International business dispute halts Panama Canal expansion

In today’s global economy, businesses across of the world rely on one another for trade, movement of goods and more. In the long run, global business relationships help world economies grow and are potentially good for nations and their citizens. However, sometimes business relationships can get complex, and when an international business dispute arises, the consequences can ripple through the world.

Louisiana residents who may be familiar with the Panama Canal, which connects two of the world’s oceans and plays a very important role in international maritime trade, may find it interesting to learn that a multibillion dollar Panama Canal expansion project recently came to a stop after a major disagreement over the cost of the ambitious project surfaced. The international business dispute is over nearly $1.6 billion in overrun costs. Several international companies are part of the Panama Canal expansion consortium. However, according to reports, amid negotiations about solutions on paying the extra cost, the Panama Canal Authority and a Spanish construction company, who are leading the project, appear to be pointing fingers at each other for the extra costs.

As a result of the dispute, presently all work has stopped and according to one firm, nearly 10,000 jobs are potentially at risk. Furthermore, the interruption in work is not good news for world maritime trade. In fact, in anticipation of the Panama Canal expansion, U.S. ports financed billions in dock renovations, dredging and raising bridges to account for larger ships that would be capable of passing through the newly expanded canal.

The Panama Canal carries about five or six percent of the world’s trade; presently, about 75% of the expansion project is completed. Experts believe that the Panama Canal expansion consortium underestimated the costs when it submitted that lowest bid of a little over $3 billion.

One cannot predict the damage the halted work on the expansion of the Panama Canal will have on world commerce. Clearly, however, this international business dispute will directly impact international trade.

Source: KATC, “Panama Canal expansions stops amid dispute,” Feb. 5, 2014