FUTURE EXPANSION OF THE PANAMA CANAL

The Third Set of Locks Project is a megaproject that will expand the Panama Canal. The expansion will be greater than at any time since the canal's construction. The Panama Canal Authority proposed the project after years of study. Panamanian President Martín Torrijos presented the plan on April 24, 2006 and Panamanian citizens approved it in a national referendum by 76.8% of the vote on October 22, 2006. The project will double the canal's capacity and allow more traffic.

The project will create a new lane of traffic along the Canal by constructing a new set of locks. Details of the project include the following integrated components:

* Construction of two lock complexes—one on the Atlantic side and another on the Pacific side—each with three chambers, which include three water-saving basins;
* Excavation of new access channels to the new locks and the widening of existing navigational channels; and,
* Deepening of the navigation channels and the elevation of Gatun Lake’s maximum operating level.[1]

As stipulated by the Panamanian Constitution, any project to expand the Canal had to be approved by the Cabinet, by the National Assembly and by a referendum. On Friday, July 14, 2006, the National Assembly unanimously approved the proposal. In addition, the Assembly passed a law mandating a national referendum on the proposal. The Panama Canal expansion referendum was held on October 22, 2006, the first Sunday more than 90 days after National Assembly approval.

On September 3, 2007 the Panama Canal expansion project officially started. Panama's president Martín Torrijos stated that the Canal will generate enough wealth to transform Panama into a First World country. The president also announced that the canal will also industrialise the country when the expansion projects begin.  The project is also expected to reduce poverty by about 30%, resulting in an 8% poverty rate in Panama afterwards.

PANAMA CANAL SHIPPING CAPACITY

The capacity of the Panama Canal is determined by a number of factors, of which the most important is the size of the locks that raise and lower ships as they pass through the canal.

The smallest dimensions of the locks are 110 ft (33.53 m) wide, 1,050 ft (320.04 m) long, and 85 ft (25.91 m) deep. Because of clearance issues, the usable sizes are somewhat smaller (for example, the maximum usable length of each lock chamber is about 1,000 ft (304.8 m). The maximum size of the ships that can transit the canal is known as the Panamax.

Since the 1930s, all of the Canal widening studies have determined that the most effective and efficient alternative to enhance Canal capacity is the construction of a third set of locks, with bigger dimensions than those of the locks built in 1914. In 1939, the United States initiated the construction of locks designed to allow the transit of commercial and war ships, whose dimensions exceeded the size of the existing locks.

In 1942, after advancing the excavations significantly, the Americans suspended the third set of locks project because of the outbreak of World War II. In the 1980s, the tripartite commission formed by Panama, Japan, and the United States took up the issue again, and like the Americans in 1939, determined that a third set of locks with larger lock chambers was the most appropriate alternative for increasing Canal capacity. Today, the studies developed by the Panama Canal Authority (ACP) as part of its Master Plan, with a horizon to the year 2025, confirm that a third set of locks, larger than those existing now, is the most suitable, profitable and environmentally responsible way to increase Canal capacity and allow the Panamanian maritime route to continue to grow.

Throughout its history, the Canal has continually transformed its structure and adjusted to trade requirements and international maritime transport technologies. In this manner, the Canal has managed to increase its competitiveness in a sustainable manner.

TRAFFIC VOLUME IN THE PANAMA CANAL

On the basis of ACP's projections, during the next 20 years, cargo volume transiting the Canal will grow at an average of three percent per year, doubling 2005’s tonnage by the year 2025. As such, providing the Canal with the capacity to transit larger vessels will make it more efficient by allowing the transit of higher cargo volumes with relatively fewer transits and less water use. 

Historically, the dry and liquid bulk segments have generated most of the Canal’s revenues. Bulk cargo includes dry goods, such as grains (corn, soy and wheat, among others), minerals, fertilizers, coal, and liquid goods, such as chemical products, propane gas, crude oil and oil derivatives.

Recently, the containerized cargo segment has replaced the dry bulk segment as the Canal’s main income generator, moving it to second place. On the other hand, the vehicle carriers segment has become the third income generator, replacing the liquid bulk segment. Shipping industry analysis conducted by the ACP and top industry experts indicate that it would be beneficial to both the Canal and its users to expand the Canal because of the demand that will be served by allowing the transit of more tonnage.

The question is, however, whether the trend upon which the Panama Canal Authority makes those projections can continue for a generation. The growth in Panama Canal usage over the past few years has been almost entirely driven by increased U.S. imports from China passing through the canal en route to ports on the U.S. East and Gulf Coasts.

It is increasingly recognised in both the United States and China that this imbalance in trade is unsustainable and will be reduced in some sort of adjustment in the coming years, though it is important to note that any such imbalance need not be made up by physically shipped goods, but could be made by other trade such as intellectual property as China upgrades its intellectual property protection laws.

The ACP, however, presumes that it will not only not be adjusted, but will continue to grow for a generation as it has for the past several years. One of the central points of the canal expansion proposal's critics, most prominently made by former canal administrator Fernando Manfredo, is that it's unrealistic to attempt to predict canal usage trends over a generation, most improbable to expect that U.S. imports from China will continue to grow as they have the past few years over a generation, and irresponsible to bet Panama's financial future on such a projection.

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