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The Panama Canal

 
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Since the discovery of the Pacific coast of Panama, visionaries dreamed of one day creating a great passageway from the Atlantic to the Pacific, thus avoiding the 12,000-mile journey around the tip of South America. That day finally came in August of 1914, after decades of planning and excavation. Although only 40 miles from shoreline to shoreline, the ingenuity and tenacity of the canal's creators are evident with each and every movement of this magnificent lake-and-lock-type canal. It's bound to be a voyage you will never forget.

The Panama Canal extends approximately 80 km. (50 miles) long from Panama City on the Pacific Ocean to Colon on the Caribbean Sea. It is widely considered to be one of the world's great engineering achievements. The United States is the largest user of the Canal in terms of cargo tonnage, as either port of origin or destination, although Asian countries are beginning to close the gap. About 12% of U.S. sea-borne international trade, in terms of tonnage, passes through the Canal annually. Ships bound for Japan from the East Coast of the United States save about 3,000 miles by going through the Canal; ships sailing from Ecuador to Europe save about 5,000 miles.

The canal rapidly becomes the dynamic driving axis of the logistics development of our country where an average of 14,000 ships transit through it annually by way of 144 routes to more than 80 countries worldwide, moving 12 million TEU's and 300 thousand CPSUAB [Panama Canal Universal Ship Gauging System] per year.

Fifty (50) million gallons of fresh water are needed to float one ship through the Canal and all of it is supplied free of charge by forests on the surrounding hillsides, which capture the abundant tropical rains and feed the Canal with rivers.

On 22 October 2006 the citizens of Panama voted to expand the Panama Canal to allow for more transits and bigger ships. The Panama Canal Authority has started to execute the project and is following a comprehensive plan that will take eight years to complete at a cost of $5.25 billion dollars. While this is a subject of tremendous importance to the Republic of Panama and its people, the international maritime industry will benefit directly from the expansion through lower shipping costs, and global consumers will eventually benefit from the greater capacity and efficiency of the Panama Canal. Up until December 2013, the project of expansion had advanced approximately 73 percent. Due to financial disputes with the ACP, the consortium Grupo Unidos por el Canal (GUPC) decided to stop the expansion works, situation that had the world in alert since several transnational companies have invested millions of dollars  to expand their operations when the third set of locks project is fully completed and ready for use. After several attempts to reach to an agreement, on Wednesday, 20 February 2014, both, the ACP and GUPC have issued separate statements to say that works will be resumed on Thursday, 21 February 2014 on the construction sites of the third set of locks. The ACP said that it would proceed on Friday, 22 February 2014 to pay GUPC the USD 36.8m due for December invoices. This preliminary agreement to resume works does not imply that it would negotiate on the alleged cost overruns claimed by the contractor, said the ACP.

The latest negotiations that concluded with resuming works on the locks site is seen as a breakthrough. However, it is not yet clear how all the GUPC's demands will be resolved and if further delays will result as the construction had been paralysed for 15 days and works slowed down in the moths of December and January. 

The Canal in figures

In 2013, China continued the same deceleration pattern as 2012, although on a much lesserextent. The Chinese economy has continued growing, supported by the demand of developing countries and, on a smaller scale, the United States and the Eurozone countries. The decrease in demand resulted in a GNP drop of 7.8 percent, then of 7.5 percent in the first two quarters of the fiscal year 2013, quite below the 10 percent yearly figure which was customary for China over the last decade, but still within the 7 percent limit established by the Communist Party in its last five-year plan.

The Panama Canal ended its fiscal year 2013 with 320.6 million PC/UMS tons, 13.1 million tons less than fiscal year 2012, with an operative cost per tonnage of USD 1.27 below the established goal of USD 1.33. These results reflect a small decrease in the demand of its services, due primarily to changes in the maritime industry. In response to these changes, innovative measures were implemented in the execution of processes, which resulted in a more efficient use of resources, without affecting quality of the service provided.

As for transits, these were 12,045 oceangoing transits (excluding small vessels), 817 vessels less or a 6.35 percent decrease compared to fiscal year 2012 (12,862 transits). Out of this total, 8,189 transits correspond to super-size vessels (beam >=91 feet), 290 less transits than during fiscal year 2012 (3.42 percent). In addition, 3,856 transits corresponded to regular size vessels (beam <91 feet), (12.02 percent) more than fiscal year 2012 (4,383 transits). Small vessels had a drop of 67 transits (from 1,682 to 1,615 transits), which represents 3.8 percent regarding fiscal year 2012.

