Canal expansion fuels Panama's hopes of becoming supply chain powerhouse

Even though it's more than four years away, the planned opening of the expanded Panama Canal has become one of the most eagerly anticipated events in global commerce today. But to hear Rodolfo Sabonge, vice president of the Panama Canal Authority, tell it, the eight-year, $5.25 billion project has less to do with the canal than with the country itself.

When the expanded canal goes live on or around its centennial of August 2014, it will transform Panama into a global supply chain center on a par with the world's great facilities, Sabonge said in a recent interview. Manufacturers, distributors, and logistics companies will be drawn to Panama as the canal begins to attract more commerce through North, Central, and South America. The goal is to develop Panama into a major trans-shipment center along the lines of Dubai, Singapore, and New York, Sabonge said.

"Panama is more than just a canal," Sabonge said.

Sabonge said the project is ahead of schedule and under budget. The testing of the two new lock systems—one on the Atlantic and the other on the Pacific—is scheduled for late 2013. Progress has been aided by a period of unusually dry weather that has enabled construction crews to spend more time working, he said.

Currently, Sabonge sees volumes as essentially flat compared with last year's, with weakness in containerized cargo offsetting a pickup in the dry bulk sector.

Sabonge downplayed concerns that the canal's expansion will divert traffic away from the Ports of Los Angeles and Long Beach, saying there will be growth in the overall market as global economies rebound and new vessels ordered three or four years ago are put into service. He added that any diversion of cargoes away from Los Angeles and Long Beach would have more to do with retailers' decisions to place huge distribution centers on the East and Gulf coasts than with the canal's expansion. "There will be balance in the market," he said.

The decision to expand the canal was based not on the need to attract more ship capacity but to accommodate its current activity as well as future organic growth, Sabonge said. "We were running out of capacity," he said.

By 2025, tonnage moving through the canal is expected to be double the volume recorded in 2006, when the citizens of Panama approved the project.