Panama shrugs off threat from Colombia dry canal

Contributed by Gerli Wren & Co. [http://www.gerlico.com]

LEADING figures at the Panama Canal Authority (ACP) and the Panama Canal Railway Company have poured more cold water on a Chinese proposal to build a 220 km rail link in neighbouring Colombia designed to compete with the Panama Canal.

ACP administrator, Alberto Aleman dismissed fears that a Chinese-built ‘dry canal’ running through Colombia offered any threat to the waterway responsible for 5% of world trade.

“I don’t see that as a competition issue,” Mr Aleman told agency AFP. “We are a very important freight shipment hub, and shipping by sea is the most efficient (method).”

In studies for its $5.3bn expansion plan, the ACP looked closely at the possibility of competition from dry canal’s in central America and Mexico and concluded that they would always remain too expensive to pose any serious threat to a widened waterway.

Tom Kenna, president of the Panama Canal Railway Company, operator of the most successful version of a ‘dry canal’ operating in the region also questioned the viability of ambitious plans revealed by Colombian president Juan Manuel Santos in an interview with the Financial Times.

The article reported that the Colombian government had opened talks with Chinese interests to build a 220 km rail link that would connect two Greenfield ports on Colombia’s Pacific and Atlantic coasts to compete for traffic moving between the two oceans via Panama’s canal and rail link.

“Definitely we’re not losing any sleep about it,” said Mr Kenna. “It’s a huge investment. Railroads are very capital intensive, ports are very expensive to build,” he told Lloyd’s List.

“Every once and a while the idea of a sea level canal pops up and these ideas are all fine until someone has to put their hands in their pockets.”

By re-developing existing infrastructure, Mr Kenna said establishing PCRC’s business cost a fraction of what investors face to build something from scratch.

“We started with a railroad that has been there for 100 years and it was not a slam dunk. Building track with all the benefits that were here you are still looking at $1m per kilometre. If you have to go to jungle areas and build culverts and bridges then it has to be a lot more than that,” he said.

The PCRC has benefited largely from the development of a port cluster that today handles 5.6m teu a year. Even as one of the most successful dry canals in the world, PCRC handled a relatively small proportion of the containers handled in Panama’s ports - 365,000 – almost 600,000 teu.

Adopting a ‘build it and they will come’ approach, Mr Kenna said would represent a huge risk.

“If you look at Panama there are already ports where there is a huge volume of traffic to generate a need for a railroad and the ports were developed because there was a Canal because that is where you get the critical mass of vessels. You need to build the ports first and generate critical mass then connect them to a railroad,” said Mr Kenna.

Suggestions that the project would allow ships carrying coal to bypass the Canal on route from Colombia to China were dubbed as ‘crazy’ by the PCRC president.

“When you move those types of bulk commodities you can’t touch it so many times. The canal is definitely cheaper,” said Mr Kenna.

A panamax with up to 56,000 tonnes of coal today pays around $4 per tonne or up to $180,000 per transit the Canal.

For a dry canal in Colombia to be competitive it would need to discharge a ship, load onto rail wagons travel 220 km and discharge at the other end before loading on to another vessel, a scenario that Mr Kenna believes would not only surpass the cost of transiting the canal but destroy the tight margins that made Colombian coal competitive in China for the first time last year.

“Unless the Chinese believe that coal is going to be as expensive as gold in the future then that to me really is a pipe dream,” said Mr Kenna.

In 2010, 3.8m tonnes of Colombian coal moved to China. The vast majority of Colombia’s annual production of 72m tonnes of coal was shipped to traditional markets the US and Europe where Colombia remains more competitive against rival exporters South Africa and Australia.

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