Panama Canal third lane will change dynamics of world trade
The impact of the Panama Canal's new third lane, set to open in 2014, will ripple around the world, from shipyards in South Korea to highways in Texas to coalfields in Colombia and soy plantations in Brazil's northeast.
PANAMA CITY, Panama — The nature of global trade is about to change.
The Panama Canal will soon have a third lane that can accommodate megaships nearly three times larger than any vessel that has ever transited the isthmus.
It might not seem like earthshaking news. But the impact will ripple around the world, from shipyards in South Korea to highways in Texas to coalfields in Colombia and soy plantations in Brazil's northeast. Nations will see trade patterns shift.
Ports up and down the U.S. East Coast are in a frenzied race to get ready for the larger, slower, more efficient ships that will ply the oceans.
They are dredging harbors, expanding rail lines, taking a look at port facilities and distribution centers and, in the case of the New York City area, preparing to elevate the roadway on the Bayonne Bridge so that bigger vessels can slip underneath to Newark Harbor.
"It's been said that it's a game changer. Yes, it is," said Alberto Aleman, a Texas A&M-educated engineer who has been administrator of the canal for 16 years during which the United States handed off control to Panamanian hands.
West Coast ports also may feel the impact. About 70 percent of the cargo unloaded at the Port of Seattle is transported by rail to the Midwest and beyond, and some of that Asian cargo could be diverted to the expanded canal.
But Port of Seattle spokeswoman Charla Skaggs said it's not known how much the expansion will affect the Port. She said costs are one of the most important factors to shippers, and those — including fees to cross the canal and the difference in fuel costs — are still to be determined.
Ships are already sailing that are too large for even the expanded canal. Coming from Asia, those so-called "Super Post Panamax" vessels would have to dock along the West Coast.
The canal expansion has worried everyone since it was announced, but now, she said: "We're not sure it's going to be the wholesale shift we all feared."
Since the SS Ancon became the first ship to slide through the locks of the Panama Canal on Aug. 15, 1914, the roughly 50-mile-long waterway has saved cargo lines the journey around Cape Horn and through the stormy Drake Passage at the southern tip of South America. More than 1 million ships have transited the canal, and roughly 5 percent of all world trade moves across the isthmus each year.
But the Panama Canal was always constrained by the size of its locks, permitting no vessel longer than 965 feet, wider than 106 feet and with a draft greater than 39 feet to pass through. Ships suitable for the canal became known as Panamax vessels and could carry nearly 5,000 20-foot shipping containers.
When the third lane opens in late 2014, the canal's capacity will more than double. Ships as long as 1,200 feet and up to 160 feet wide, with drafts as deep as 50 feet, will be able to transit. The largest vessels will carry up to 13,200 containers, or at least double the dry weight of bulk cargo that can pass through today.
Panamax vessels are long, slim and require a lot of water ballast to maintain balance. New megaships will be wider, more stable and will consume up to 16 percent less fuel, meaning a smaller environmental footprint and lower costs for operators.
Shipyards are seeing a surge in orders for what are called post-Panamax vessels.
"The economies of scale mean it is only one ship moving twice the amount of cargo," said Aleman, the engineer.
The Panama Canal widening will affect inland railway hubs such as Kansas City, Mo., and ports along the Gulf Coast, according to a study released in June by the U.S. Army Corps of Engineers. As shipping becomes cheaper, rail lines that handle cargo coming from Asia that is offloaded at Pacific ports and rolled across the country may notice a slowdown, that study said.
It will be a boon for the Midwest Farm Belt as grain exports moving through the Gulf Coast become more competitive in Asia, the study said.
"This could have a significant impact on both the total quantity of U.S. agricultural exports and commodities moving down the Mississippi River for export at New Orleans," the study predicted.
More goods will move through Texas ports, too, and motorists are certain to groan at clogged highways. Texas officials in May created the Panama Canal Stakeholder Working Group to figure out how such highways as Interstate 35 between Dallas and San Antonio will cope.
Traffic already is bustling at the canal. The number of shipping containers aboard freighters transiting the canal has risen from 200,000 in 1995 to 6.6 million last year.
Once the third lane opens, mammoth ships will take advantage of economies of scale to carry containers for the Walmarts and Targets of the world.
One problem is some East Coast ports don't have channels deep enough to handle such seagoing behemoths.
That's why the Obama administration announced July 19 that it had issued orders to expedite dredging projects to deepen harbors and approaches in Miami; Jacksonville, Fla.; Savannah, Ga.; Charleston, S.C.; and the Port of New York and New Jersey.
"It's not only about the ports," Aleman said. "It's the roads, the trains, the distribution centers and actually it's about jobs."
The widening of the canal will affect trade across Latin America.
Very large ships carrying coal from northeastern Colombia and iron ore from Brazil soon will be able to take the raw material to China through Panama more cheaply, giving a boost to those industries and creating jobs. Chilean copper producers will find it easier to export to European markets.
"There's LNG (liquefied natural gas) coming out of Trinidad & Tobago today that goes to Chile, and that has to go around the Cape," Aleman said. Once the canal expansion is completed, it can go through the canal, shaving hundreds of sea miles from the trip to Chile.
With the widening, Panama also hopes to transform itself from a transit point for cargo into a logistical hub where ships can be overhauled in dry dock, containers sorted for onward passage and industrial parks set up for final assembly of goods.
Already, major multinationals, including Caterpillar, Procter & Gamble, Dell and Mexico's Cemex have turned to Panama as a headquarters for regional operations.
"All of America is coming here to Panama," said Adolfo Quintero, an economist at the University of Panama.
Seattle Times business reporter Connor Radnovich contributed to this story.