Shipping grain through the Panama Canal

by Stormy Wylie
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North American grain export group says improvements needed to accommodate larger vessels in coming years.

   The Panama Canal will become increasingly important to grain trade going into the next century as world grain consumption rises, particularly in Asia, according to Daniel Amstutz, president and chief executive officer of the North American Export Grain Association, Inc., Washington, D.C.

   In written remarks to the Panama Canal Commission, which recently held an outreach session in Corpus Christi, Texas, U.S., to discuss the transfer of canal operations in the year 2000, Mr. Amstutz said that the canal was capable of handling the demand of international, ocean-born commerce only until the year 2020 and that additional enhancement of the canal's capability was necessary to meet future needs.

   Bulk grains lead all commercial commodities passing through the Panama Canal, accounting for about 20% of the total (see table on Page 39). In fiscal year 1998, nearly 36,000 tonnes of grain passed through the canal, including 18,000 tonnes of maize, 10,000 tonnes of soybeans and 4,000 tonnes of wheat.

   Those numbers are expected to double in the next 20 years, Mr. Amstutz said, reflecting a rise in world grain trade in wheat and wheat products and coarse grains, which are expected to increase to 150 million tonnes each by the year 2025, from the current level of 100 million tonnes each. Asia, which now accounts for about 44% of world grain consumption, will soon account for 60% or more of global grain consumption, Mr. Amstutz said.

   “Despite the serious financial situation in many Asian countries, Asia continues to be an area that will be characterized by dramatic economic expansion in the years ahead,” Mr. Amstutz said.

   The five largest economies of the world today are the United States, Japan, China, Germany and France, he said. By the year 2020, the five largest economies will be China, Japan, the United States, India and Indonesia, he said.

   Developing areas, including Asia, Latin America, North Africa and the Middle East, provide broad-based growth in world coarse grain, wheat and soybean imports, he said. Meat and milk consumption in these regions also is expected to increase. “The raw material for meat and milk is grain,” Mr. Amstutz said.

   “Japan imports over 15 million tonnes of maize a year, accounting for 37% of U.S. maize exports,” he said. “I could easily make the case that Indonesia could be importing that much maize by the year 2020, much of which would logically transit the Panama Canal.”

      MASTER PLAN UNDERWAY.

   The Panama Canal handles nearly 14,000 transits by ocean-going vessels annually, carrying nearly 200 million tonnes of cargo. Traffic and tonnage is expected to double in the next 50 years, according to the Panama Canal Commission.

   Grain tonnage through the Panama Canal could easily reach the 60-million-tonne level by 2020, Mr. Amstutz predicted. With the increasingly larger vessels being used to ship grain and other commodities, Mr. Amstutz questioned whether the canal's capability to accommodate these vessels was realistic going into the next century.

   “If the potential for expanded canal usage is similar in other areas — oil products, containerized cargo, etc. — business through the canal would easily exceed 17,000 transits annually prior to 2020 and developments of larger and more economical ships could further impact usage of the canal if the canal enhancement for such vessels is delayed too long,” Mr. Amstutz said.

   Panamax vessels, which were not introduced until 1951, will constitute 35% of annual transit vessels through the canal at the turn of the century, he added.

   Michael Bragali, transition programs planner for the Panama Canal Commission, said those issues were being addressed by the Canal Capacity Projects Office, which is preparing a long-term master plan to meet future capacity requirements beyond 2002.

   “We want to leave the canal in the best possible condition,” he said.

   On Jan. 1, 2000, authority for the Panama Canal will transfer out of U.S. hands to the Panama Canal Authority, a fully autonomous international corporation. The transition has been ongoing for the past 20 years, since the signing of the Panama Canal Treaty in 1977.

   The canal has had a Panamanian administrator since 1990, and about 95% of the canal's 9,900 employees are Panamanian.

   Since 1903, when the United States and Panama signed a treaty to allow the U.S. to construct an interoceanic ship canal across the Isthmus of Panama, the United States has invested about U.S.$3 billion in the canal enterprise. According to the P.C.C., about two-thirds of the cost has been recovered.

