Panama Canal to receive upgrade

(Source Article: Panama seeks to expand canal - FT.com)

Panama is currently asking for international support to finance a $US 5.25 billon dollar expansion to the famous canal within eight years time. Currently, 5% of the world’s trade passes through the canal, and such an expansion would transform the global economy by allowing the biggest ships to sail directly from East Asia to the east coast of the US. Panama, however, needs to win the support of its people through a referendum later this year, as well as gain support from international financiers who will fund half of the project’s cost.

When the canal began operating in 1914, there was not a ship in the world too large to fit through it—but now the biggest container ships cannot fit. The existence of these post-Panamax (those too large to fit through the canal) ships is a result of booming trade between the US and Asia, and the global economy’s eagerness in transporting goods between the two regions. Currently, these vessels sail through the much longer and expensive route via the Suez Canal. The expansion would allow ships 366m long and 49m wide to pass through: larger than any container ship now built, and double the size the canal currently supports.

The expansion would also discourage the construction of competing projects that threaten to render the canal useless; such competition includes the existing Los Angeles-Long Beach port complex, which receives the bulk of Asia-US trade flow, and upcoming ports in Mexico. (see Panama is preparing to beef up canal - LAtimes.com)

The Panamanian government receives some 14% of its $3.4 billion budget from canal revenues—the failure to expand soon could deal a severe blow to that budget. Polls show that 56% of Panamanians favor the expansion—as well as most international shippers, despite the fact that it would result in the price of their tolls nearly doubling over the next 20 years. An increase in toll prices, as well as increased traffic due to increased capacity, would balloon the $489 million in revenues the government currently receives from the canal to nearly $4 billion by 2025. (see Plan to enlarge canal stirs controversy - USAToday)