Panama Canal - Businesspanama

Performance in the Provision of Services

This period closed with a service level rendered of 88.32 percent, exceeding the goal of 86.0 percent established for this year. This service level measures the compliance with each market segment expectations for Canal Waters Time (CWT), including booked non-booked vessels. The market with the highest levels for the services provided were: general cargo (91.76 percent), full container (94.06 percent), and passenger (99.81 percent). During fiscal year 2013, it began measuring the provided service level, based on compliance with each market segment expected Canal Waters Time (CWT), exclusively for non-booked vessels. The result was 75.7 percent, exceeding the established goal of 72.0 percent. The constant monitoring and control of the vessels backlog and the appropriate resources allocation and maintenance programming have been key factors in the achieved success.

Customer Satisfaction

Fiscal year 2013 closed with a customer satisfaction index of 98.7 percent, 2.7 percent over the fiscal year 2012 index of 96 percent. This accomplishment was the result of a customer satisfaction oriented work culture change effort undertaken. It started with a kick-off ceremony with the participation of about 250 operations employees participated. There were awareness-raising lectures and specialized courses on customer service. Furthermore, Customer Service Week was celebrated for the first time from February 4 to 8, 2013 with the participation of over 500 workers, strengthening their commitment towards work culture change.

Treaties
In 1903, the Republic of Panama and the United States signed the original Panama Canal Treaty, which allowed the United States to build and operate a canal connecting the Pacific Ocean with the Caribbean Sea through the Isthmus of Panama. The Treaty granted the United States the use, occupation, and control of a Canal Zone, approximately 10 miles wide, in which the United States possessed full sovereign rights. In return, the United States guaranteed the independence of Panama and paid the government of Panama $10 million, as well as an annuity of $250,000, which each year increased at a rate far beyond that of inflation.

Panama Canal Developments

On September 7, 1977, a new Panama Canal Treaty was signed by President Torrijos of Panama and President Carter of the United States that transferred full control of the Canal to Panama on December 31, 1999. Under this Treaty, the Panama Canal Company, the Canal Zone, and its government were disenfranchised on October 1, 1979, and replaced by the Panama Canal Commission that operated the Canal during the 20-year transition period that began with the Treaty.

The Panama Canal Commission has now been replaced by a new Panamanian entity, the Panama Canal Authority. The treaty guarantees permanent neutrality of the Canal. Control over U.S. military facilities in the former Panama Canal Zone has reverted to Panamanian authority. The U.S. Southern Command and U.S. Army South troops moved out of Panama at the end of 1999. The Canal itself is undergoing a modernization and maintenance program of up to $1 billion, which includes finishing of the widening of Gaillard Cut as well as improvement of the locomotives (mulas) used to guide the ships through the locks, the docks, the tugs and all the machinery of the Canal operation. The current plan is for two new flights of locks to be built parallel to, and operated in addition to, the old locks: one east of the existing Gatun locks, and one southwest of the Miraflores locks, each supported by approach channels.

Each flight will ascend from sea level directly to the level of Gatun Lake; the existing two-stage ascent at Miraflores and Pedro Miguel locks will not be replicated. The new lock chambers will feature sliding gates, doubled for safety, and will be 1,400 ft (427 m) long, 180 ft (55 m) wide, and 60 ft (18.3 m) deep. This will allow the transit of vessels with a beam of up to 160 ft (49 m), an overall length of up to 1,200 ft (366 m) and a draft of up to 49 ft (15 m), equivalent to a container ship carrying around 12,000 containers, each 20 feet (6.1 m) in length (TEU).

The new locks will be supported by new approach channels, including a 6.2 km (3.9 mi) channel at Miraflores from the locks to the Gaillard Cut, skirting Miraflores Lake. Each of these channels will be 720 ft (218 m) wide, which will require post-Panamax vessels to navigate the channels in one direction at a time. The Gaillard Cut and the channel through Gatun Lake will be widened to at least 920 ft (280 m) on the straight portions and at least 1,200 ft (366 m) on the bends. The maximum level of Gatun Lake will be raised from 88 ft (26.7 m) to 89 ft (27.1 m).

Ports and Railroad

Additionally, Panama's ports are expanding their container transshipment capacity. Manzanillo International Terminal completed a $100 million expansion program, the port of Balboa is finishing a $130 million expansion program, and another $200 million phase three program. The Evergreen port at Colon will enter a second phase of expansion and a new port on the Pacific side, will be defined.

The large container ports, the bulk terminals, the cruise and the fuel storage parks are located on both sides of the oceanic region, for all these activities are related to the Canal. It is observed that the container transshipment ports movement has been tripled in less than a decade. Containers movement rose from about 1 million of TEU's in 1998 to about 6.6 million in 2011. Together with the ports, the restored railroad by Kansas City Southern Railways already operational connect the ports creating a land bridge to complement the Canal.

