit. Then-Panamanian President Martín Torrijos presented the plan on April 24, 2006 and Panamanian citizens approved it in a national referendum by 77 percent of the vote on October 22, 2006, according to Wikipedia.
The project will create a new lane of traffic along the canal by constructing a new set of locks.
Two lock complexes, one on the Atlantic side and another on the Pacific side, each with three chambers, will include three water-saving basins. The navigation channels are being deepened as is elevating Gatun Lake’s maximum operating level.
On September 3, 2007 the Panama Canal expansion project officially started. Torrijos stated that the canal will generate enough wealth to transform Panama into a First World country, and the project is expected to reduce Panamanian poverty by about 30 percent.
The canal is a key conduit for international maritime trade. Built from 1904 to 1914, annual traffic has risen from about 1,000 ships in the canal’s early days to 14,702 vessels in 2008, measuring a total 309.6 million tons. More than 815,000 vessels have passed through the waterway.
The first canal has two lanes each with its own set of locks. The proposal consists of adding a third lane through the construction of lock complexes at each end. One lock complex will be located on the Pacific side to the southwest of the existing Miraflores Locks. The other complex will be located to the east of the existing Gatun Locks. Each of these new lock complexes will have three consecutive chambers designed to move vessels from sea level to the level of Gatun Lake and back down again. Each chamber will have three lateral water-saving basins, for a total of nine basins per lock and 18 basins total. Just like the existing locks, the new locks and their basins will be filled and emptied by gravity, without the use of pumps. The location of the new locks uses a significant portion of the area excavated by the U.S. in 1939 and suspended in 1942 because of the start of World War II. The new locks will be connected to the existing channel system through new navigational channels.
The new lock chambers will be 1,400 feet long by 180 feet wide, and 60 feet deep. They will use rolling gates instead of miter gates, which are used by the existing locks. Rolling gates are used in almost all existing locks with dimensions similar to those being proposed, and are a well-proven technology. The new locks will use tugboats to position the vessels instead of locomotives. As in the case of the rolling gates, tugs are successfully and widely utilized for these purposes in locks of similar dimensions.
The construction of the third set of locks project is slated to take between seven to eight years. The new locks could begin operations between fiscal years 2014 and 2015.
The main purpose of the canal expansion program is to increase Panama’s ability to benefit from the growing traffic demand. This growing demand is manifested both in increased cargo volume and vessel size that will use the Panama route. In this sense, the canal, with a third set of locks, will be able to manage the traffic demand forecast beyond 2025, and total revenues for that year, adjusted for inflation, will amount to over $6.2 billion.
The cost is estimated by the ACP at approximately US $15 to 25 billion. This estimate includes design, administrative, construction, testing, environmental mitigation, and commissioning costs. Additionally, this cost includes contingencies to cover risks and unforeseen events, such as those that might be caused by accidents, design changes, price increases, and possible delays, among others. The most relevant program cost is that of constructing the two new lock complexes – one on the Atlantic side and the other on the Pacific side – with estimated costs of approximately $1.1 billion and $1 billion each, plus a $590 million provision for possible contingencies during their construction.
Opponents contend the project is based on uncertain projections about maritime trade and the world economy. Prof. R.N. Mendez, an economist who works for the Univ. of Panama, alleged that the economic and financial projections are based on manipulated data. Independent engineers, most notably Humberto Reynolds and Tomas Drohan Ruiz,] the former head of Engineering and Dredging of the Panama Canal, say that the project will cost much more than currently budgeted and that it is too risky for Panama.
M.A. Bernal, professor at the Univ. of Panama, thinks that confidence in the budget of the Panama Canal Authority is undermined because of engineering and consultancy firm Parsons Brinckerhoff’s involvement. Parsons Brinckerhoff is best known for the Big Dig in Boston, which ended up costing three times the estimated amount with several structural and safety concerns.
According to the ACP, the third set of locks will be profitable, producing a 12 percent internal rate of return. The third set of locks project is self-financed and its financing will be separate from the government’s financing. The state will not guarantee or endorse any loans undertaken by the ACP for the project’s execution. With tolls increasing at an annual average rate of 3.5 percent for 20 years, and according to the most probable traffic demand forecast and construction schedule, the external financing required will be mainly temporary and on the order of $2.3 billion to cover peak construction activities between 2009 and 2011. With the cash flows generated by the expanded canal, investment costs will be recovered in less than 10 years and financing could be repaid in approximately eight years.
What “self-financing” actually means, however, is disputed. At least half of the money needed for the canal expansion project will have to be borrowed, and the ACP does not calculate the interest on that as part of the project’s costs.
The ACP’s revenue projections are based on suppositions about increase in canal usage and the willingness of shippers to pay higher tolls instead of seeking competing routes, both of which critics question.
Texas ports are looking for new business as well as Florida. Consider a March 17 article in the Houston Chronicle which put it this way:
“Any region that wants to benefit from cargo movements in the future must be prepared. So San Antonio may be thanking its lucky stars for Corpus Christi if it gets funding to make itself ready for the Panama Canal widening and deepening. The larger capacity in Panama will change global cargo routes significantly. It will not necessarily increase the amount of freight, but will concentrate more freight on fewer ships.”
The Panama Canal will be more competitive with the ports in Long Beach, Los Angeles, Mexico and with U.S. railroads for delivering freight, said Jorge Canavati, vice president of business development at Port San Antonio, an inland port.
The quickest route usually wins the business, Canavati said.
So, is Florida ready for the bigger ships?