WorldCity Business Magazine

Q&A with Simon Ferro

by Ian McCluskey

New Year’s Eve is always doubly festive for the Panamanian people, as they not only ring in a new year, but also celebrate their sovereignty of the Panama Canal. This past New Year’s Eve marked the five-year anniversary of the handover of the canal from the United States, which had managed it for the previous 85 years, from the day it opened in 1914 until the final day of the 20th century.

2004 was a landmark year for the canal. The Panama Canal Authority, headed by CEO Alberto Aleman Zubieta, established a record annual revenue of over $1 billion, making it one of the five largest enterprises in Central America. The number of vessels transiting the canal rose by nearly 7 percent to just over 14,000, while total tonnage moving across the isthmus increased by 10 percent.

Most impressive, perhaps, was the canal’s accident rate which dropped to less than one tenth of one percent. There were 10 accidents registered in 2004, the lowest number since 1923, when fewer than 4,000 ships used the canal.

As Panama was preparing to celebrate these accomplishments in late December, WorldCity met with Simon Ferro, the former U.S. ambassador, who presided over the handover on December 31, 1999, for his assessment of Panama’s progress. Appointed for two years by President Clinton, Ferro returned to the U.S. in 2001. He currently practices law and is a shareholder at the international law firm of Greenberg Traurig in Miami.

How do you rate Panama’s management of the canal these past five years?

By all accounts and standards, they have done a very good job. Alberto Aleman Zubieta has gone to great efforts to maintain the same quality, safety and service. In fact, he has improved upon a lot of what we were doing.

What kind of improvements?

They have increased efficiencies, lowered operating costs, increased rates and generated more profit. Last year, the canal set a record for revenue generation for the government, far more than they ever got from us.

So the canal is a more profitable enterprise than it was under U.S. management?

Sure, but you have to remember that we managed the canal like a public utility. We could not generate a profit or a loss. Because we didn’t run the canal like a private business, we were not as efficient as we could have been. That was not the goal. The goal was to keep the canal open.

What about the canal’s record from a security perspective?

The canal keeps operating smoothly. They have modernized a number of operations and they have very good security, which is a huge issue, not only with the industry, but also with the Panamanian and U.S. governments.

Were there any doubts about Panama’s ability to manage the canal?

There was no doubt from the U.S. government side that the canal would be run well, and I don’t believe there was any doubt from the industry side either. That was largely due to the overlap of Aleman Zubieta. He was the administrator of the canal under U.S. government authority. So he was completely in tune with the way things used to be done. He was able to garner a lot of credit and support, and projected a high comfort level to the industry.

What’s in store for the canal over the next five years?

With the trend toward more free trade agreements between the U.S. and blocks of Latin American countries, and also among those countries, trade will grow. And the easiest route is through the canal. Panama stands to gain incredibly from the ratification and success of these trade agreements.

Smooth sailing, then?

Not necessarily. While there is only one Panama canal, there are many ways to get your goods from one point to another. You don’t have to use the canal. It has been a challenge and will continue to be a challenge for the canal authority to make sure that the canal does not become obsolete.

Which explains the billion-dollar investment plans to widen the canal locks?

Right. The biggest vessel that uses the canal now is the Panamax. They are looking to accommodate larger vessels. They are correct in their assessment.

There has been a lot of talk in recent years about the involvement of Chinese firms, particularly Hutchison Whampoa, in the operation of the canal.

Hutchison Whampoa manages a container port. That’s it. They are absolutely not involved in the management of the canal. They are not involved in what ships go through. They have nothing but a container port. And it is not even the largest. That belongs to Stevedoring Services of America, a U.S. company.

So, why this perception of a China presence?

I really can’t tell you where those rumors started, but they have been a constant point of annoyance. A lot of people that have been authoritatively saying this know nothing about the canal. They just repeat the same thing over and over. The fact is that the Panamanians run the canal. You cannot take that credit away from them. And when people say that it’s the Chinese, that is almost an insult to the Panamanian government. To emphasize the point: Panama still recognizes Taiwan. The country has no diplomatic relations with mainland China. So there is a great disconnect between the false rumor and reality.

Taking over the management of the canal appears to have energized the country of Panama.

It has. It is a great source of pride that they are running it so well. And they have improved the projection of the canal worldwide. Before, no matter what the administration did, the canal was still a U.S. government-owned enterprise. Today it is something very unique and very important to Panama. That has really enhanced the image of the canal and the image of the country.

Has it also improved relations between the U.S. and Panama? Before there was a kind of subordinate/client relationship.

We never saw it as a subordinate/client relationship. We always saw it as a partnership. We were there based on a commitment made over 100 years ago. We felt it was a mutually advantageous relationship. Certainly some Panamanians thought differently, but the fact is that it all worked out in the end. It was very smooth turnover, seamless. We then initiated a new relationship. And we continue to have very close relations with Panama.