The 47 miles railway which is operated by PCRC links the areas of Balboa and Colon, allowing a two-way traffic. Trains run continuously between the terminals of the Atlantic and Pacific. The system has a capacity of 10 trains in each direction every 24 hours. But it is also possible to increase to 32 trips per day. Plans include a maximum of 4 million TEUs per year, in terms of cargo transportation. Operated with type "Bulkhead" cars which are equipped with two sets of 6 cars each carrying an average of 75 containers. This port and railroad activity requires additional services from the local economy such as financing, insurance, specialized maintenance and repair, electricity and water, telecommunications, trained manpower and other services, and it will create new business opportunities for logistics and cargo industries. Panama is the only place in the world where it is possible to move containers in a customs zone from the Atlantic to the Pacific in less than four hours.

This is an extremely attractive feature for shipping companies and shippers, as it represents significant opportunities for expanding services, improving the use of their assets, increasing routes possibilities and re-positioning, further easing restrictions of the Panama Canal regarding draft and size of vessels. The main objective is to complement the services offered by the Panama Canal, and the movement of large volumes of cargo.

Investment Opportunities

Some of the multi-million dollar investment opportunities include:

  • The development of major intermodal transportation and logistics centers at Colon and at the Howard/Farfan complex on the Pacific, including the construction of a new container port at Farfan.
  • Ship owner’s services, servicing of vessels, ship repair and maintenance, container repair, intermodal cargo services.
  • The future construction of the third set of locks, which will include the necessity for additional water resources, expanded hydroelectric power generation, the expansion of the entrances to the Canal and the deepening of Gatun Lake and Culebra Cut.
  • Plans to expand the Panama Canal will be developed before 2015.
  • Provision of concessionary services to the ports (power, water, fuel, material, food, banking services, telecommunications, maintenance and repair, dredging) estimated at between $47 and $60 million annually).
  • Rodman and Farfan are identified as potential centers of port development.
  • The relocation of approximately 8 to 10 thousand persons, as a result of Canal expansion, requiring housing and infrastructure.
  • Cruise ship reception and tourism.
  • Panamanian ports are a good option for investment by the inherent advantages that characterize and collateral, including:
    • Facilities for loading and unloading
    • Warehousing, transshipment.
    • Consolidation.
    • Storage and distribution of loose cargo.
    • Repair and storage containers.
    • Secure the load.
    • Cleaning and repair of containers.
    • Port management, financial and cruises.
    • Management of container terminals and processing zones.
    • Letters of Credit, through expert loading draft.
    • Others
  • In terms of related air transport opportunities, Tocumen International Airport should be developed as an international and regional hub for both passenger traffic and cargo. The redevelopment of the Tocumen International Airport wills double the number of passengers transiting through the airport annually from the current approximately 5 to 10 million.
  • The former Howard air force base should become an aviation industrial center, making use of its modern airport facilities; and construction of the cargo airport at France Field in the Atlantic must be completed.
  • Logistics services and warehousing.
  • Transportation Management.
  • Custom Brokerage.
  • New investment into technology will be needed to better the efficiency of international ports in order to remain competitive.
  • Expansion of shipping facilities of port authorities around the world.
  • The design of new innovative equipment must be designed and built, to efficiently handle to larger containers loads.

For further information, please contact us.

Business Opportunities of the Howard Project

Panama-Pacific Special Economic Area

The Panama Pacifico Area is one of the most important projects of the Panamanian Government that develops an international trade hub and attracts large multinational companies, logistics services, commerce and industry. The main objective of this Special Economic Area is the attraction of new direct foreign investment and the creation of jobs in Panama.

With this ambitious project, that includes economic and legal benefits, the Republic of Panama promotes the development of different industries such as logistics, sea and air transportation, high-technology, call centers, among others.

This Special Economic Area uses public - private partnership for the development of the zone, and encourage effective policy compliance with relevant regulatory frameworks. These entities are London & Regional Panama and Panama Pacifico Agency. This team is in charge of the development, administration, planning, and promoting the zone in one hand, and regulating zone activities in the other.