   A U.S.$1-billion capital expenditures program was initiated in 1995 to modernize existing canal infrastructure. The four largest projects, which account for 40% of the total cost, include modernizing the hydraulics and valves in the locks system, adding newer and more powerful locomotives and tugboats to the locks positioning system, enhancing vessel traffic management and widening the Gaillard Cut and the Atlantic entrance at Gatun.

   The Gaillard Cut is an eight-mile winding stretch of the canal that at its narrowest point restricts the number of large vessels that can pass through at one time. Because of the size of the Panamax vessels that transit through the canal, traffic now can only pass one way through the Gaillard Cut.

   This passage is being widened to allow for 2-way traffic of Panamax vessels, Mr. Bragali said. The Gaillard Cut project, at a cost of U.S.$200 million, is scheduled to be completed by the year 2002. The entire capital expenditures program should be complete by 2005.

   These improvements, which will be paid for entirely through an increase in tolls, should increase capacity by 20% and take the Panama Canal through to 2010, Mr. Bragali said. “The next alternative will be to increase infrastructure,” he said.

      A NEW LOCKS SYSTEM?

   Those alternatives are being addressed in the master plan being drawn by the Canal Capacity Projects Office. Several options are being considered that were first suggested in a U.S.$20-million study completed in 1994 by a commission comprised largely of U.S. and Japanese representatives. These options include a high-rise lock enhancement capable of handling ships up to 200,000 dwt and a sea-level alternative capable of handling vessels of up to 250,000 dwt.

   Mr. Bragali said the idea of a third set of locks has been talked about since the late 1930s. In fact, the U.S. began construction on a new set of locks but the project was halted when World War II broke out.

   This site would be a logical spot for a third set of locks, he said. “Forty percent of ships passing through the Panama Canal are less than 300 feet long,” Mr. Bragali said. “It could be that the new locks would be used for the smaller vessels, freeing up the other two locks for Panamax-size vessels.”

   Water is another concern. The canal's locks are gravity-fed using fresh water from Panama's lakes and dams. Each vessel that enters or exits the canal from the ocean, regardless of size, uses 52 million gallons of fresh water.

   Mr. Bragali said the Canal Capacity Projects Office also was looking at new water sources, including recycling water through a different kind of locks system.

   The cost of these alternatives have been estimated at between U.S.$7 billion and $10 billion. The responsibility for any further improvements will be on the Panama Canal Authority.

   “We've done all that we can on our watch,” said one P.C.C. staff member. “What comes in the future is something that Panama has to explore.”

   But Mr. Amstutz said that, for North American grain exporters, the cost could be far greater for some other alternatives.

   Regarding U.S. grain exports, Mr. Amstutz said that much, if not most, of the demand increase for grains foreseen for Asia could be moved through U.S. ports in the Gulf and the Pacific Northwest. Each area handles about 40% of total U.S. grain exports, he said.

   “But port handling capacity is not the limiting factor, transportation capabilities are,” Mr. Amstutz said. “Transcontinental railroads are certainly gearing up for ever-increasing volumes. But I wonder how much added increase in transportation capacity can be created by enlarging rail cars and building more powerful engines to pull longer trains. At some point, we will have to buy more right-of-way and lay more track and that can be expensive.

   “It can make a U.S.$6-billion addition for a high-rise lock, allowing ship size up to 150,000 dwt, inexpensive and a sea-level canal, allowing ship sizes up to 250,000 dwt, at a cost of U.S.$13 billion reasonable,” he stressed.

Commodities shipped
through Panama Canal in
fiscal year 1998
(in tonnes)
Grains35,793
Corn18,296
Soybeans10,042
Wheat3,517
Other3,938
Containerized cargo28,436
Petroleum products18,925
Iron and steel products13,309
Crude oil11,797
Coal and coke9,580
Lumber9,436
Chemicals and
petrochemicals9,289
Phosphates7,563
Refrigerated products6,312
Automobiles, trucks1,661
All other39,992
Total192,091

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