A century after transforming global markets, the Panama Canal isabout to redraw world trade once again.

Nine years of construction work, at a cost of more than $5billion, have equipped the canal with a third set of locks anddeeper navigation channels, crucial improvements that will doublethe isthmus's capacity for carrying cargo between the Atlantic andPacific oceans.

When the new locks slide open to receive traffic for the firsttime in late June, the reverberations will be felt from Asian gasterminals to Great Plains farms and ports from Miami to Long Beachto Santiago.

The debut coincides, fortuitously, with a surge in U.S.natural-gas production that has shale outfits suddenly seeking outnew export markets. The deeper channels will be able to accommodatethe kind of massive tankers that transport liquefied natural gas,shaving eleven days and a third of the cost off the typical roundtrip to the Far East. Markets from Chile to China will also becomemore accessible for oil drillers across the Americas while millionsof tons of container shipments originating from Asia could startbypassing western U.S. ports and opt to dock instead along the GulfCoast or Eastern seaboard.

The anticipated growth has triggered a multibillion-dollardredging and building binge at ports in the U.S., Caribbean andSouth America, all seeking to win a share of the traffic boom.Panama is also bidding to become a distribution hub for globalmanufacturers, with plans to add space for more than 5 millionadditional cargo containers.

“There are going to be a lot of feeder services that developaround it,” Moses Kopmar, a Moody's Investors Service analyst inNew York, said in a telephone interview. “What it will do isbasically unlock a huge amount of the global fleet in terms ofbeing able to transit the canal.”

The expansion won't solve all the canal's challenges. Whiletripling the size of cargo vessels it can receive, Panama stillwon't be able to take the biggest container ships or crude tankers.What's more, its traffic will depend on the health of the globaleconomy more than its dimensions, Kopmar said.

But expansion was critical, industry experts say, for a shippingroute that risked losing relevance if it didn't grow to handle theincreasingly large vessels favored nowadays. The canal, whichcarried some 340 million tons of cargo in the fiscal year thatended last September, accounts for about 6 percent of total worldtrade.

3,200-Ton Doors

When it opened for business, the canal was an engineeringmarvel.

In the 34-year span that began with France's failed attempt andended with the U.S. completion in 1914, some 75,000 workers toiledto carve out the 50-mile long (80 kilometer) channel. In theprocess, they created an artificial body of water, Gatun Lake, andan earthen dam that at the time were the world's largest. They alsoopened up the mammoth Culebra Cut, a ditch through the ContinentalDivide that required the removal of about 100 million cubic yardsof rock and shale. By the time work was complete, some 25,000people were dead, many succumbing to yellow fever, malaria andother tropical diseases, according to the Panama CanalAuthority.

The latest construction has come with less tragedy but its ownshare of cost overruns and engineering snafus. Leaky locks were onemajor problem, helping delay the project by two years. Those locks— a set of chambers sealed by 3,200-ton doors that raise and lowerwater levels — provide access to a wider lane for vessels: 180 feetacross, compared with 109 feet in the original locks. (Many cargoships squeeze through nowadays with just a couple feet of clearanceon each side.) In the middle of the isthmus, the canal authorityhas also dredged deeper, wider lanes through Gatun Lake, whereships spend much of the inter-oceanic voyage.

For gas and crude oil companies reeling from the recent collapsein prices, the drop in time and shipping costs will provide amuch-needed lift. Corn, soybean and wheat growers in the U.S. alsostand to benefit, along with importers like Dole Food Co. Inc. andChiquita Brands International Inc.

“We can send gas ships that couldn't fit through the canalbefore,” said Bill Diehl, president of the Greater Houston PortBureau, a maritime industry trade group. “Asia looks like a goodmarket for us now. The shipping costs look like a fair fight.”

While the current locks are too small for most natural-gascarriers, almost 90 percent of the world fleet will be able to usethe canal after expansion, the authority says. That'll cut theround trip from the U.S. Gulf to Asia to about 20 days, comparedwith 31 days through the Suez Canal or 34 around Africa's Cape ofGood Hope. Sailing from Louisiana to Tokyo via Panama would beabout 35 percent cheaper than taking the Suez, according to JasonFeer, head of business intelligence at Houston-based ship brokerPoten & Partners.

“It certainly gives U.S. LNG producers options,” Feer said. “Andit is a significant percentage of the reason that Asian buyers havebeen willing to sign contracts with U.S. producers.”

The impact on oil markets is likely to be more muted. While thecanal will open to bigger “Post-Panamax” tankers, it still won'tfit Very Large Crude Carriers, the 2-million barrel behemoths thattransport most of the world's petroleum. Still, the canalanticipates the upgrades could open up new routes for oil fromMexico, Venezuela and Colombia. The U.S. government lifted its 40year-old ban on crude exports in December and so far just oneshipment has crossed the canal: 380,000 barrels of West TexasIntermediate sold to a Nicaraguan refinery in April.

“It's a new trade and we have to see how it evolves,” said JoseRamon Arango, the canal's senior specialist for liquid bulkshipments. “I'm quite confident we will play a role in thatevolution.”

The bigger canal may also trigger a shift for container shipsthat carry everything from clothes to chemicals into the U.S., theworld's largest importer. With the latest generation of ships toolarge for the original locks, most of that traffic now unloads inLos Angeles, Seattle and other West Coast destinations.

Though Western ports will retain a time advantage even after thenew locks are in operation, cities from New York to Houston havebeen scrambling to upgrade facilities so they can handle the largerships and volumes they expect. American ports will spend about $150billion over the next four years to reduce congestion andaccommodate bigger ships, the American Association of PortAuthorities estimates. Caribbean destinations are also bidding tobecome distribution and logistics hubs for the increased traffic.Jamaica alone envisions some $8 billion in investments.

“It's something you've got to do to remain relevant,” said BrianTaylor, chief executive officer of the Jacksonville Port Authority,which is seeking federal aid for a $700 million plan to deepen itswaters in northern Florida. “All ships are getting bigger.”

And so is the Panama Canal.

Bloomberg News

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