The project to expand the Panama Canal is behind schedule and the Spanish-led building consortium wants the original construction contract torn up to be paid an additional $1.6 billion in cost overruns.
Group United for the Canal (GUPC) is lead by the Spanish builder Sacyr and wants the added money to continue with construction. The original bid accepted by the Panama Canal Authority totaled roughly $5.25 billion, according to a report by the U.S. Grains Council, but new projections place the actual cost at nearly $7 billion.
Disputes over the expansion of the canal began soon after GUPC won the bid in 2009. Various officials expressed concerns about the consortium's ability to complete the project because its bid was $1 billion lower than the nearest competitor, explained the Grains Council
"The Panama Canal Authority has taken a firm stance that GUPC must honor its contract," said Kurt Shultz, U.S. Grains Council regional director of the Americas. "The U.S. grain industry has high expectations for an expanded Panama Canal; we urge both parties to quickly agree on a resolution and move forward."
Currently six- to nine-months behind schedule, further construction delays will occur if the dispute continues, and some familiar with the project have warned that it would be easy for completion of the canal expansion to be delayed two to three years if GUPC is released and a new construction company is retained.
"Delays do not benefit anyone and I expect the expansion to come to fruition," Shultz said. "International pressure on both parties will increase until a solution is found."
Shultz reports that the next key deadline is Feb. 20, when Zurich American Insurance, which holds a $400 million performance bond, will decide if the Panama Canal Authority has just cause to void the contract with GUPC and if it will release the bond to the authority.
Canal still open
Expansion of the canal is important, but the construction has not stopped operation of the canal as noted by the U.S. Grains Council with its export destinations of U.S. grain, including soybeans, corn, sorghum, wheat, rice and other products transited through the Panama Canal following the 2013 U.S. harvest season.
According to the Panama Canal Authority, this is a record year for U.S. grain cargoes passing through the canal, with more than 20.4 million metric tons shipped October through January. That's a 36 percent increase over the same time period last year.
U.S. corn cargoes shipped through the canal have increased more than 78 percent compared to 2012 volumes. This is partly reflective of the higher corn production in 2013.
China was the primary beneficiary of higher grain cargoes going through the Panama Canal with a 48 percent increase in shipments, followed by Japan and South Korea.
Higher volumes from ports
K.C. Conway, chief USA economist for Colliers International, says the expansion of the Panama Canal is really important for expanding East Coast shipping ports volumes. He appeared at the American Society of Farm Managers and Rural Appraisers and talked about ports of the Southeast U.S. becoming major deep water ports for agricultural product shipping with the completed expansion of the Panama Canal.
Current grain volume shipped through the canal could be a drop in the bucket compared to when the expansion is completed. These ports will outperform the West Coast ports, Conway said.