On September 3, 2007, a series of explosive charges brought down part of the Cerro Paraíso, marking the noisy start of one of the most ambitious infrastructure projects in recent decades: the expansion of the Panama Canal with the construction of wider locks that will allow passage of the new generation of giant container ships that are beginning to dominate international maritime transport.
Those for and against the project consider that this expansion could change the face of Panama. President Martín Torrijos proudly indicated that the US$5.25 billion investment will lift his country out of underdevelopment, and place Panama firmly in the developed world. The CEO of the Panama Canal Authority (ACP), Alberto Alemán Zubieta, has reiterated on various occasions his conviction that the Canal expansion will turn Panama “into the most important transshipment and logistic center in the Americas.”
The Canal expansion is creating a boom in expectations and investments. Different maritime services and other industries are expanding or are establishing a presence in Panama to grow hand-in-hand with the project construction. There is talk of a trans-isthmus gas pipeline that will be bidirectional. Panama could also become a petroleum refinery center, depending on the results of a feasibility study being carried out by the US firm Occidental Petroleum Company to build a refinery in Puerto Armuelles on the Pacific coast.
The increase in services and the current proliferation of new businesses in Panama refl ects the new vision that is taking root among investors. “The most important resource is not the Canal, but rather Panama’s strategic position,” indicates Ebrahim Asvat, a lawyer with the firm Patton, Moreno & Asvat in Panama City. “After the Canal was turned over to Panama, the old perception of the Canal as a military base died away and a new perspective took hold, one of developing new business opportunities”, says Asvat
Panama is expanding its services as a platform for distribution and transportation, which includes expanding its port and railroad installations. This expansion will materialize between now and 2014, in order to provide services to ships with a huge cargo capacity, transporting between 5,000 and 10,000 containers, which would then be able to pass through the Canal. These boats are known as “post-Panamax” because at 49 meters (160 feet) wide they are too broad to pass through the current Canal.
Balboa, located on the Pacific Ocean and operated by Panama Ports Company (PPC), a member of the Hong Kongbased Hutchison Port Holdings, in June 2007 became the first port in Panama to receive a post-Panamax ship, the Maersk Seletar that is part of the fleet of Danish shipping giant Maersk. Now, PPC has a weekly post-Panamax service, and soon Maersk will launch a second weekly post-Panamax route from Asia, with a stopover in Balboa. “This is a recognition of the service that we offer in Balboa; the speed of transferring the cargo to other ships or to the railroad is very important,” according to Alejandro Kouruklis, PPC general manager. The Panamanian crane operators make 35 movements per hour, he maintains.
PPC is investing US$800 million to double its capacity in the next two years, in order to handle 4 million containers per year.
The Manzanillo International Terminal in Colón, on the Atlantic, is the largest container transshipment terminal in Latin America, and was expanded to handle the larger container ships, says Jaime Sasso, marketing vice president of the terminal. Container traffic, calculated at 1.3 million TEUs in 2007, has remained stable, while the volume of cargo vehicles grew by 30% year-on-year, “because the transporters have decided to use Panama as a transshipment center,” Sasso adds.
Complementing the Canal, and with the intention of competing with the US intermodal route, the Panama Canal Railway Company has expanded its capacity since the privatization of the railroad in 1998. Panama offers a unique opportunity to transport goods by rail between the two oceans in less than four hours. The trans-isthmus railroad handles some 500,000 container operations each year, and its continual expansion will allow it to reach 750,000 and up to 32 daily railroad routes within a few years.
All this activity is giving rise to a cluster of businesses that provide services to the Canal. “There are several sectors in the cluster in addition to the ports,” indicates the ACP’s Alemán. Panama has the largest duty free area in the West, located in the city of Colón. Panamanian airline Copa will offer an air-maritime cargo transport option from its operations center at the Tocumen international airport, increasing Panama’s potential as a distribution platform, he says.
Attracted to Panama for its strategic location between North and South America, its proximity to the United States, good infrastructure and a favorable climate for working year round, ST Aerospace established the aerospace engineering firm, Panama Aerospace Engineering Inc., at Howard air base in the old Canal Zone, and this year began to provide maintenance, repair and reconditioning services for Copa’s fleet of Boeing 737s. With an initial investment of US$20 million, PAE will progressively develop its capacity to more than 1.2 million man hours per year, and will train 1,000 qualified engineers and technicians that the company will employ, says PAE president Lua Chiew Leong. The specialized company hopes to expand its client base to provide services to airlines that operate in North, South and Central America, and the Caribbean, and can offer maintenance to wide body aircraft from Airbus, Embraer and McDonnell Douglas, Lua says.
Call centers are proliferating, taking advantage of Panama’s infrastructure, which includes five fiber optic networks. Computer giant Dell and heavy equipment manufacturer Caterpillar have set up call centers in recent years. Dell has 2,000 employees at the Howard air base, who provide technical support and sales in English and Spanish. “Panama is very strategic and close to the areas to which we provide services - Mexico, Latin America and the Caribbean - and has always been a service economy,” says Mercedes Morris, corporate communications officer for Dell Panama. The call center industry continues to grow in Panama, providing employment to more than 15,000 people.
However, a few things are still missing for the current boom to reach its full potential. To develop a complete logistic platform, highways are needed. “We need to create a circuit that includes the Colón free zone, Howard air base [west of Panama City] and Tocumen airport [east of the city],” says Esvat. And the vision must be refined. Panama has the potential to develop its strategic location, like Singapore has done, and create a world class logistical and transshipment center that offers the most sophisticated communications services, petroleum products production and biotechnology industries. The expansion of the canal will attract the eye of the international business community. With this, the country will have the opportunity to give new zeal to its service economy, creating a new cluster of services that will earn value with the location offered by the Canal.
