Image: Panama Canal
Arnulfo Franco  /  AP
Cargo ships pass through Gatun Locks in Colon, Panama, on Oct. 20. Panamanians will decide in a referendum Sunday whether to approve an eight-year, $5.25 billion plan to create a special lane on the Panama Canal to accomodate larger ships.
updated 10/21/2006 4:49:31 PM ET 2006-10-21T20:49:31

The old shortcut between the seas isn’t what it used to be.

Many modern ships are too wide to use the 92-year-old Panama Canal, where traffic is so heavy that vessels still able to squeeze through can face costly delays.

Panamanians are likely to approve an eight-year, $5.25 billion expansion plan in a referendum on Sunday. The idea is to build a third set of locks on the Atlantic and Pacific sides, creating a separate lane for larger cargo, cruise and tanker ships while doubling the canal’s capacity.

Without the expansion, the canal will increasingly lose out as shipping traffic finds other routes. Even the Suez Canal is a competitive alternative for the largest ships moving between Asia and the U.S. East Coast, says Maersk Line, the canal’s biggest user.

Meanwhile, Nicaragua to the north is enthusiastically pushing its own plan to open an ocean-to-ocean waterway.

“We have to be looking at staying competitive,” said Jorge Quijano, the Panama Canal’s director of maritime operations. “The only way to do that is to expand what we have.”

The Panama Canal now handles 5 percent of world maritime traffic, 68 percent of it to or from the United States.

Big tolls, bigger waits
About 25 of the 37 ships passing through on an average day pay up to $200,000 to reserve a spot in line, which on top of regular tolls pushes the cost of crossing Panama to more than $400,000 for the largest ships, said canal administrator Alberto Aleman Zubieta.

Even a ship that has a reservation waits an average of 16 hours before moving through, and those without reservations wait an average of 28 hours — delays that cost shippers about $50,000 a day per vessel. And when the canal needs routine maintenance, the delays can grow to six or seven days, with more than 100 ships lining up to get through, Zubieta said.

“Tolls are steep now and the canal is almost maxed out,” said Mike Zampa, spokesman for the world’s seventh largest shipping company, APL. “You still get through, but there’s a reservation system that makes things difficult. They are even using an auction system to sell some slots at much higher rates.”

An expanded canal also promises more reliability than competing routes — a container of skirts and slacks from Hong Kong can reach New York in 23 days through the canal. That’s a week longer than it might take for the same cargo to be unloaded in Seattle and moved by rail, but U.S. railways are saturated, he said.

“On the water, you know you’re going to get the merchandise on schedule, have it in a store in time for a sale,” said Zampa, whose company is a subsidiary of Singapore-based Neptune Orient Lines. “Overland, you can’t be certain you’ll make it on time.”

The biggest vessels now moving through the Panama Canal’s 108-foot-wide locks are known as Panamax ships, carrying up to 4,000 containers. But 27 percent of the world’s containerized shipping is hauled by ships that can carry 8,000 containers but are too big for the canal. By 2011, 37 percent will be too big, the canal authority says.

It takes 52 million gallons of water and 10 hours to move most ships through the canal, meaning only about 40 vessels a day can pass through. Many parts of the process are little-changed from when the waterway first opened.

“The basic machine is the same,” Quijano said. “The locks still operate with valves. The dimensions of the culverts are the same.”

Tight fit
Electric locomotives coax Panamax ships through with just a few feet to spare on each side — an awesome sight along the freshwater channel where eagles soar overhead and alligators ply waters lined with palms and banana trees.

The canal should generate $1.4 billion in revenue this year, a 15 percent increase from 2005, but an expanded waterway would generate $6 billion annually by 2025, according to the Panama Canal Authority, the autonomous government agency managing the canal since the U.S. withdrew in 1999.

Because the canal earns Panama 75 cents in revenue for each 100 cubic feet of cargo space, expansion will mean more money for education and anti-poverty programs. Supporters say it also will generate up to 40,000 construction jobs in a country where unemployment is 9.5 percent and many live in poverty.

Surveys show that more than 70 percent of voters support the expansion, despite critics’ fears that it will cost much more than President Martin Torrijos’ government has let on and stoke corruption and uncontrolled debt.

“This is a unique opportunity, an enormous investment that should create jobs and improve education. Instead a few people will get rich in a gigantic way,” said Marco Gandasegui, a leading Panamanian academic.

A pricey fix
The government is already more than $10 billion in debt, and the canal authority plans to borrow $2.3 billion between 2009 and 2011 as part of the project. Gandasegui worries the cost could top $10 billion, meaning “more debt, more unemployment and misery.”

Samuel Lewis Navarro, Panama’s vice president and foreign relations secretary, said there would be no need for further borrowing since $1 billion in possible cost overruns was already built into cost projections. And he shrugged off fears of corruption, saying that since Panama took control of the canal, there has been no evidence of it.

“We’ve managed sums bigger than the cost of the canal expansion, and there haven’t been problems,” he said.

With the future canal in mind, President Theodore Roosevelt helped arrange Panama’s relatively bloodless independence from Colombia in 1903, and the Americans took over a bankrupt French canal-building effort a year later.

By some accounts more than 25,000 workers died from yellow fever and malaria while building the S-shaped, 50-mile channel, which opened on Aug. 15, 1914.

Gen. Omar Torrijos, who took power in a coup in 1968, became a national hero nine years later when he signed a treaty with President Jimmy Carter to hand control of the waterway to Panama on Dec. 31, 1999.

Now the largest overhaul in the canal’s history is set to happen under his son’s watch.

“We consider it a historical coincidence, but a happy one,” Lewis Navarro said. “First it was putting the canal in the hands of its rightful owner. Now, after decades of discussion and studies by other administrations, it’s up to this government to oversee a necessary expansion.”

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