Ausgabe 42/2006

A Bottleneck in the Global Economy Panama Wrestles over Canal's Future

With container ships getting bigger and bigger, Panama wants to widen its often clogged canal. The planned expansion has triggered a dispute over the benefits and beneficiaries of global trade in a country where 40 percent of the population lives below the poverty line.

A container ship in the Panama Canal: Ships sometimes have to wait up to nine days for passage.

A container ship in the Panama Canal: Ships sometimes have to wait up to nine days for passage.

Heavy rain clouds hang over the Pacific shortly before dawn at the mouth of the Panama Canal. A skiff rocks heavily as it squeezes against the hull of the "MOL Velocity." Jorge Salidas hoists his knapsack onto his shoulder, zips up his jacket, climbs up a rope ladder and into the belly of the giant container ship. Soon it will be his, if only for a few hours.

He hurries through the engine room and climbs eight floors up to the bridge, where it is dark and quiet. Three seamen stand in the greenish glow of radar screens. Salidas takes his bearings for a moment before recognizing the man he is looking for. "Good morning, captain!" he says.

Ravinder Singh Ahluwalia is an Indian from Delhi. With his crew of 25 Chinese and Filipinos, he has piloted the "Velocity" from Taiwan to this spot within view of the Panama Canal. In Shanghai and Hong Kong, Ahluwalia loaded 3,800 containers filled with plasma screens and mobile phones bound for New York. Now he is turning over the ship's command to Salidas, as he is required to do. It's a difficult moment.

"If the captain doesn't have a good feeling about you," he says, "you'll have a tough time in the next few hours." Salidas is a pilot with the canal authority, but one could just as well call him a pilot of globalization. His job is to guide the "Velocity" and many other ships through Panama's narrow canal.

It's pouring outside by the time the 93-year-old lock gates at Miraflores swing open. At this point, Salidas is issuing orders by the second. His most frequent command is "Stop the engines!" The 50,000-ton ship slides into the lock traveling at less than one knot, and yet it appears to be performing the maneuver at high speed. From port to starboard, the walls of the canal are at arm's length from the ship's hull. "It's an art," says Salidas.

The Panama Canal has become a bottleneck in the global economy, as ships line up off both coasts of the narrow, 80-kilometer (50-mile) strip of land connecting North and South America. During peak periods, up to a hundred ships, some waiting up to nine days, form traffic jams off Panama's Atlantic and Pacific coasts. Passage rights are a precious commodity and jealously guarded, with the major shipping companies booking passage for their tankers, container ships and automobile transport ships months in advance.

Jorge Quijano is charged with managing the onslaught. He has worked for the canal since 1975 and can remember precisely when world trade exploded and the international economic order that had been in place until then fell apart. He says he can track the revolution in his ledgers.

Up until 2002, most of the ships Quijano was sending through Panama were freighters. The Americans shipped soybeans, corn and fertilizer to the Far East, while Chile shipped copper and apples to Europe and the East Coast of the United States. But then the Chinese joined the World Trade Organization. "That was what got things going," says Quijano. As more and more products that had previously been produced in the US or Europe began carrying the "Made in China" label, the canal saw a dramatic increase in traffic coming from the Far East. The container had begun its final victory march as the measure of all things, heralding massive traffic jams in the waters off the Miraflores lock gates. Today, container ships are responsible for 48 percent of the Panama Canal's revenues.

"I couldn't care less who steals manufacturing from whom; the main thing is that they ship their products," says Quijano, grinning broadly. "Globalization is perfect for us."

Things could become even more perfect for Panama next Sunday when, as Quijano hopes, his fellow Panamanians will vote for an expansion of their canal. The additional, larger locks proposed under the referendum would alleviate the bottleneck and finally allow passage to ships carrying 6,000, 8,000 or even 12,000 containers on deck -- steel giants too large for any of the canal's aging locks.

The cost of the expansion is slated at about $5 billion, a vast sum for a small country with only 3 million inhabitants and a national poverty rate of about 40 percent.

Indeed, that's why Panama's upcoming referendum is about more than just a construction project. Also at issue are globalization and the international flow of goods. Questions of corruption and justice are at stake, as is the question of who exactly benefits from the canal business.

Auctioning passage in the traffic-jammed canal

Robert Boyd III is a third-generation shipping agent. His grandfather founded the company in 1907 and his Uncle William later expanded the business. Today William Boyd's portrait in oil hangs in the executive offices of the Boyd Steamship Corporation, tastefully decorated in a style befitting the company's history in the shipping industry, complete with a globe and ship models. Business has been excellent during the past five years, since Robert Boyd took the helm.

The company's 60 employees arrange the passage through Panama for shipping companies worldwide, including German outfits such as Rickmers and Hamburg-Süd. Boyd handles correspondence with the canal authority and makes sure the transit fee -- currently $250,000 for the largest ships -- is paid.

In a new development, Boyd can now purchase last-minute passage for its customers at an auction . At the canal authority's daily auctions, bids can range from $20,000 to a recent record bid of $220,000 -- on top of regular fees. But the premium is worth it for many, especially in the spring, when Chile ships its fruit harvest and freighters begin lining the horizon off the coast of Panama.

Business is booming and future prospects are rosy, both for Boyd's company and Panama City's business district, where countless new buildings are springing up along the downtown harbor promenade. The most recent project, a 104-story building called the Ice Tower, will be taller than the Freedom Tower in New York. HSBC, a major bank, has bought up a group of local banks for a sum ranging into the billions. The city's old section is being renovated and its slums are being turned into a tourist attraction. "I have never experienced a boom like this," says Boyd.

Will Panama lose its competitive edge to Nicaragua?

The Panamanian economy is gearing up for unlimited growth. But what happens if the country's poor majority, mistrustful of its own political and business elites, decides to vote against canal expansion? "Then the Nicaraguans will be jumping for joy," says Boyd.

Graphic: Canal project proposals in Panama and Nicaragua

Graphic: Canal project proposals in Panama and Nicaragua

Nicaragua and Panama have been long-standing rivals over the best passage between the two oceans. As far back as 1826, the United States Congress considered the possibility of building a canal through Lake Nicaragua. More than 50 years later, the French, still buoyant over the trouble-free construction of the Suez Canal, decided to try their hand at canal-building in Panama. They failed miserably, brought to their knees by mountains of rock, yellow fever and malaria. Twenty-two thousand workers succumbed to disease. The Americans completed the laborious project in 1914, more than three decades after the French began construction.

Now Nicaragua is reviving its old dream. Latin America's second-poorest country, Nicaragua wants to follow in Panama's footsteps and finally reap its share of potential profits from world trade. According to estimates by the government in Managua, the country's canal project is expected to cost $18 billion -- about four times the amount of its gross domestic product -- and is slated for completion in 10 years. Despite the enormous cost, the export-hungry Chinese are said to have pressured the Nicaraguans to move ahead with the plan. Two weeks ago, the government of Nicaraguan President Enrique Bolaños announced that there is enough traffic to go around. Neighbors Mexico, Honduras and El Salvador agree. All are interested in capturing a share of the container shipment business, and are even considering railway options.

The rail connections the countries' governments envision connecting ports on both coasts of Central America are dubbed the "dry canal." But their euphoria also has its share of critics.

  • Part 1: Panama Wrestles over Canal's Future
  • Part 2

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