Recently, I went with a group of thirty people from Purdue University (USA) and Universidad EAFIT (Colombia) to Panama in a study abroad program. Among them were undergraduate, graduate students, and professors. The purpose for the program was to learn about logistics and the importance of Panama economically worldwide. Our trip included a visit Panama Canal and its traffic control center, Balboa Port, a DHL operation, and some touristic places. In addition, we participated in classes with local specialists on Canal operations, the “trade Zone”, and the economy of Panama.

     Obviously, in 5-6 days we were overwhelmed by information about Panama. Listening to the Panamanians describe what and how they do along with why they are doing well was really exciting. In fact, what really grabbed my attention was what is one of the most spectacular and gigantic engineering wonder which was designed, built and operated by mankind:  El Canal de Panamá.

     In the next paragraphs, I will describe some of my take away from trip in Panama. I will cover the geographic position of Panama and history of the Canal. Also how the canal is operated and some brief economics information along the potential effect of the ongoing expansion of it. Finally, I will address the importance of logistic platform that Panama has become over the years worldwide.

     Geography / History

     Panama is located in Central America boarding the southern part of Costa Rica. Panama is the only land connection between Central & South America linked by northern part of Colombia. Its population is approximately 3.5 million people, the official language is Spanish, and the currency is US Dollar.

     Due to its narrow geographic shape and location, Panama has a natural advantage connecting the Pacific and the Atlantic Ocean. The French saw this advantage and in 1881, they attempted to build the canal. Insufficient study of the geology and hydrology, lack of engineering experience, health risks of malaria and yellow fever and saving costs, the French abandoned the project in 1890. United States recognized the importance of the canal and its strategic location and in 1904 continues building the Canal. Ten years later, on exactly August 15, 1914, the canal began operations. The United States managed the operations of the canal; however, Panamanians felt that the canal rightfully belonged to them. Throughout time, protests grew in intensity which led toward a settlement in 1977. The President of United States, Jimmy Carter and Omar Torrijos, leader of Panama, signed the Torrijos-Carter Treaty, giving Panama control of the canal. At noon on December 31, 1999, Panama officially took the full control of the Canal de Panama, which they still have to this day.

     Layout / Operation

     The canal has almost 80 km (50 miles) from one coast to the other and it takes about 11 hours for a vessel go through. The canal level is 26m (85 ft) higher than the sea level. Both the Atlantic and Pacific sides have locks to lift and lower vessels. On the Pacific side, there is a two lock system: Miraflores and Pedro Miguel. Miraflores is a two-stage lock system which lifts 16.5 meters (54 ft) and Pedro Miguel is only one-stage which completes the rest of 9.5 meters (31 ft). Gatun lock is a three-level lock 26 meters (85 ft), on the Atlantic side of the canal.

     The concrete, steel and other structures used to form the locks create some constraint in regards to the size of the vessels passing through the canal. The three main passage limitations are: width, length, and draft. The maximum limits are 33.53 meters (110ft) wide, 320.04 meters (1,050 ft) long, and 12.56 meters (41.2 ft) deep. After listening to this information and visiting the canal, I thought myself: “the locks are huge, however the vessels are also huge. So, how could they navigate and control a ship like Marcona Prospector which is 295m (973 ft) long with 32m (106 ft) wide through the locks without hitting the walls or the lock gate? Based on the physical limitations of the chamber, this ship would have about 0.75 meters space on each side.  On top of that, how would a massive ship which weights thousands of tons, moving with high propulsive force through the water stop in about 25 meters without hitting or damaging anything? ”

     In order to avoid any eventual problem like this, the Panama Canal Authority (ACP), an entity of the Government of Panama, has many crews of specialist pilots who take total control of the vessel when it approaches the canal. This crew is composed of a chief pilot, also the leader of the crew, tug operators, line-handlers and locomotive engineers. First, a chief pilot boards the vessel and takes control of the ship. Then, tug boats push the vessel into the lock. These boats are very maneuverable and allow directing the vessels precisely into the narrow space. When the vessel enters the lock, the line-handlers tie cables between vessels and powerful locomotives. There are eight powerful locomotives located along the lock on both sides of the vessel from front to back. As the vessel needs to move, the locomotives accurately pull and stop it until it is tied off inside the lock. The chief pilot does not leave the vessel until it completes its journey to opposite ocean. That means, when the vessel passes through Pacific Ocean lock, chief pilot stays on board and navigates the vessel through the entire canal and again through the Atlantic Ocean lock, or vice-versa.

     Another interesting aspect is that there is no water pump to level the locks. The water flows by using gravity from the higher level to the lower level, keeping the flow traveling from the canal to the sea. This method is very important to maintain a minimum water level. The regions dry season, from December to March, is a critical time at the canal where ACP’s agents have to strictly control the flow of water to avoid any interruption of canal’s operation.

     The maximum capacity of vessels passing through the canal per day varies from 37 to 42. The Panama Canal Authority (ACP) operates the traffic from a control center 24/7. Agents on ACP determine the schedule every day. There are two passage options for scheduling vessels. First, the vessels have the option to book a date and time that they want to transit through the canal. This cost an extra fee for the vessel. The second option is based on first come, first serve. This option doesn’t cost any extra fee, however it is limited by the number of available slots on that day or the restriction of some vessel of transit only during day light. On both cases, vessels are required to pay toll based on type, size, and the type of cargo carried.

     Economy / Expansion

     Panama Canal transited 299.1, 309.8, 322.1 million Panama Canal tons (PCUMs) in 2009, 2010, and 2011, respectively. In the 2012 fiscal year, which ends in September, the canal reached a record of 333.7 PCUMs. This figure represents an increase of 11.6 million PCUMs tons or 3.6% compared to the previous year. United States cargo itself represents 65% of all the cargo that passes through the canal on an annual basis. Toll revenue increased 16.7%, as a result of traffic growth and a toll increase implemented in January 2011. The Panama Canal closed fiscal year 2011 with 14.684 transits, a 3.2% increase from 2010.

     Due to the increasing traffic and tonnage demand in the last 7 years, Panama Canal Authority has hired contractors and subcontractors to expand the canal.  Construction of the new set of the locks has been in place since 2007 with its expected completion in 2014. The expansion will attend to a forecasted demand of 510 million PCUMs ton in 2025. The estimated cost of the project is U$5.25 billion.

    Logistic Platform

     Besides the canal, Panama has ports, airports, railroads, and highways. The integration of all this resources makes Panama work as a multimodal logistic platform. Each resource adds important value to the logistic network. There are 3 ports on the Atlantic Ocean side, while the Pacific Ocean side has 2 ports and 1 airport. And there is a railroad to connect both sides and highways to strategically distribute the cargos throughout Panama. 

     Ports serve to vessels which exceed the canal size limitation. These vessels unload their cargo in one ocean-side port. The cargos are transported to the opposite shore by train in approximately one hour travel and loaded in vessels and shipping worldwide. Due to the high demand of transit, the railroad operates 24/7. The cargos are also carried to the airport by semi-trucks. The Tocumen International Airport connects 33 countries with passengers and cargo.

     Moreover, unloaded cargos may not be carried out of Panama right the way. Panama has areas called Free Trade Zone. Free Trade Zone is an area within which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities. Sometimes, as part of a strategic logistic plannig, cargos can be storage in this area and ship out when needed.  The mix of these resources with Free Trade Zone increases the value of Panama’s logistic platform. Consequently, it attracts more companies to use it as a competitive advantage in a worldwide market.

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September 24, 2012

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