Panama Canal Expansion and Port Privatization

Reason Foundation’s Annual Privatization Report 2009 details the latest trends in privatization and public-private partnerships. One of the emerging trends discussed is in the port sector. As I have stated before, “One of the forces driving investor confidence in ports is the opening of the expanded Panama Canal, which is scheduled to be completed by 2014. Once the Panama Canal is expanded, mega-ships, which cannot fit through the Canal in its current condition, will be able to reduce their transit times by cutting through the canal en route from China to East and Gulf Coast ports in the United States.”

An excellent background article appeared in the USA Today about the $5.25 billion Panama Canal widening project. The Panama Canal Authority is adding a third lane to the ocean-spanning waterway that will double its capacity and allow access to the world’s largest cargo-carrying vessels. Cargo from Asia, for example, can reach U.S. markets either via the canal (if the ship fits) or by docking at a West Coast port and riding rail lines or going by truck to inland destinations. With the expansion of the canal, the larger mega ships (called post-panamax) will be able to efficiently travel directly to the East Coast ports saving travel time and costs of rail or truck.

The canal handled 310 million tons of cargo in 2007, an amount officials hadn’t expected to see until 2012 or 2013. Even during the worst recession in 80 years, shipments this year are expected to total 295 million to 299 million tons — less than 5% below the peak two years ago. Once an economic recovery kicks in, that total is certain to rise.

“We are quite confident that growth is going to return,” says Francisco Miguez, the canal authority’s chief financial officer.

The real impact of the bigger, better canal on global trade patterns remains to be seen. Roughly 65% of the goods sailing through the canal go to or from U.S. shores. Obviously there are investors who believe the East and Gulf Coast ports have significant upsides.

For an interesting background and insight into the current Panama Canal project as well as into the original project, the article is worth a read.