PGI Intelligence: Panama Canal Safety Issues to Offset Economic Benefits?

The third set of the Panama Canal locks, which was inaugurated on June 26, has raised considerable safety concerns which could lead to accidents and delays for shippers and higher claims for insurers, according to a report from PGI Intelligence.

The report also noted that structural issues relating to the new locks could threaten the long-term integrity of the project and risk new delays.

Despite the advantages offered by the canal’s expansion, there have been growing concerns over safety issues associated with the introduction of neo-panamax vessels along the waterway.

Industry bodies have warned that at 427 meters long and 55 meters wide, the new locks are too small for the neo-panamax. The largest vessels can measure up to 366 meters long and 49 meters wide, leaving a distance of just 6 meters across the width of the canal and 61 meters length-wise, much of which will be taken up by tugboats on either end of the vessel to guide it through the lock.

A joint study by the International Transport Workers’ Federation (ITF) and Brazil’s Fundação Homem de Mar (FHM) found that under windy conditions the manoeuvrability of vessels would be compromised, making accidents likely due to the lock’s narrow dimensions.

Further concerns have been raised over structural integrity after cracks appeared in the Cocoli lock during the testing phase in August 2015.

The prospect of an accident involving such large vessels and cargo loads presents significant financial risks for shippers and insurers. An accident would also impose indirect costs as a result of delays to scheduled transits through the canal.

Additional risks of disruption along the route stem from the potential for industrial action by canal workers. Construction workers from the Grupo Unidos por el Canal (GUPC) and National Union of Workers in the Construction Industry (Untraics) staged regular strikes during the nine-year construction of the canal, over a wide range of issues including pay, changes to labour law and allegations of corruption during the construction, contributing to the two-year delay in completing the expansion. With construction work on the canal now complete, the highest risk of strike action is from workers operating the canal.

The cost-savings associated with the introduction of neo-panamax vessels could be compromised by draft restrictions imposed during droughts along the canal, according to PGI Intelligence.

Such measures undermine the competitive advantage of the canal if they require post-panamax vessels to significantly lighten their load. With water consumption in Panama increasing and additional water diverted to expand the locks, such shortages are expected to remain a major issue.

“The success of the expansion of the Panama Canal is partly dependent on how the ACP manages and mitigates such risks through training and its response to the emergence of any safety and structural vulnerabilities,” PGI Intelligence said, adding that the ACP has taken a cautious approach to the new locks, initially permitting four vessels per day during an initial trial period before increasing the canal’s maximum capacity to 13-14 transits per day.

“Any major safety failings, a fall in water levels or evidence of damage to the locks, however, would create significant pressure on the ACP to implement restrictions on the locks, with implications for larger vessels and a negative economic impact on the authority and its revenues,” PGI Intelligence noted.

The USD 5.3 billion nine-year construction project is hoped to significantly improve the cost efficiency of trade between Asian markets and the east coasts of the US and Latin America.

As much as 79 percent of global cargo-carrying capacity will be able to access the canal, up from 45 percent previously, saving neo-panamax-class vessels up to 14 days transit time on round trips.