Monday, June 15, 2009

Despite economic downturn, Panama Canal project continues

Chris Kraul
Special to the Los Angeles Times
Sunday, June 14, 2009

— The economic downturn has stalled big construction projects across the globe, but in Panama, smoke-belching steam shovels and dredges work around the clock on what people here call simply "la ampliacion," or the expansion.

As soon as this month, officials will award the principal contract for the $5.25-billion expansion of the landmark Panama Canal, a project that will probably alter global shipping patterns and cement this Central American nation’s place as a center of global logistics.

“This is a financial crisis, and there has been a decline in ship traffic, but we are very much on time and on target,” said Panama Canal Authority chief executive Alberto Aleman, addressing rumors that the global recession could cause the project to miss its 2014 scheduled completion date.

The authority is on the verge of choosing among three international consortiums, including one led by San Francisco based Bechtel, to build two sets of locks to accommodate massive container cargo ships. Dubbed post-Panamax, the super-sized vessels are capable of carrying three times more cargo than ships now transiting the canal.

The construction of the two new locks -- one at the waterway’s Caribbean entrance, the other on the Pacific Ocean -- will cost $3 billion or more, take five years to complete and require an army of 5,000 construction workers.

The winning consortium is expected to use the contract’s marquee value as one of the world’s highest-profile construction endeavors as a calling card to bid on other major infrastructure projects around the globe. The canal authority maintains the expanded canal will make Panama an even more important transit hub by attracting a bigger share of Asian container freight destined for the eastern U.S. Currently, 70 percent of that cargo is offloaded at Los Angeles, Long Beach, Calif., and other North American ports and moved by rail or truck across the country.

“There will be a migration of freight to the canal, the implication being that Los Angeles and Long Beach ports will take the hit,” said Mark Page of Drewry Shipping Consultants in London. “The U.S. rail lines will also suffer.”

Despite the recession gripping the U.S. and other destination countries, the 9 percent drop in global container traffic forecast for 2009, and a financing scheme that assumes rising traffic and tolls, Panama’s Aleman said the expansion project is moving forward and will not be deterred.

“We factored in a margin of error and we are ahead of the projections,” he said.

A new four-mile access channel on the Pacific side is 85 percent excavated and dredging is under way. The new segment will be much deeper than the existing canal, allowing passage of quarter-mile long ships carrying 14,000 cargo containers, compared with maximum 4,500-container ships that now transit the 50-mile waterway.

The winning contractor will be awarded a $50 million bonus if the expansion is done by 2014, the 100th anniversary of the Panama Canal’s completion by the U.S. Army Corps of Engineers.

The canal expansion project is already having a ripple effect in Southern California. The Los Angeles and Long Beach ports each have launched expansion and streamlining projects valued at hundreds of millions of dollars to improve their competitiveness with an expanded Panama Canal.

“We’re using the down time to improve our infrastructure,” said Los Angeles port marketing director Mike DiBernardo, referring to his facility’s 16 percent decline in container traffic over the first three months of 2009. The port’s plans include the expansion of three terminals and improved wharf access for rail lines.

Long Beach port spokesman Art Wong said his facility has put in motion a 10-year plan to invest $1.6 billion in upgrades of piers and rail access, a response he attributes partly to the tougher competition the port expects from the Panama Canal, as well as from port projects in Mexico and Canada.

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But global shipping companies are wary of the rising tolls the canal is charging to fund the expansion. Michael Kristiansen, Latin America operations chief for Danish shipping giant Maersk, said the expanded canal will divert some U.S. freight away from U.S. West Coast ports, but how much will depend on transit times and the impact of the canal’s toll hikes.

Another factor is whether U.S. ports on the Eastern Seaboard make changes to accommodate the biggest ships. Ports including Savannah, Ga., Charleston, S.C., and Miami are currently too shallow, and the Bayonne Bridge currently blocks their access to the Newark, N.J., port, the most important in the New York area.

As a defensive measure, Maersk and other shipping lines serving the Asia to eastern U.S. routes are taking a close look at westward routes through the Suez Canal. Although Maersk is not yet diverting traffic away from Panama, it plans to open a Suez route for post-Panamax ships in the near future, Kristiansen said.

In addition to the Bechtel-led consortium that includes Japanese partners Taisei Corp. and Mitsubishi Corp., two other groups also placed bids in March for the contract. They include teams led by Grupo ACS of Spain and another led by Sacyr Vallehermoso of Spain and Impregilo of Italy.

The locks will employ a “water savings basin” that will allow recycling of 60 percent of the water used to fill them. Canals in Germany currently use the system, said Jorge de la Guardia, the canal authority’s locks project manager.

He said the project so far has not experienced serious set-backs such as those faced by original canal builders. Those included malaria and yellow fever that killed thousands and the difficulties of digging through highly unstable “cockroach shale,” which kept sliding into the excavations.

Still, rumors that the canal project might face delays gained momentum when the authority extended the deadline for proposals to March from December and when a fourth bidder, a French-Brazilian consortium, dropped out of the bidding.

“You have to look at the long term,” Aleman, of the canal authority, said. “Yes we’re in a financial crisis but there have been others in the past. And Panama still has the best route for Asian traffic.”

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