Panama Canal reopens with hopes for trade boost as ‘center of the Americas’: Many Issues Now Come to a Head
The Neo-panamax cargo ship Cosco Shipping Panama makes passage through the new locks in the expanded canal. Photograph: Oscar Rivera/EPA
In today’s Guardian newspaper a review of the opening of the new and expanded Panama Canal. The article offers a ranging view with the opening of the new locks as a backdrop. These issues include reports that the Canal has inherent engineering deficiencies, water level challenges, the Canal’s potential to spur Panama’s growth as a trade and logistics hub, vessel size evolution, the impact of the Panama Papers and how the Canal might impact living standard inequality in country. We chose to highlight this article to demonstrate the various ongoing complexities associated with the project.
In the coming twelve months, our staff and the GLDPartners’ Advisory Committee will be focusing on two key issues: 1) first year market use and acceptance by the ocean carriers, and 2) ground-based private investment in Panama in regards to inventory management/logistics activity. Later on we will be focused on the extent of ground-based investment in Panama associated with the Canal’s impact on new manufacturing and value-add investment.
As Jorge Luis Quijano, Canal Administrator suggests, the Canal can now accommodate 98% of today’s vessel fleet and with vessel size growth that will decline to 95% as larger vessels are launched in the coming years. This is a huge point, but still the question remains around the extent of business strategy change that will have old routes changed or abandoned. The next 6-12 months will be telling, and with carrier challenges stemming from soft demand, changing competition structures and overcapacity there are many moving parts to this right now.
It will be quite interesting to see how risk capital, third party logistics operators, shippers and carriers consider Panama after a very long run-up period. Given the dramatic changes taking place in the marketplace, this isn’t an easy read, but the fact is that there are some new options for the marketplace – the issue is are those options helpful to today’s circumstance. We’ll be reviewing our client’s reactions and the sentiments from the wider market in the coming months.
The Guardian article: https://www.theguardian.com/world/2016/jun/27/panama-canal-expansion-reopens-trade
Thousands of people, many waving paper fans to fend off the humidity and heat, gathered at Cocolí locks outside Panama City on Sunday to watch a colossal container ship bearing 9,472 containers become the first vessel to officially pass through the newly expanded Panama canal and, hopefully, usher in a new era of trading prosperity for the Central American country.
The opening of the expansion of the 102-year-old landmark after a controversial and delayed $5.25bn refit comes at a difficult moment for the shipping industry. International trade has slowed as China’s economic growth has stalled. In Egypt the Suez Canal – Panama’s main rival – recently lowered tariffs in an attempt to keep its traffic.
But there was little sign of worry as the 158ft-wide (48.2 meters) and 984ft-long (300 meters) Cosco Shipping Panama, approached the Panamanian isthmus on Sunday.
As a few thousand people danced in the stands erected on the banks of the newly constructed Cocolí locks, other Panamanians gathered around large screens placed throughout Panama.
When the ship approached the Cocolí locks, a wild cheer went up. People got to their feet in hopes of getting a view of the ship right before it entered the latest stage of its journey from Greece across the Atlantic and through the Panama Canal to the Pacific Ocean.
The special guest section of the opening ceremony, which housed about 3,000 people, was packed with delegations from different states, business associates and heads of different authorities and organizations.
“This new transit route is the tip of the iceberg in making Panama once again the logistic center of the Americas,” Jorge Luis Quijano, canal administrator, said on Sunday. “And it represents a significant opportunity for the countries of the region to improve their infrastructure
During the early morning ceremony, a moment of silence was dedicated to people who died building the canal.
The canal operates 24 hours a day, seven days a week and 35 to 40 ships are expected to pass through every day. Each trip takes about eight to 10 hours.
The expansion mainly consists of building two new locks, each with three slots. The newly expanded locks are meant to double the canal’s capacity. The locks were initially scheduled to open in 2014, on the canal’s 100th anniversary.
Among those gathered for the later event was Jill Biden, wife of US vice-president Joe Biden, who was leading the US delegation. Up until 1999, the canal was under the US authority. Out of the 70 heads of state invited to attend the ceremony, only a dozen attended. The low turnout of world’s politicians has been attributed to the Panama Papers scandal, which erupted when 11.5m documents belonging to Mossack Fonseca, a Panama-based law firm, were leaked earlier this year.
Panama officials have said that the scandal unjustly damaged the country’s reputation, as only a portion of the companies mentioned in the documents were actually incorporated in Panama.
The Panama Papers leak shone a bright light on the world of offshore tax planning. In addition to its headquarters in Panama, the firm employed 600 people working in 42 countries and was the world’s fourth biggest offshore law firm.
Ivan Zarak, Panama’s vice-minister of economy, said that referring to the Mossak Fonseca leak and the ensuing scandal as Panama Papers was unjust.
“It’s not about Panama, it’s about one company. Nobody called it the Texas fraud when Enron [went] bankrupt,” he said. “It’s unjust. You are holding accountable the whole country for the actions of one company.”
In the week leading up to the opening of the new locks, the Panama Canal Authority has also been defensively answering questions raised by a New York Times report into the project. Among the concerns voiced by those interviewed by the Times was whether the concrete used in the canal was strong enough, whether, after the end of the driest season in 36 years, there was another water and whether the new locks were big enough to accommodate the boats they were intended for.
The new locks can accommodate 98% of the ships currently floating. But by 2019 that number is expected to drop to 95%, according to Manuel Benítez, deputy administrator at the Panama Canal Authority, as even larger ships are launched.
“Will the ships keep growing forever? I think there is a point of diminishing returns,” said Benítez.
“The Panama Canal Authority is already looking into another expansion,” said Zarak. But the new expansion plans will have to be economically viable, he added.
The canal already has 166 reservations. About 17 of those reservations are for liquified petroleum gas, LPG, carriers. In the coming years, Panama hopes to capitalize on the fact that the US has recently become an exporter of oil.
Ilya de Marotta, executive vice-president of engineering and administration at the Panama Canal Authority, said that the New York Times report was “outdated” and that it served more as a historic account of challenges the authority faced while building the canal. The challenges have since been addressed and the project was complete, she said.
Prior to the ceremony, as Marotta made her way through the special guest area, she was greeted with applause. Those in attendance lined up to take photos and selfies with a woman who, with her trademark pink hard hat, has become a minor celebrity as a female engineer in charge of this challenging and historic project.
There has also been pressure in Panama to ensure that some of the profits from the new canal are used to address inequality in the country. According to the World Bank, Panama reduced its poverty rate from 39.9% to 26.2% between 2007 and 2012, but many of its citizens continue to live in poverty. Colón, on the Atlantic side of the canal, is Panama’s second largest city and where Sunday’s festivities began. It is also the poorest city in the country. Many of its building are condemned. Garbage lines the roads. Stray dogs can be seen roaming the streets.
The current government hopes to change that with a housing project called Nuevo Colón. The project includes 5,000 two- and three-bedroom apartments that would be rented out at $50 a month. A thousand apartments are scheduled to become available in October 2017. In addition to housing, residents take part in “human integration program” designed to provide them with skills necessary to enter the job market.
The buildings – designed in shape of a V and H – have open stairwells to take advantage of the wind and natural light. Open stairwells also allow for everyone to see what you are doing, said Nilda Pallares Quijano, a Nuevo Colón Consortium engineer who grew up in Colón. “A lot of things happen in the stairs here,” she said.
The development might not be finished for more than a year yet, but it seems to already have at least one resident. As a stray dog wandered across the site, no workers seemed to notice or mind. Finding some shade, the dog laid down and slept.
