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DAVID KRUSE

By Staff | Apr 4, 2014

I had to go to South America a number of years ago in order to learn that South America is not called that because it is south of North America.

It is south of Nova Scotia, but it is so far east of North America a due south compass heading from the Corn Belt would miss it entirely, ending in the Pacific west of Peru.

My perceptions of geography were also proven to be in error on my trip to Panama.

I thought Panama City was on the Atlantic side. Wrong. It is on the Pacific side.

I thought the Panama Canal ran east and west. Wrong again. The isthmus twists so that much of the country of Panama runs east and west so the canal actually runs north and south.

We entered the canal for a full transit from the Pacific, side near Panama City, traveling north through the locks and canal to the Caribbean Sea side near Colon.

The Panama Canal is essentially a lake in the center of the isthmus with locks on both sides of the lake raising and lowering ships to both oceans. Ships on both sides of the canal start their transit where they are raised by a trio of locks to the lake in the center.

The traffic is coming from both directions then passes each other on the Gatun Lake or in the cut of the canal, each proceeding to the locks on the other side where they are then lowered in succession.

There is essentially one-way traffic through the locks coming from both directions reversed during the day. They operate 24/7. The locks are 1,000 feet long and they will pack them with small ships behind larger ones.

The captain of the tour boat said it once transited the lock behind a Los Angeles-class nuclear submarine. Ours trailed a cruise ship.

Aircraft carriers are too large to transit the canal. They do offer reservations for ships well in advance or first come-first serve, which could take as long as a week.

Reservations cost more. Cruise ships pay the highest tolls, but can book transits up to a year and a half ahead. Lake Gatun was the largest man-made lake in the world until Lake Meade.

The water and water pressure from the lake fills the locks so they function by gravity with no pumps. It takes more than 52 million gallons of water for each transit – yes, 52 million gallons for each transit.

Ships were built to the largest specifications the locks could accommodate earning the designation of being Panamax ships. The current locks are 110-by-1,000-feet. What makes the canal unique is this is the 100th year anniversary of the first transit in 1914, and it is still operating in good condition, being well maintained.

Unfortunately, we can’t say the same thing about the locks and dams on the Mississippi River system. The history of the locks and canal is testimony to the engineering feat that was accomplished.

A trip from New York to Los Angeles, using the Panama Canal, is approximately 8,000 kilometers, while a trip around the Strait of Magellan has a distance of 21,000 kilometers.

It takes $150,000 per day fuel plus the loss of many days at sea to avoid the Panama Canal where the fee to transit it is approximately $150,000, or roughly the equivalent of one day’s fuel for a Panamax size vessel.

The operating profit from the canal is approximately 50 percent of revenue, and the country earns $1 billion annually from operating it.

They were missing out however, as 35 percent of the world’s ocean shipping is now carried on post-Panamax ships which are far too large to transit the existing locks.

A Panamax ship carries up to approximately 5,000 containers while a post-Panamax ship can carry nearly 16,000. We got a close-up view of a Panamax vessel transiting the Mira Flores lock as they hosted an exclusive evening visit of the Theodore Roosevelt Association.

It was so large it was hard to imagine the size of a post-Panamax ship. Not wanting to miss out on this business from larger ships, Panama began construction of much larger new locks that are 180-by-1,400-feet long.

It is scheduled, after some delays over contract disputes, to become operational in January 2016.

Work on the new locks is 70 percent complete. After a short stoppage due to cited cost overruns, construction has again resumed after Panama and the consortium put up another $100 million.

Construction is not moving forward at a 100 percent rate and the contract dispute is still to be decided by arbitration. I expect that there will be more revisions as to the completion date, but it will get done eventually.

They will operate both sets of locks so the total capacity of the canal in terms of tonnage will expand enormously.

The U.S. grain industry is being given the opportunity to adapt to the post-Panamax ship era with the expanded capacity that will significantly reduce the cost of shipping grain/soy from the Gulf to Asia.

This advantage is not exclusive to the U.S. and will be gained by Brazil and other South American producers, too.

This requires significant investment in U.S. port infrastructure to accommodate the deeper draw of post-Panamax ships

What they are doing in Panama to expand the lock and canal capacity will produce an economic benefit to U.S. agriculture.

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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