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PANAMA CITY (Reuters) - One of the world's greatest engineering marvels is being overhauled as work crews blast through hills to widen and deepen the Panama Canal to make room for a new generation of mega-ships.
Defying the world economic downturn, Panama is spending $5.25 billion in the first major expansion of the canal since it was opened in 1914.
It is a monumental undertaking that promises to shake up global trade routes, making it easier and cheaper to transport Asian goods to the eastern United States and giving China better access to Latin American oil and other commodities.
"The whole Panama Canal expansion will have a significant impact on the way business is done from the Far East into the Caribbean and into the U.S. itself," said Jay Brickman, a vice president at Crowley Maritime Corp, whose container shipping division services the Caribbean and eastern United States. "It changes the dynamics and it changes the economy."
The canal, long dreamed of by Spanish colonial rulers as a 50-mile (80-km) link between the Atlantic and Pacific oceans and finally built by the United States, risked obsolescence because many new cargo ships are too big to traverse it.
Widening the waterway will mean it can handle a huge new breed of container vessels known as post-Panamax ships. They can carry up to 12,600 cargo containers, almost three times the current number.
It will also be a boost for trade from Asia to the central and eastern United States, with the port of Houston likely to see a big increase in traffic.
At the site of the Pacific entrance locks just west of Panama City, excavators with buckets big enough to hold a large car dump rock and dirt into massive yellow trucks with wheels twice as tall as an average person.
Some 152 million cubic meters (5.37 billion cubic feet) of earth and rocks will be chiseled, blasted and dredged for the expansion that includes new locks at both ends of the canal, equivalent to three quarters of the material excavated during the original project.
"It's got to be the highest profile construction contract, if not in the world, certainly in this hemisphere," said Joe Reeder, who was chairman of the canal in the 1990s, before Washington handed over control to Panama in 1999.
The most lucrative contract, worth about $3 billion, was won by a consortium led by Spain's Sacyr Vallehermoso and Italy's Impreglio.
Panamanians are excited about the project, after many skeptics doubted Panama would administer the waterway well.
"The canal is not just for Panama; it's for the whole world, we're very proud of that," said Santiago Coronel, 50, as he rang a bell on his ice cream cart in a leafy park surrounded by skyscrapers on Panama City Bay. "The canal is at the heart of the world. It is the best route between the two oceans."
When finished in 2014, the larger shipping lane will allow through tankers capable of carrying 1 million barrels of oil, liquefied natural gas carriers and so-called Capesize bulk cargo vessels that transport coal, metals and other commodities, slashing weeks off transit times and shifting global trade patterns.
"The expanded canal gives us a lot of options we don't have today," said Peter Gyde, president of A.P. Moller-Maersk Group's Caribbean Sea Cluster at Maersk Line, which moves containers by rail across Panama because much of its shipping fleet outgrew the canal years ago.
Energy-hungry Asian countries will find it cheaper to buy oil from traditional U.S. suppliers such as Venezuela as shipping costs come down and the amount of crude stored in the Caribbean will likely increase as improved logistics allow traders to take advantage of more arbitrage opportunities.
Crossing the isthmus by boat was a dream from the early years of the Spanish conquest of the Americas but it wasn't until 1881 that a French team led by Ferdinand de Lesseps, the famed builder of the Suez Canal, launched an ill-fated attempt to cut a sea-level canal through Panama.
The effort was a failure and an estimated 22,000 lives were lost to malaria, yellow fever and accidents.
The United States finished the project 33 years and another 5,600 lives later, helped by improved excavation technology and the discovery that malaria and yellow fever are transmitted by mosquitoes.
The completed canal cemented U.S. hegemony in the Americas and forever altered global trade.
"The creation of a water passage across Panama was one of the supreme human achievements of all time," wrote U.S. historian David McCullough in his 1977 book, "The Path Between the Seas."
While the canal expansion will boost trade, shipping companies are concerned that it could be financed by increasing tolls, which are already seen as high.
"The one thing that concerns the users of the canal today is that the canal has gotten excessively expensive in the last few years," said Maersk's Gyde.
He said at least one shipper recently saved money by rerouting ships returning to Asia around South America, a trip that adds as much as 8,000 miles, in part because of the high tolls. "That's how extreme the carriers are willing to look at this."
Editing by Alistair Bell, Kieran Murray and Eric Walsh