Panama canal expansion: winner China!!!

Panama Canal Expansion: the ultimate winner will be ChinaPosted on Feb 10th, 2010 with tags Americas, canal, China, expansion, panama, Project, ultimate, update, Winner.



This week workmen in Panama will start to dig a hole partfunded by Japan, aided by Latin American cash and big enough to hold the world’s biggest Danish-owned, South Koreanbuilt megaships. The ultimate winner, though, will be China.

The work is the latest phase in a US$5.25 billion (NZ$7.6b) project to widen the country’s famous canal – an expansion plan that could comprehensively reshape the flow of world trade and even scupper Warren Buffett’s US$34b all-in bet on United States railways.

Work on deepening the Panama Canal begins amid more evidence of China’s roaring recovery from the global slump. At the weekend, the Centre for Forecasting Science at the Chinese Academy of Sciences predicted that the country would return to doubledigit rates of gross domestic product growth this year. More critically for world trade, imports and exports are expected to grow 19 per cent and 17 per cent, respectively.

These are the sort of figures that have given new momentum to the Panama project, mooted a decade ago when Panama took possession of the canal from the US. The aim is to increase vastly the canal’s capacity. By doing so, shipping industry veterans say, it will re-establish the global importance of the isthmus.

The idea for an expansion began before China’s boom had started. The plans were drawn up in expectation of steady growth in Japanese exports to the US and a rising tide of raw materials heading across the Pacific from Brazil.

The widened canal will become a prime conduit for Chinese-driven global trade. It will make transport costs of finished goods from China to the east coast of the US much cheaper, perhaps by 30 per cent, the canal’s operating firm says. When the work is finished, the canal will be navigable by tankers with capacity of a million barrels of crude oil. That will open new routes for oil and mineral resources from West Africa to be taken directly to China – deepening political bonds that Beijing has carefully fostered. The same dynamic could also bolster China’s influence in the Caribbean, expected to develop as a storage hub for oil before it heads west via the canal and on to China.

Goldman Sachs economists believe the new canal could play a pivotal role in its Bric (Brazil, Russia, India, China) investment story – as a channel more directly linking the Chinese and Brazilian markets.

By the time the expansion work is finished in 2014, the canal will be able to take ships capable of holding 12,600 containers – more than double the capacity of the canal’s present size limit. The new canal will also be large enough for the gas industry’s existing fleet of liquefied natural gas carriers, most of which are too big to make the Panama crossing.

The largest container ships leaving Asia for the US dock in one of the West Coast ports. The containers’ journey continues by freight trains, many run by a rail firm in which Buffett has invested. But with potential cost savings of US$1000 per container, the sea route may prevail as China’s favourite.