Jorge Quijano is preparing to move out of his old office in what looks like temporary buildings on the site of a former U.S. Army PX in Corozal, a few miles in from the Pacific entrance to the Panama Canal.
On Sept. 3, the day he officially takes over as the new administrator of the Panama Canal Authority, he’ll move to a new office suite in the domed canal headquarters building in Panama City that was modeled on the U.S. Capitol. The move symbolizes the enormous changes taking place in the 50-mile canal.
Quijano, the 60-year-old engineer in charge of the canal’s $5.25 billion expansion project, will take over the helm of the Panama Canal Authority after Alberto Aleman Zubieta retires at the end of his second seven-year term as head of one of the world’s key waterways.
When Quijano takes office, nothing will change, and yet everything will change. What won’t change is the way the canal authority operates. What will is the very global sourcing patterns that led Aleman to build a new set of locks to increase the canal’s capacity and handle bigger ships.
“The last thing the canal needs right now is a major overturn of the organizational structure,” Quijano said.
Quijano is focusing more of the canal’s strategy beyond the expansion to adapt to changes in global sourcing patterns he hopes will transform Panama into a light assembly center as well as a major logistics center and transshipment hub for the Western Hemisphere. “Connectivity is what we plan to push,” he told The Journal of Commerce.
“The expansion always focused on two things, to have more capacity for the canal, but also what I think is even more important is to develop Panama as a logistics center because of this interconnectivity,” he said. “Remember that the canal not only offers the vessel passage for point-to-point sourcing, but it also offers connectivity. Going through the Panama Canal offers north-south access to both coasts of Latin America, where many countries have strong economic growth.”
A push to attract investment in activities that would add value to imports, and re-export them throughout the hemisphere, is part of the emerging strategy. “The canal is not just thinking about getting more tonnage through the canal,” Quijano said, “but also making sure that the connectivity is further enhanced by the possibility of creating areas for adding more value to whatever comes through here to be sent to our region or even other more distant parts of the world.”
The focus on making Panama an even bigger logistics center, where value can be added to cargo unloaded in Panama for later transshipment, may have a bigger impact in the long run than any volume of cargo shifting from the U.S. West Coast to the East Coast. “We are not trying to take cargo away from the West Coast,” Quijano said. “We anticipate enough growth for all of us. When the U.S. economy picks up, that will result in higher volumes that are generated for us and for the West Coast.”
Quijano doesn’t like to make predictions as to whether there will be a coastal cargo shift, but he does think the new locks will quickly attract larger container ships than originally expected, so some shifting may occur.
“We see a significant interest in using vessels of 10,000-TEUs (20-foot equivalent units) and up earlier rather than later,” Quijano said. “But we expect to see early deployment of the 8,000- to 10,000-TEU vessels and gradually move up to the 12,000- to 13,000-plus-TEU ships that can fit in the new locks.”
The tall, gray-haired Quijano, direct and outspoken in conversation about all aspects of the canal, has a strong reputation in the shipping world. “He’s an individual that’s hard to find in any country, but particularly in a smaller country like Panama where everybody is tied into family and politics,” said Richard Wainio, director and CEO of the Tampa Port Authority. Wainio started working for the U.S. Panama Canal Commission in 1975 when Quijano also started working there. “Jorge clearly has been a professional and not a politician for his entire career.”
Wainio, who was involved in the canal’s transition to Panamanian jurisdiction, also set up the office that studied the waterway’s expansion plan and worked closely with Quijano, who was then the chief of the Locks Division and subsequently the Maritime Bureau.
Quijano, who earned his master’s degree in industrial engineering at Lamar University in Texas and worked for Texaco in Panama before joining the canal authority, is part of a Panama Canal family. His wife, Marcia, is a personnel management specialist in the authority’s human resources department. They have two children, a son Jorge Alexander, a maritime attorney, and a daughter, Michelle, a marketing specialist. They also have one granddaughter, Ana Michelle.
Quijano has been challenged in the last year to get the new locks project back on schedule. The contracting group GUPC had problems meeting the contractual requirements for the impermeability of the concrete to be used to build the locks, delaying the placement of the concrete by six months.
Construction of the new locks is 24 percent complete, and the expansion program overall is 38 percent finished. GUPC has increased concrete placement significantly over the last few months. If the pace continues to improve, Quijano expects the locks structure itself will be complete
by February 2014, at which point the new gates, valves and electro-mechanicals
will be installed, and dry testing will begin.
“By September 2014, we should start to put water in the locks and start testing them in the wet first before we do the first lockage with a vessel,” he said. “The first few months after we take over the locks for operations, we will be doing a lot of testing before we can guarantee passage, so sometime in 2015 is when they may become available to commercial traffic on a regular basis.”
The container trade remains a key element in Quijano’s strategy to attract value-added manufacturing, because it will bring components into Panama and take finished products out. To that end, he will have to maintain a delicate balance between the need to raise toll revenue to finance the expansion and the need to make sure the canal remains competitive with other routes from Asia to the U.S. East Coast, including the Suez Canal and intermodal rail from U.S. West Coast ports.
