Despite hold-up, ag optimistic about Panama Canal expansion
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A labor dispute between the Panama Canal Authority (PCA) and the consortium overseeing the $5.25 billion expansion of the waterway is threatening to temporarily shut down the project - but agriculture exporters say they are still excited about what the work will mean for U.S. exports.
At issue is nearly $1.2 billion in cost overruns in the construction of the canal's new locks. The expansion will allow larger and heavier ships to pass through the important trade passage between the Atlantic and Pacific Oceans.
Grupo Unidos por el Canal, S.A. (GUPC), the Spanish construction consortium that won the PCA's open bidding process, insists PCA swallow the costs - but the authority says it has an airtight contract that will force to company to cover the extra expenses.
The canal authority says GUPC's arguments, backed up by a threat to suspend work on the locks, “lack merit and go against what is established in the contract.”
But Mike Steenhoek, executive director of the Soy Transportation Coalition, says he doesn't expect work on the project to stop.
Halting the expansion over the labor dispute would “eliminate [GUPC's] ability to get any kind of work in the future,” he said. “You don't renege on this kind of project of this kind of scope and notoriety.”
Industry experts also suspect GUPC's move could be a bluff: the group's $3.2 billion bid was a good $1 billion below those of other groups, suggesting it meant to underestimate costs all along.
An empty bluff would be excellent news for U.S. agriculture interests. A Soy Transportation Coalition-commissioned report found the expansion will allow vessels at southern Louisiana export terminals, the most important for grain and soybean exporters of the U.S. heartland, to carry an extra 500,000 bushels of soybeans per voyage - adding $6 million to $8 million in additional value per vessel. That almost doubles 2012 annual shipping rates of the commodity. Some 44 percent of U.S. soybean exports, passed through the Panama Canal that year.
The Coalition believes U.S. shippers will need the extra capacity the expanded canal will provide. As demand increases from Asia, the group sees U.S. grain and oilseed exports, especially to China, increasing by 30 percent by 2021.
That extra carrying capacity? It's mostly due to bigger ships. Today, so-called Panamax ships - the largest able to pass through the canal -- are 925 feet long, or longer than three football fields, with a minimum depth of 39.5 feet, and can carry 4,800 standard shipping containers. Post-Panamax ships - the largest that will be able to pass through the new, larger locks - will be 1,200 feet long, have a minimum depth of 50 feet, and will be able to carry over 12,000 containers.
But even if the PCA is able to resolve the labor issue, allowing construction to go forward and conclude by fall 2015, U.S. agriculture interests will have one, large hurdle to cross - the country's own failing waterways infrastructure.
Today, the Panama Canal expansion project is 72 percent complete, only five years after it began. “When you compare that to how to do that in our country - projects that are years and years over deadline, with significant cost overruns - even when you have these project extensions in Panama, they're still doing it much better than we are in this country,” said Steenhoek.
U.S. locks and dams, especially those along the vital Mississippi River, are not adequately prepared to handle the increased usage demanded by the Panama Canal expansion. And some of the country's major ports - including those along the important Gulf Coast - need to be dredged and updated to accommodate post-Panamax ships.
At fault, Steenhoek says, is Congress, which has failed to provide “an adequate and predictable funding stream.”
That may have changed a bit last week, when the omnibus appropriations bill allocated $5.467 billion to energy and water development. That money included increased spending for critical port and navigation channel improvements, according to Waterways Council Inc., including $1 billion from the Harbor Maintenance Trust Fund.
But this is a one-time appropriations, and “you want to ensure that's not a one- trick pony,” Steenhoek said. “You want to ensure that the inland waterway system is actually being properly maintained.”
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