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DAVID KRUSE

By Staff | Feb 28, 2014

It’s deja vu in Panama. The canal is 100 years old this year. In the first go around, construction began in 1898 by a French company that overbid its technological and financial capacity to complete such an ambitious project and due to a number of obstacles, including malaria, the company and construction project collapsed well before it was finished.

President Theodore Roosevelt fully understood the strategic importance of the canal to the interests of the U.S. He personally took ownership of the canal project and saw it to its completion.

The Panama Canal was one of Roosevelt’s crowning achievements. What I mean by personally taking control was sending U.S. troops and engineers in to finish the canal and then running it as a U.S. territory until that agreement expired in 1977.

The canal is currently in the middle of an expansion project that will allow vessels 25 percent larger to traverse the canal. Work on the canal expansion was stopped recently due to a dispute between the contractor, a Spanish/Italian consortium, and Panama’s government over responsibility for cost overruns.

The project is 70 percent complete, but will need another $1.6 billion to finish.

The consortium underbid the U.S. contractor, Bechtel, by more than $1 billion to win the contract and now cannot make good on its contract.

It has a lot of excuses, but history rhymes here to some degree as Europeans can’t seem to get the job done. The contractor is to blame, but so is Panama for accepting what was a low-ball bid it should have known was bogus.

Ten thousand canal expansion workers will be unemployed while the dispute is resolved. Panama said it will find someone else to do the job, but contract obligations may provide difficulties.

There is pressure to complete the project which is already 9 months behind schedule. If the canal is modernized, do you suppose Panama may have learned something from its first two experiences with European contractors and accept the bid from this hemisphere instead?

The delay of the canal project has given U.S. ports more time to get ready to handle the larger ships, but ports that are ready see the delay as a loss of potential revenue.

Old Panamax ships capable of carrying 4,500 containers are being scrapped and orders for construction of 214 neo-Panamax ships capable of carrying 13,200 containers are on order to replace them.

The neo-Panamax container ships need the expanded canal in order to transit it. Ten U.S. East and Gulf coast ports are investing $11 billion in upgrades to handle the new neo-Panamax ships. In other words, there is a lot of outside interest from those with a vested interest in getting the canal done without an extended delay.

Panama said it will not need U.S. help to finish the canal if forced to take it over and complete it themselves. U.S. contractors have served as consultants to the project and are on good terms with the Panamanians.

They have expressed an interest in completing the third lock. The project is insured by a $450 million guarantee bond by a Swiss insurer.

The functionality of the canal is important to world commerce as 5 to 6 percent of world trade uses the canal.

The canal expansion will be estimated to reduce the cost of shipping grain/soy to Asia by 12 percent. The amount of U.S. corn exports transiting the Gulf should increase from 75 percent to 82 percent and soybeans from 65 percent to 72 percent of total exports.

Minnesota, Iowa and Missouri, where corn and soybeans are drawn to fill export demand from the gulf could nearly double, so interior basis levels should improve because of it.

The deja vu part of the current impasse is that talks over the current disputed contract broke down Feb. 4, 125 years to the day when the original French company failed and filed bankruptcy.

This time, Panama has resources and acumen to be in control of its own destiny. That is probably a good thing as the Obama administration appears unable to fix the outdated locks and dams on the Mississippi River that have exceeded their life expectancy.

Wouldn’t you love to hear what Theodore Roosevelt would have had to say about that?

My wife and I plan to visit Panama in early March as part of the Theodore Roosevelt Association’s 100th centennial anniversary tour of the canal.

I expect to come home steeped in canal history.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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