GENEVA, June 13, 2014 — On June 10, President Obama signed into law a massive water-projects bill that seeks to deepen American ports to house bigger ships and therefore cut costs for exporters. The $12.3 billion act authorizes 34 projects including dredging, flood control and hurricane recovery and is meant to act as a counterweight to the expanded Panama Canal, set to open next year.
Once completed, the Canal will be able to handle much larger ships than the majority of American ports can now accommodate. This new generation of superfreighters will change the face of international trade and even the U.S’ own export patterns. But what does this really mean?
The expansion of the canal involves the building of one new waterway, complete with two sets of locks – one on the Atlantic end and one on the Pacific end. The most immediate change this $5.2 billion project will bring for the U.S. is linked to its desire to become a major producer and exporter of LNG. As things stand now, the canal sees around 16% of US trade, a figure that is expected to skyrocket in the years following the expansion, once LNG shipments start flowing towards Asia.
Currently, shipping gas to Asia’s energy-strapped markets is not very feasible as transport costs negatively impact the attractiveness of American LNG. Even if gas is cheap at home, freezing and packing it onto tankers ends up doubling the price. Furthermore, ships must complete a 63 day-long journey that takes them to South America’s treacherous waters of the Cape Horn. After the Canal’s expansion, 90% of all LNG supertankers will benefit from a shorter transit time of 43 days, as opposed to a measly 6% today that can cross through Panama (the so-called Panamax standard).
The massive project has been plagued with cost-overruns, delays and worker strikes, raising serious doubts about whether the expansion will be completed at all. In the end though, the expected economic boon pushed Panama’s authorities to cut deals with the companies building it, thus keeping the scheme on track.
These economic perks can already be envisaged. In 2014 alone, the waterway moved 330 million tons of cargo in and out of the Western hemisphere and raked in revenues of more than $2.5 billion. After expansion, those figures are projected to more than double. Moreover, hopes are running high that the cash windfall will help the government improve the lives of the 40% of Panamanians living below the poverty line.
Alas, the Canal also has a darker side. Panama’s strategic position as a corridor between both East and West but also between North and South has transformed the country into the primary drug hub of the world. As a result, most of the hemispheric drug trade has been hidden aboard the almost 1 million tons of cargo that make the 48 mile trip daily from the Atlantic to the Pacific.
For the Panamanians, the consequences have been dire. It is estimated that 70% of all crimes in Central America are directly linked to drug trafficking and even if security in the region has continued to grow, so have the new and intelligent methods used by smugglers (mini submarines or go-fast speedboats are just some of the latest tricks in their armory). Will the canal expansion see that figure double overnight?
Sometimes defense is the best offense
In the words of a former Panamanian diplomat, “Though the shipment of drugs doesn’t affect the functioning of the canal or put it at risk, Panama must introduce mechanisms to prevent the entire country from being used to smuggle illegal substances and drugs.”
Fortunately, Panama has upped its game and is now poised to take the upper hand in combating the nefarious social effects linked with the drug trade. The country’s strategy is based on a dual approach, blending offense with defense. It has deepened its partnership with the United States and the European Union through Operation Martillo, a multinational military effort aimed at targeting illicit trafficking routes in coastal waters along the Central American isthmus. Panama has also acquired speedboats, helicopters and 19 radars, which will form a string-of-pearls line of surveillance along the coast.
On the ground, Panama’s prevention strategy has been spearheaded by police chief Julio Molto. What better way to reduce future drug violence than by halting in its tracks the youngsters that would otherwise become carrier mules or even gang leaders? Molto did just that, through the creation of a new unit, the Unidad Preventiva Comunitaria. This special squad, part social worker, part policemen and is in charge to offer leisure and sports activities to the least resilient local communities of Panama. The strategy has been successful, as crime rates have steadily dropped due to police efforts to provide opportunities to people who would have otherwise turned to the drug trade, thereby increasing violence in the country.
Piecing the puzzle back together, we can see how Obama’s new water-projects law is just one in a series of effects brought about by the snowball effect spurred by the future expansion of the Panama Canal. We can expect favorable trade winds in 2015.