  • Panama Pacifico Agency - Government entity responsible for assisting and informing investors about business opportunities and the benefits that Panama Pacifico offers
  • London & Regional Panama - Master Developers

Benefits

The government of Panama created the Special Economic Area Panama Pacifico under the Law 41 of July 20, 2004. This area offers special corporate benefits for companies established in this economic zone:

  • One Stop Shop (11 government offices into one location)
  • Special Immigration and Labor Standards
  • Special Custom Regime
  • Tax Incentives, exemption from certain taxes or no taxes at all
  • Investment Stability Law
  • Single Registration
  • Training Center

Labor Benefits

  • 25% fixed surcharge for overtime, instead of a sliding scale up to 250% elsewhere in the country
  • Negotiable weekly resting day
  • Companies may remain open on Sundays and holidays
  • Allowance for foreign workforce of 15%

Immigration

  • All workforce visas are obtained in the onsite government office (One Stop Shop)
  • 3 to 5-year work visas, instead of the usual one-year visa elsewhere in the country
  • 5-year investor visas, with investment of 250k
  • Family visas extended to spouse, dependents and financially-dependent parents
  • Tax-free import of up to 100k of personal items per employee

Onsite Customs Office

  • Customs is onsite and operates out of the One Stop Shop
  • Available 24/7 by request
  • Designed to allow free flow of goods into and out of Panama Pacifico
  • System based on post-audits of inventories

Fiscal Benefits
Within the Republic of Panama, there are two types of national taxes - indirect and direct.

  • All companies registered in Panama Pacifico are exempt from indirect taxes
  • There are six direct taxes normally owed to the Republic of Panama by any company in the country. At Panama Pacifico, only three direct taxes are owed by onsite companies. These three direct taxes are exempted to companies established in the special area and considered by Law 41 of 2004 as "Special Business Activities"
  • Income
  • Dividend/Complimentary
  • Transfer/Withholding

Panama Pacifico falls within the District of Arraijan (like a municipality). So, companies pay municipal taxes to Arraijan which are determined in advance for up to ten years

  • Onsite companies operating with these activities as the main purpose of business pay no federal (fiscal) taxes to the Republic of Panama
  • Corporate headquarters
  • Back Office operations

Also Panama benefits from five of the major submarine telecommunications loops traversing through the country. The physical location of these fiber-optic lines provides unlimited connectivity capability for global communications. Panama Pacifico benefits from one of these loops being located onsite in the new global business hub.

The incentives are directed to attract the following specific business activities

  • Corporate Headquarters
  • Back office operations
  • Call Centers
  • Multimodal and logistics services
  • High-tech manufacturing and process manufacturing
  • Aviation industry services
  • Offshore services
  • Film industry
  • Data, radio, television, audio and video transmission
  • Transfer of inventory between companies in-site
  • Transfer of goods and services to ships, aircrafts and their passengers
  • Imports and Re-exports

Panama Pacific has a large number of industrial, commercial, residential, sports and entertaining properties, besides transportation assets such as airports, hangars and other facilities, excellent communications logistic infrastructure and basic services, such as a supply system fuel, hospital complex, schools, others. For the foregoing Panama-Pacific represents to investors an excellent opportunity of world class business, and for the Panamanians a big step to turn the country into the Business Center of the Americas, increasing its competitiveness and position in the globalized world.

  • Connectivity (Data and Call Centers)
  • Incentives and taxes
  • Center and commerce
  • Information, communications and technology
  • Services and trade
  • Maintenance, repair and aircraft reconversion
  • Logistic center of manufacturing and distribution
  • Industrial parks and processing zones for export
  • Development of residential areas
  • Establishment of educative and institutional centers
  • Recreational parks, of sports and tourist and recreational activities

The Panama Canal plays a significant role in the country's economy and has contributed an average of six percent of Panama's GDP since the 1980s.

A New Opportunity: Container Port in Farfan

At an investment of around USD 2 to 4 million, a group of members from the Maritime Chamber are pushing for the construction of a terminal on the Pacific coast (Farfan). Located at the Panama Canal's entrance, near to the bridge of the Americas, the 253 hectares of Farfan are part of the former air base of Howard, the biggest military airport that the EE.UU Armed Forces had outside of the United States.

The project, which will be developed as a maritime service cooperative, will take 24 months to complete.

The terminal will have a loading and unloading passenger dock, a dock for unloading merchandise from supply ships, offices for shipping agencies, customs, quarantine, immigration, shops for the retail sale of spare parts for small boats, cold room, restaurant and depot, etc.

The Japanese government through its Agency for the Development (JICA), prepared a feasibility study that reveals that after occurring the maximum development of the Balboa port and after its modernization, Farfan can become the second great port of containers in the Pacific. This port will be part of the multimodal center of transport that Panama promotes. With a view to integrate itself more indeed to the system of international transport its proximity to the port of Balboa and the airport of Howard makes this site especially attractive for the predicted development.

The Panama Canal plays a significant role in the country's economy and has contributed an average of six percent of Panama's GDP since the 1980s. For more information about

For more information about Business Opportunities, Legal, Consulting or other Services, please contact BusinessPanama.

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