The expected benefits of the Panama Canal Expansion

By ussa-login on Monday, November 14, 2016 - Blog

After nine years of construction costing approximately $5.4 billion, the expanded Panama Canal began its commercial operation in June this year. By reducing greenhouse gasses and allowing more vessels with greater capacities to have access through the canal, there will be far-reaching consequences for the Panama Canal Authority and the shipping industry as a whole.

Benefits for Panama and the Panama Canal Authority

The Panama Canal is known as the world’s greatest shortcut. It has always held a strong ground in maritime trading since it was first launched in 1914. The Canal had, however, been losing market share to other popular trade routes like the Suez Canal due to its inability to accommodate vessels greater than 5,000 TEU’s. Other limitations that the canal faced were an outdated canal structure, an inability to divert traffic to longer alternative routes, and unsustainable development.

The new Panama Canal will improve all this by accommodating up to 51 vessels per day by 2020. Given its cost-effectiveness, international shippers and traders would be more enthusiastic about choosing the Panama Canal instead of the multimodal route, the Cape Horn Route or the Suez Canal for transporting goods by large cargo vessels.

Increased daily transits, faster transit times, and allowance of more tonnage would also make way for increasing toll revenue. With an estimated annual growth of container cargo commerce of 8.4%, the Panama Canal expansion and its augmented demand for the trade route, would inevitably contribute to the increased economic activity in the Panama region.

Benefits for other nations

Although beneficial to Panama, the effects of the expanded canal will be far-reaching. For one, U.S export costs will become cheaper. There will be greater access for Latin American industries into the Pacific region. A notable conclusion from the project is that Asian markets will now be drawn to the Atlantic. The canal expansion is predicted to accelerate a gradual shift of U.S. containerized imports from Asia toward the East and Gulf coasts instead of the presently dominated West Coast ports. These ports need to be fully equipped to handle more ships with greater capacities

Benefits for the Shipping industry as a whole

Anticipating a surge in trans-Pacific container shipments that now move via the U.S. West Coast – East and Gulf coast ports have spent more than $150 billion to deepen harbours, expand terminals, and improve rail and road connections from their docks.

Overall the Panama Canal will become more accessible, leading to a drop in price for shippers. Although shippers need to monitor routes closely, the new infrastructure will save shippers money by giving them more options when moving their freight.

As for carriers and ports, only time will tell how much they will benefit. The U.S East Coast still needs to improve infra-structure. Ports like New York-New Jersey and Virginia have struggled with congestion. This is due to the mere 151-foot clearance under the Bayonne Bridge, which stands between four New York-New Jersey container terminals and the Atlantic. A $1.3 billion project to fix this is to be completed at the end of 2017.

The carriers have also begun upsizing. Asia-East Coast services aim to take advantage of the new locks. Six vessel strings have been announced to enhance Asia-U.S. East Coast services. More than 50 ships with capacities of 6,000 TEUs to 10,000 TEUs are being used.

These upgrades to infrastructure may or may not be financially beneficial for carriers and ports as transit times, the costs of canal tolls in comparison with intermodal rail, port reliability, and distribution strategies still need to be factored in. There may be much competition lying ahead.

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