The Colon Free Trade Zone at the Atlantic entrance to the canal is already a big logistics center. The Panama Canal Authority may create a similar zone in areas of the west bank on deposits of excavated materials from the canal expansion program. “There is already such a program on what used to be the old Howard Air Force Base, but it has not fully picked up big yet,” Quijano said.
The canal authority is considering developing other areas, including for some final assembly, near the Pacific entrance to enhance Panama’s position as a logistics center. Panama already has attracted investment in regional headquarters for Latin America by such multinational companies as Caterpillar and Procter & Gamble. But it has yet to become a light manufacturing center.
Quijano points to the operations of U.K.-based Aggreko as a model of the kind of business he hopes to attract. Aggreko supplies power generating equipment to users in Latin America from its regional headquarters on the former Howard Air Force Base. “They are working out of here into the Caribbean and the Pacific, because they see Panama as one port from the Pacific to the Atlantic from which they can operate,” Quijano said.
That kind of activity could be the key to Panama’s future, especially as rising wages in China drive some global production to lower-cost locations in Southeast and South Asia and even Central America. If Panama can capitalize on its location, it will attract more private investment in light manufacturing and ports, as well as logistics.
“They can only go so far with transportation, logistics and distribution,” Wainio said. “It’s become a massive distribution point, but that doesn’t create the value added or the number of jobs they need going forward. Once the expansion is completed, the fact that you can put more and bigger ships through the canal doesn’t create more jobs.”
“You cannot just depend on cargo passing through, which is a cost to the shipping lines,” said Sultan Ahmed Bin Sulayem, chairman of DP World, which concentrates most of its terminal investments in ports that handle imports for its domestic market and exports to other areas. “You need some original cargo. If Panama can provide some added value, then the cargo will come.”
The shift toward sourcing products closer to the U.S. and Latin American markets could help Panama. “Our clients are telling us that labor costs are no longer the dominant factor in sourcing locations as it used to be. They are saying proximity to market is a more important factor, because the trans-Pacific trade has been subject to such wild swings in transportation costs,” said John Martin, principal of port consultant Martin Associates. “Where’s the consumption base? Argentina, Brazil and the U.S. market. You can also hold inventories for those markets in places that are much cheaper, like Panama. It’s all about logistics costs.”
The expansion also likely will change the kinds of ships that use the canal. “There is a lot of potential for new business that we had not anticipated that could benefit from the expansion,” Quijano said. Dry bulk, in particular, offers promise. Last year, for example, dry bulk ship transits grew 7 percent and accounted for the greatest number of any ship segment for the second consecutive year.
“The canal’s business is not just containers,” Quijano said. “We cannot concentrate on just one segment of the whole fleet. We tend to all of them, and in the future to some that have never gone through the canal before, like LNG.”
Ships that transport liquefied natural gas weren’t considered candidates for using the canal when its expansion was planned, but as the U.S. becomes a big producer of natural gas from shale, LNG vessels carrying U.S. gas exports to Asia could become what Quijano calls an interesting segment.
Unlike containers, LNG is transported under long-term contracts of 10 to 15 years. “While all our other segments are very volatile, once you have a contract for 10 to 15 years for one particular route and that route includes the Panama Canal, then that would guarantee in essence that they would be here for the next 10 to 15 years,” Quijano said.
The same is true for coal, which is why the canal authority is looking to attract more transits by dry bulk ships carrying coal from Colombia to China. “How can we make coal from Colombia more competitive in China with coal from Australia, which is much closer? These are the things that we plan to look at more closely and address with the sources of and consumers of these commodities,” Quijano said.
Still, container shipping will remain the key revenue segment for the canal, and Quijano plans to make sure it stays that way. When the canal authority released its proposal to raise tolls on many types of ships in two stages on July 1 this year and next, container shipping was noticeably absent.
“We need to stay competitive in all segments. We see that the (container) business has not recovered the way we expected. We reviewed their cost structure and what we can offer them, and at this time, we decided there was little room to raise tolls,” Quijano said.
He said other shipping segments are doing better and are in a better position to assume some of the canal’s rising costs. “We’re not exempt from cost increases, and most of the price pressure comes from abroad, such as imported fuel, equipment, spare parts and supplies for our operation” he said.
As he prepares to take over the canal’s leadership, Quijano already is taking on his new responsibilities. “I will focus less on the structure than how we get closer to the customers,” he said. “As we head toward completing the expansion program, we need to know exactly what the customer thinks, how he reacts to the services that we give and how we can enhance the value of the services we’re giving him.”
He plans to spend more time in direct contact with them. “Not just the shipping lines, but the shippers themselves, the Wal-Marts and the Targets and the Home Depots of the world,” Quijano said. “That’s where we want to focus.”