In February I had the pleasure of sailing through the Panama Canal. My first canal transit was over twenty years ago. Since then I have sailed through many times, always learning something new about shipping and world trade. The Panama Canal opened on August 15, 1914. Before long world trade became dependent on the canal. The alternative, sailing all the way around the southern tip of South America, was long, dangerous and expensive. Over the years ships have grown larger. The size of the Panama Canal has become a limitation. In response, container ports have been built at each end of the Canal. Containers from large ships are off loaded at these special terminals. The containers are then loaded on ships built especially for the Panama Canal and taken through the Canal. Thanks to growth in China and other emerging markets, ships keep getting bigger. Several years ago the Panamanian authorities embarked on an ambitious plan to expand the Canal by building a new, much larger set of locks. The grand opening of the new locks is scheduled for August 15, 2014, one hundred years after the initial grand opening. There is a lot at stake. The canal has had a profound and positive effect on world trade the last 96 years. Another enormous change is coming. Ever since the expansion was announced shipping companies have been ordering new ships that will fit in the new, larger locks. Once again the Panama Canal is transforming world trade. The question is: will the United States be ready? So far the answer is not encouraging.
During the February cruise Crystal Cruises provided a special treat, lectures by Richard Morgan. Richard worked for the Panama Canal Company for twenty five years. He started when the area was called the Canal Zone. In those days the Canal Zone was U.S. territory. People born there, such as Senator John McCain, were American citizens and eligible to be President. Under American management things ran smoothly. There were schools, hospitals, a police force and constant maintenance of all facilities. All that changed after the election of Jimmy Carter. For reasons known only to him he decided to give the lucrative Panama Canal to Panama. In 1977 he got his wish with a one vote margin in the U.S. Senate. In 1979 the United States began turning over canal operations to the Panamanian government. The two ports, one at each end of the canal, were first. These were old ports, in need of constant maintenance. The Panamanian government handed them over to political cronies. Maintenance stopped and the ports immediately began to crumble. In the heat and humidity it didn’t take long before the ports were useless. Ships soon stopped using the ports. Next the railroad that runs along side the canal was handed over to the Panamanian government. The result was the same. Grass cutting machinery was stolen. When the grass grew too high for the trains to run, the Panamanian cronies decided to use a “controlled” fire to get rid of the grass. Wooden railroad ties soaked with creosote soon burned out of control. The railroad was literally destroyed. The Panama Canal was heading for disaster brought on by corruption and ignorance. Fortunately the agreement provided for a twenty year transition before the canal itself was turned over to the Panamanian government.
The corrupt government of Manuel Noriega used the billions from the canal to create a money laundering and drug trafficking empire. It took time but U.S. patience finally ran out. On December 20, 1989 President George Bush Sr. ordered an invasion of Panama. The invasion was not to take back the lucrative Panama Canal. It was to reduce drug trafficking and give Panama back to the Panamanian people. Richard Morgan described the days before the invasion as terrifying. Noriega’s army thugs filmed his every move. He was number three on the list of American executives to be kidnapped and held as hostages. He was saved by U.S. army airborne troops who arrived on his back porch just in time. The successful invasion of Panama and the removal of Noriega changed everything for the better. We did not stay as conquerors. We left Panama to the Panamanian people. Ten years later, in 1999 right on schedule, the Panama Canal was turned over to Panama. It has been running smoothly ever since. Shipping tonnage through the canal has risen steadily. To the credit of the Panamanians the accident rate declined as the number of ships being handled increased. During the days of American management the canal was a not-for-profit government agency. The canal and all its facilities were well run and well maintained. However, there were no major improvements planned, never mind a full blown expansion. The Panamanian managers were determined to make the canal a success during their tenure. They, totally on their own, decided to build a new much larger set of locks. I saw the construction during my February trip through the canal.
Shipping companies have wasted no time. They have ordered new ships, designed to fit in the new Panama Canal locks. Roughly 500 such ships are now on the order books ready to sail by the 2014 deadline. The problem for the United States is the size and draft of these new ships. They need a channel deep enough to accommodate ships with a 50 foot draft. There are only two mainland U.S. ports east of the Panama Canal that can handle ships that large today, Baltimore, Maryland and Norfolk, Virginia. Are other U.S. ports being enlarged in preparation for the arrival of the new ships? I have not read or heard about any such plans. There are plans to handle these ships in Caribbean ports including San Juan Puerto Rico. The new ships would be unloaded in these Caribbean ports. The containers would be loaded on smaller ships that can be handled in U.S. ports. This would delay delivery of goods to U.S. consumers and raise the cost as well. To our lasting credit we did not use our army to take back the Panama Canal. Although we certainly could use $12 billion annual revenue that is expected after the new locks are in service. However, it is disappointing that we are not busy enlarging our ports to be ready when the new locks open in 2014. It is also sad that no U.S. companies are involved in building the new Panama Canal locks, not even as sub contractors. The work was competitively bid on a global basis. European companies won most of the bids. The Panama Canal is testimony that the United States needs to change. We need to regain our once formidable competitive edge.
Disclosure: no positions
Disclosure: No Positions