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Impact of Panama Canal Expansion on World and US Trade

By P. Vishnupraneeth Reddy

Edited by Sanchita Malhotra, Associate Editor, The Indian Economist

The Panama Canal connects the Atlantic Ocean to the Pacific Ocean, via the Caribbean Ocean. The Canal is more cost effective than shipping another 5,000 miles around the southern edge of South America. Therefore, the Panama Canal keeps the cost of imported goods down, helping to reduce inflation. It also allows U.S. export companies better access to China and other Asian markets. The Canal is more complicated than just digging a long trench across the shortest point, which is The Isthmus of Panama. First, the sea level of the Caribbean is eight inches lower than the Pacific. Second and also the different tides between the two oceans must be accounted for. Third, the Isthmus at Panama itself rises 26 meters above sea level. To solve these problems, ships go through a sequence of three locks, which lift them up to Gatun Lake, and then lower them through three more locks back down to sea level. It takes, on average, 13 hours to move through the Canal’s 51-mile length.

Panama Canal Expansion Project (PCEP)

The Panama Canal expansion is a project of global importance, designed to maintain the waterway’s competitiveness and improve the value of the Panama route. After years of analysis and hundreds of studies performed by the ACP, the people of Panama decided that it was in the best interest of the nation to engage in a project that would not only guarantee the sustainability of its main asset, but that would also be an economic engine capable of offering a myriad of opportunities for future generations to come. Last year, the Republic of Panama’s gross domestic product grew by 10.5 percent and unemployment is at the lowest levels ever experienced, at 3.5 percent. The Initiation of the project has drawn the interest of the international community, and has put Panama on the map in a way never imagined during the project’s conceptual stage. The new locks’ dimensions were designed to handle vessels of up to 170,000 deadweight tonnage or 12,600 TEU. However, ingenuity have been the norm around all aspects surrounding the project, and recently, new ships unveiled their design for a 13,200 TEU containership that will fit the dimensions of the expanded locks. Containers are the main commodity through the Panama Canal, accounting for over 50 percent of toll revenues. By the time the expanded canal opens, the ACP expects the deployment of containerships of more than 10,000 TEU through the new locks. Ports in the East and Gulf Coast of the US are making every effort to upgrade their infrastructure to meet the demand of post Panamal vessels. But the expansion will lower the shipping costs. However, rail doesn’t carry as much cargo as the Post- Panamal ships. One ship carries as much as 16 trains. That means the Panama Canal expansion will be more cost effective, even though it will still take longer. Therefore, it will probably be used by commodities export companies, which are concerned more with cost than time. For example, U.S. natural gas exporters will be able to serve Asia. Without expansion, the Canal is too small for LNG ships. High-value, time-sensitive goods, such as electronics, will still use West Coast ports and rail. Therefore, the Canal expansion could take another 35% of current West Coast freight.


It is clear that those ports that are ready to handle the larger ships will take the most benefits, and these benefits will translate into more cargo at the terminal as well as in more jobs related to the handling and distribution of the cargo, as well as other business related transactions. There has been some debate as to the impact of the Panama Canal expansion in the West Coast of the US. Most of the focus is on the possibility of the East Coast stealing cargo away from the West Coast. However, a good opportunity is being overlooked and that is that trade will open between the West Coast of the US and the East Coast of South America, particularly Brazil, which is an important emerging market. The Panama Canal expansion impact will be felt in several market segments. Grain, the second most important commodity to go through the waterway, will also benefit, as the expansion will facilitate the flow of grains originating in the Midwest of the US. Annually, around 40 million metric tons of grainsbarges through the Mississippi river via the Panama Canal. The expanded canal will allow for the transportation of grains in vessels, generating economies of scale in shipping. Both coal and iron ore shipments will have the opportunity to explore the growing Asian market with the expansion of the Panama Canal.

P. Vishnupraneeth is studying at the Indian Institute of Technology at Guwahati, India, an Institute of National Importance. He is pursuing his undergraduate studies in ECE & Physics departments simultaneously. Apart from his engineering side, his interest lies in writing articles about sports, special ops around the world, war, politics & their consequences on economy, Income tax etc. His favourite writers are Rabindranath Tagore & APJ Abdul Kalam.

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