Business Latin America / June 4, 2001
By Larry Luxner
PANAMA CITY -- Within two weeks, luxury trains could be whisking passengers in style between Panama City and Colón, along a 47-mile track that roughly parallels the Panama Canal.
David L. Starling, president of the Panama Canal Railway Co., says passenger service will be inaugurated Jun. 18, with freight service between the Atlantic port of Balboa and the Pacific port of Manzanillo to begin by late July.
The soon-to-be-inaugurated Panama Canal Railway is a three-way venture led by Kansas City Southern Railway and Chicago-based Mi-Jack Products, a manufacturer of intermodal cranes and other lift equipment; each of those partners has a 40% stake in the project. In addition, the International Finance Corp., an arm of the World Bank, has a 20% equity in the project.
Starling says the $75 million venture represents the first serious investment since the railroad, which was originally built in 1855 -- at the height of the California gold rush -- was more or less abandoned in the late 1980s.
"Until recently, it was actually running once a week, but not with much consistency," he said in an interview here. "We basically closed the railroad because it was in disrepair and dangerous, with the potential for derailments."
Things finally began looking up in 1995, when the Endara government privatized Panama's two leading ports.
"In their first year, Manzanillo on the Atlantic side handled 150,000 TEUs [twenty-foot equivalent units]. Last year, they did 1.3 million, of which 75% is transshipments," said Starling. "And now, with Panama Ports on the Pacific side, this has created the critical mass of transshipment cargo that justifies the railroad's role in the multimodal concept. In all fairness to the government, they didn't really have that opportunity before, and I can see why the railroad fell into disrepair."
In February 2000, after defeating Bechtel and several European contenders for the 50-year government concession to operate the railroad, Kansas Southern and Mi-Jack began actual construction. Kansas Southern is heavily involved in Mexico, where it owns 49% of the recently privatized Transportes Ferroviarias Mexicanos.
"For the new service, we're using the same track bed [as the original railway], except in one area where we eliminated three miles of railroad by building two miles of new track," he said, adding that Panama Canal Railway Co. is currently renovating an existing building in Balboa to serve as its Pacific terminal. On the Atlantic side, it's building a completely new terminal, located about five minutes away from the Colón 2000 cruise-ship terminal.
"We will pay the government a royalty on our gross revenues," said Starling, declining to specify what that percentage is. He predicted that the railroad will begin turning a profit by the end of its second year in operation.
The transportation executive, noting that freight will account for 80% of all revenues, said his operation will offer a high-volume, double-stack service between Pacific and Atlantic ports, including the Colón Free Zone. Two purpose-designed intermodal railyards will be constructed, and cargo will remain in bond for the duration of the trip.
Starling says his goal is to have double-stack shuttle trains operating continuously, with capacity for 10 trains in each direction every 24 hours. He says a full discharge and load operation will take no more than two hours, with a full ship-to-ship cycle being accomplished in around four hours. This compares with the eight hours it takes for a vessel to transit the Panama Canal. Major users of the new Panama Canal Railway are expected to include Maersk Sealand, Mediterranean Shipping Co., Hanjin Shipping, Nedlloyd and Evergreen Line.
Asked if the railway would actually compete with the canal, Starling said that "with Panama's main ports capable of handling post-Panamax tonnage, we are actually going to help attract new transshipment traffic, and this will be positive for everyone."
In fact, freight is so important to the project that passenger service was almost an after-thought..
"We started looking into passenger service in order to compete with the airlines," said Starling, adding that "we're really going after the Panama City-Colón market."
To satisfy such passengers -- who now commute to the Colón Free Zone on a daily basis either by car or plane -- the trains will be equipped with cherry and mahogany walls, as well as desks and computer plug-ins so executives can use their laptops during the one-hour trip. For those traveling on a monthly pass, the daily fare will be only $25 round-trip.
In addition to business executives, Starling says the Panama Canal Railway will also seek out tourists -- particularly cruise-ship passengers who transit the Panama Canal in one direction and want to take the train back in the other direction.
"We chose trains with big windows to maximize views for the tourist," he said, noting that the railway bought used coach cars from Amtrak and refurbished them in New Orleans. "We also put a nine-foot-long stainless steel viewing deck on the end of each car, allowing tourists to step out and smell the jungle."
Lead contractors for the project are Neosho Central America Inc. and Panama's Constructora Urbana.
"We're very bullish right now on Panama," says Starling. "I think the canal is a natural magnet for vessel calls. They've got the infrastructure in place. Now they've got to improve the process. You can still move the box faster than you can move the paperwork."