Odd time for new canal projects

Canals used to be a sleepy topic. As a news organization, you could count on little or nothing to report. Once in a while, a drought would restrict drafts at the Panama Canal, or wait times would spike temporarily, but that was about it. Suddenly, times have changed.

In the early 2000s, the first stirrings of change began with Panama talking about adding a third set of canal locks to hoist ships up one side of the isthmus and down the other. With an eye toward expanding Asia-North America container trade, the idea made intrinsic sense: Post-Panamax container ships were introduced in 1988 and have been growing in size ever since, making the canal’s maximum capacity of approximately 4,500 TEUs and 39.5 feet increasingly obsolete.

In a testament to ever-growing ship sizes and the obsolescence of Panamax-class ships, more cargo will move to the U.S. via the Suez versus Panama in the current trans-Pacific import contract year that began in early May. Observers expect much of that freight will migrate back to Panama, a shorter route from China to the East Coast, when Panama’s new locks open in 2016, and that’s helping to support the case for the $4.5 billion expansion project.

Within the past several weeks, things have gone haywire. The story of Nicaragua’s plan to build its own canal with Chinese support won’t go away. Experts scratch their heads wondering how an estimated $40 billion undertaking — which Panama believes will actually cost $80 billion — could make economic sense. Such would be the lack of demand, and thus canal overcapacity, that canal tolls would be driven into the sewer. That’s why Panama has criticized the project and is threatening to raise the ante by building another, even larger set of locks to handle ships bigger than the 12,500-TEU vessels that its canal will be able to handle soon.

And then there’s the Suez. Within a week’s time, the Egyptian government announced plans to expand the canal and then promptly announced that construction had begun. Under the plan, Egypt will invest $4 billion to build a 45-mile (72-kilometer) lane adjacent to the current canal route, allowing ships to travel in both directions for about half the 101-mile length of the canal. The canal currently is limited to one-way traffic where ships proceed in convoys, with two locations along the route available for passing.

But here’s the thing as it relates to the Nicaragua Canal, a fourth set of Panama Canal locks and the new Suez lane: They are almost certainly not needed.

Take the Suez. At no time in my career have I heard that the Suez Canal needs to be expanded. Some of my veteran JOC colleagues similarly have heard nothing along these lines. An operations veteran at a container line said he had never heard complaints of delays at the Suez Canal for ships waiting for a convoy to start. Suez authorities cited a waiting time of 16 hours as justification for the new lane, but this executive said it’s unlikely the wait time is any more than eight hours or the delay would have reverberated internally.

And the trend, in terms of container ships, is that the number of them transiting the Suez Canal is dropping as ships get larger. It’s not as if the Suez needs to be deepened to handle larger ships — Maersk Line’s 18,000-TEU Triple-E ships sail right through, so building another lane must then be anticipating a larger number of ships. Where will they come from?

The Panama-Nicaragua situation is hardly different. Where the demand would be for a huge addition to canal capacity is anyone’s guess. A recent story by my colleague Peter Leach on JOC.com amply brought out the skepticism. Other forces, such as internal politics or geopolitical chess playing, likely explain this activity, but on this, I’m no expert. 

Contact Peter Tirschwell at ptirschwell@joc.com and follow him on Twitter: @petertirschwell.

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