Sunday, February 23, 2014

Panama Canal Works Restart as the World of Shipping Awaits Increased Freight Capacity

Dispute over Cost Overruns Settled - at Least for a While
Shipping News Feature

PANAMA – Work has resumed on the much awaited Panama Canal expansion project this week after the recent stoppages caused by a dispute over cost overruns. Major logistics groups have continued to expand operations in the region whilst for the past fortnight nothing has happened at the Canal site as the Spanish/Italian/Panamanian/Belgian consortium argued about costs. When the works are completed the Canal will be capable of taking vessels the length of the latest breed of ultra large container ships (366 metres) when carrying up to 12,000 TEU of freight.

The New Panamax sized craft will often have either empty boxes or bulk space available when transiting between the Atlantic and Pacific oceans meaning drafts of less than the 15 metres which will be the maximum depth the new lock project will enable the canal to cope with. The very largest vessels however, such as Maersk's Triple E series, will simply be too long, even for the reshaped locks. The delay to development was due to the refusal by the Panama Canal Authority (ACP) to accept the increases demanded by the consortium, Grupo Unidos por el Canal S.A. (GUPC), which are alleged to have reached around $1.6 billion.

Although ACP has now said it will pay the GUPC December invoices outstanding for about $36.8 million this week it has made it clear that there is still no agreement to fund the extra costs being claimed saying there are mechanisms within the contract to resolve such issues. Speaking this week Panama Canal administrator Jorge Quijano said:

“We believe that with the discussion we had last night and the comments made, we can find a path out of this. Works have restarted this afternoon and the consortium has guaranteed that it will continue working, which was our main objective so we can move forward and discuss other issues for a longer-term agreement."

The project is running months behind schedule with an original inception date scheduled for 2015 but delays with the European made lock gates mean no traffic is likely to use an increased depth canal until 2016. The recent stoppage added a further two weeks to an already delayed project and GUPC are in negotiations with the Zurich Insurance group which is allegedly being asked to convert the $400 million surety the consortium took out in case of delays, into a loan to help finance the settlement of the dispute.

Photo: The first four gates constructed in Italy by Cimolai SpA are 57.6 metres long, 10 metres wide and 30.19 metres tall weighing an average of over 3,000 tonnes each. Watch their arrival by the semi-submersible vessel Sun Rise in August 2013 here.