Panama Canal woes threaten U.S. ports

International shipping is by definition international. But no greater reminder exists today than the looming brouhaha over the Panama Canal expansion. If financial difficulties derail the project, the tidal wave of adverse economic effects could stretch 2,000 miles to ports on the U.S. Gulf and East coasts.

U.S. port planners have beat the drums for years pushing for expansion and improvements to handle an expected influx of ships too large for the present Panama Canal that now call at U.S. West Coast ports. But Reuters has reported that the Spanish-led consortium building the canal, Grupo Unidos por El Canal (GUPC), is threatening to renege on its contract over a projected $1.6 billion cost overrun. GUPC and Panama are exchanging accusations, with GUPC claiming that Panama submitted flawed geologic data and Panama claiming that GUPC deliberately underbid the work. Regardless of how arbitrators ultimately rule, unless somebody comes up with a tidy $1.6 billion or more to finish the work a lot of U.S. politicians and businessmen may find themselves holding some expensive bags. The improved canal’s 2014 opening has already been pushed back a year, and unless the financial issue is resolved, it could be delayed further.

At a glance, it seems that GUPC may have deliberately underbid the 2009 contract. At the end of 2008, the leading Spanish partner Sacyr was “grappling with falling core earnings (and) punished by (Spain’s) weak construction and property markets,” the Reuters article said. Sacyr was saddled with $19.7 billion in debt, about seven times its market value, and the company’s shares had lost nearly 90 percent of its value from its peak in 2006. But then along came the Panama Canal contract, and Sacyr was back in business. However, unless the canal authorities were suborned (something not unheard of), they should have known there was something fishy with the GUPC bid — it was a whopping $1 billion under the next lowest bid.

Indeed, some Panamanian officials suspected as much at the time, according to Reuters. A WikiLeaks published a cable from the U.S, embassy in Panama to the U.S. State Department in Washington that quoted Panamanian vice president Juan Carlos Varela as saying, “When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong.”

Certainly there are few winners in this situation, and U.S. ports that rashly invested in improvements before the Panama Canal expansion was finished can only hope their investments will eventually see fruit. They may take heart from one beneficiary of the Panama Canal woes, the Hong Kong Nicaragua Canal Development Investment Co. Ltd. HKNCDI signed a deal with Nicaragua four months ago to build a competing canal for $40 billion. According to an Oct. 31, 2013, article in The New American, HKNCDI claims that the Nicaragua canal could be finished as early as 2019, which may not be far behind the actual completion date of the Panama Canal improvements.

Whether the Nicaragua canal project fares better than the Panama Canal expansion remains to be seen, but HKNCDI is probably a straw-man for the Chinese government (most Chinese companies are) and, if so, the Chinese government can probably afford a few cost overruns.

 

About the author

Capt. Max Hardberger

Max Hardberger is a maritime attorney, flight instructor, writer, and maritime repo man. He has been a correspondent for WorkBoat since 1995. His memoir, Seized: A Sea Captain’s Adventures Battling Scoundrels and Pirates While Recovering Stolen Ships in the World’s Most Troubled Waters, was published by Broadway Books in 2010. He’s appeared on FOX, The Learning Channel, National Public Radio and the BBC, and has been the subject of articles in Fairplay Magazine, the Los Angeles Times, Men’s Journal, Esquire (UK), and the London Sunday Guardian.

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