New expansion enhances Panama Canal capacity

Panama on Sunday opened its century-old canal to a new generation of supersized cargo ships. It took years of massive expansion works aimed at profiting from burgeoning US-Asia trade.

At 7.50 am (1250 GMT), the Chinese container ship "Cosco Shipping Panama" entered the Agua Clara lock on the Atlantic. The ship was due to emerge on the Pacific side by 5.00 pm (2200 GMT) after covering the roughly 80.5-km-long waterway.

The expansion triples the size of ships that can sail through the canal. With this expansion, the country will be able to host 98 percent of the world's shipping and hopes to wrest a share of the market from the rival Suez Canal in Egypt and US land routes made cheaper by low oil prices.

Future plans

By 2021, the Panama Canal Authority (ACP) is hoping the project will bring in $2.1 billion per year in added revenue, representing 2.8 percent of gross domestic product.

"As a Panamanian, I am proud," said Odalis Castillo, an 18-year-old student who attended the launch. "There will be more money to spend on social projects."

But the ACP is enmeshed in a $3.587-billion conflict over cost overruns with Spain's Sacyr and Italy's Salini Impreglio, which won the project in 2009 and finished it two years late, amid construction setbacks and strikes.

It also faces challenges like the supply of fresh water needed to move the giant locks and safe handling of the huge ships.

So far 170 ships have signed up to use the canal in the next three months. If the industry perks up, the ACP already has a $17-billion plan for a fourth set of locks to lure even bigger ships that can now only travel through the Suez Canal. Its passage was to show off the third shipping lane and gargantuan locks built into the canal catering to vessels of its class, known as Neopanamax, or New Panamax, ships.

‘The route that unites the world'

Panama President Juan Carlos Varela, who has hailed the renovated canal as "the route that unites the world," led the event alongside foreign dignitaries including Chilean President Michelle Bachelet.

Varela, in his speech, admitted he had not initially backed the canal's expansion, before he became president.

But as leader, he said, he recognised it would deliver "a better future" for the country.

"This is the beginning of a new era," said the head of the state Panama Canal Authority, Jorge Quijano.

The United States -- builder of the original canal, which opened in 1914 and is still in operation alongside the additions -- was represented at the ceremony by Jill Biden, the wife of the US vice president.

The United States and China are the two most frequent canal users.

Expansion and labour disputes

The expansion work has been ongoing since 2007 and finished two years late at a cost of at least $5.5 billion. Labour disputes and friction between the government and the European consortium that carried out the project dogged the work. Still outstanding are consortium demands for costs overruns of hundreds of millions of dollars.

Sunday's celebrations, however, focused on the achievement, which promises to double the volume of cargo passing through the canal and allow it to accommodate 98 percent of ships on the oceans.

Neopanamax freighters can carry up to three times the cargo of older and smaller Panamax ships. Cruise ships built to the same dimensions typically double the number of passengers of the previous iteration.

The expansion will also allow Panama to lure gargantuan liquefied natural gas (LNG) tankers.

This is a lucrative segment of the shipping market untapped until now by Panama. Its importance has grown with the development of US natural gas exports, most of which head to Japan and South Korea.

Panama's plan is to triple the $1 billion in revenue it currently gets from canal shipping fees. However, that goal might still be a decade away, according to officials from the Panama Canal Authority, the autonomous government agency that runs the waterway.

Panama might have been overly ambitious in calculating how fast it will see its investment pay off, particularly as world shipping prices that have dropped due to capacity oversupply.

"Everybody is always overly optimistic," said Peter Shaerf, deputy chairman of Seaspan Corporation, a container ship group with a fleet of 100 vessels, more than half of which are Neopanamaxes.

Competition

These changes will make the Panama Canal more competitive with alternative Suez Canal routes which currently accommodate much larger ships.

Annual traffic has risen from about 1,000 ships in 1914, when the canal opened, to 14,702 vessels in 2008, for a total of 333.7 million Panama Canal/Universal Measurement System (PC/UMS) tonnes. By 2012, more than 815,000 vessels had passed through the canal; the largest ships that can transit the canal today are called Panamax.

Despite having enjoyed a privileged position for many years, the canal is increasingly facing competition from other quarters. Because canal tolls have risen as ships have become larger, some critics have suggested that the Suez Canal is now a viable alternative for cargo en route from Asia to the US East Coast. The Panama Canal, however, continues to serve more than 144 of the world's trade routes and the majority of canal traffic comes from the "all-water route" from Asia to the US East and Gulf Coasts.