Panama Canal Authority has plan to expand further for megavessels, executive says

The Panama Canal Authority has a drawing-board plan for further expansion of the canal should ship lines start routing megavessels through the legendary passageway, the agency's deputy administrator said.

Manuel E. Benitez told the SMC3 annual winter meeting last week in Atlanta that the Authority has designs in the works to build a fourth set of locks to handle vessels holding up to 18,500 twenty-foot equivalent units (TEUs), the largest containerships in the trades. The current $5.25 billion expansion creates a third shipping lane with new locks on the Atlantic and Pacific sides. The project will also widen and deepen the existing channels. Once these expansions are completed, the canal's passages will be wide enough and deep enough to handle vessels with between 13,000 and 14,000 TEUs, well more than twice the 5,500 TEU capacity of those ships that can currently transit the waterway.

Panamanian officials did not anticipate the development of a super-container ship when the expansion project began in 2007. However, in 2011 Danish shipping giant Maersk Line placed orders for 20 18,500-TEU vessels known as the "Triple E." Five are in service today, with the remaining 15 to be on the water by the end of next year. However, Maersk has no plans to use them anywhere but on the Asia-Northern Europe trade route because only ports on those continents have the infrastructures to handle them. Even Benitez acknowledged that even the possibility of megaships sailing through the canal is a long way off.

BILLING DISPUTE SLOWS PROGRESS
The Authority has far more urgent matters on its hands, namely attempting to get the current project finished amidst a protracted billing dispute with a European construction consortium tasked with building the third set of locks at both ends of the canal. The group, Grupo Unidos por el Canal (GUPC), is claiming $1.5 billion in cost overruns and has threatened to suspend work on the locks until they are paid. Benitez said work is currently being performed at about one-fourth the contractually stipulated pace, a tack he said is in breach of contract.

The group has argued that the Authority supplied poor geological studies, which drove costs way above initial projections. The Authority said the consortium has overspent and that the overruns have nothing to do with the quality of the geological reports. The group wants to reach a global settlement outside of the contract, an approach the Authority has rejected out of hand. Benitez said the group can seek redress through dispute resolution mechanisms included in the contract.

Benitez told reporters last Tuesday that the consortium had a Jan. 26 deadline to resume work at a normal clip. If not, the Authority could terminate the contract the next day and would install a management company to supervise the project's subcontractors. Several days later, it was reported that the consortium would continue work on the locks into the first week of February.

The overall expansion project is about 65 percent completed, and Benitez said the Authority would have no problem financing the remaining work regardless of the labor issues. He was optimistic that a solution could be found, saying that the consortium would be foolish to abandon such a high-profile contract at such an advanced stage.

The project was initially set for completion in October to celebrate the canal's centennial. However, the dispute has pushed back the deadline to the second half of 2015. Should the Authority be forced to replace the contractor, the work would likely be finished in the fourth quarter of 2015, Benitez said.