For Panama Canal, a new era of trade is coming

Under leaden skies, mammoth yellow vehicles prowl an enormous gash in the earth. Excavators, bulldozers and loaders relentlessly carve the rippled black and brown ground, reshaping nature's handiwork.

There's no sense of drama or romance or history. Nothing to suggest this sprawling site is anything special.

But these workers are trying to improve upon one of the great engineering feats of history: the Panama Canal. On the other side of a nearby rise, the refrigerated cargo ship Cape Town Star, hauling fruit from Ecuador to Russia, is easing through the canal's almost century-old Miraflores Locks. Now, under a $5.25 billion project, the canal authority is adding a third lane to the ocean-spanning waterway that will double its capacity and allow access to the world's largest cargo-carrying vessels.

"We are eliminating the restrictions the canal has imposed on the maritime industry. … The capability you have here, you have nowhere else in the world," says Alberto Aleman, the canal authority administrator.

How much of an impact the bigger, better canal will have on global trade patterns remains to be seen. Roughly 65% of the goods sailing through the canal go to or from U.S. shores, and American ports and rail yards that compete with the canal will fight to retain as much business as they can. Cargo from Asia, for example, can reach U.S. markets either via the canal or by docking at a West Coast port and riding rail lines to inland destinations.

Shippers must balance myriad factors — fuel costs, type of cargo, time and distance — in calculating the best route for individual shipments. "It's possible to reach Chicago a lot of different ways," says Paul Bingham, managing director of global commerce and transportation for IHS Global Insight.

But Peter Keller, president at NYK Line, says the expanded canal will send a seismic shock through the business of transporting goods around the globe. Among the fallout: construction of larger vessels for bulk cargo, such as iron ore, and a tougher climate for American dockworkers seeking pay raises.

"Long term, the expansion of the Panama Canal will be a major change," he says.

The canal expansion — or ampliación, in Spanish — is among the largest construction projects in a recession-ravaged world, and it's moving forward mostly as planned. In July, canal officials awarded the project's largest single contract, for the design and construction of the new locks that will raise and lower ships in the canal. A consortium led by Spanish construction giant Sacyr Vallehermoso beat out two rivals for the job, including San Francisco-based Bechtel.

The ambitious expansion, however, is occurring against a backdrop of unraveling globalization. With debt-laden U.S. consumers in retreat, fewer cars, appliances, toys and clothes are crossing the world's oceans. This year, overall trade is expected to fall 10%, according to the World Trade Organization.

Augmenting the canal as world trade shrivels for the first time since World War II might seem like adding a spare bedroom just as the kids head off to college. Canal officials, however, say the global downturn has struck them only a glancing blow.

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