New & Improved: The Expanded Panama Canal

By Robert Goldstein, Senior International Trade Specialist
rgoldstein@kreller.com

After years or work and two years behind schedule, the widened and deepened 102 year old Panama Canal is due to commence operations in July.  Well, maybe. But the work is pretty much done. The Canal’s new dimensions will allow larger container ships to pass through but not the largest class, a big improvement nonetheless.

The effect on shipping will be to cut cost transit costs but not necessarily time for some products. The newer ships are bigger, faster and more fuel efficient. The eastern half of the United States will especially and positively be affected where the to and fro shipping with the Asia/Pacific (A/P) region is concerned. Outbound bulk commodities such as grain, pulp, food stuffs, etc., will be positively affected. Inbound goods from A/P will make distribution easier, especially as retailers ramp up for the year end holidays. Naturally, this could also mean better margins for shippers and perhaps lower prices for consumers. When commodity prices begin to rise again, the affects at the point of sale may not be quite as severe with the reduced costs of moving the products.

Though there are of course skeptics, the bigger winners will be the American East Coast ports. Many port cities, from New York to Miami, are deepening and expanding their harbors in anticipation of the increased activity, estimated by some by more than 10%. Currently these ports get about 35% of the A/P container traffic. Miami especially could see a spike as it is the first eastern U.S. port north of the Canal.

This also could also give impetus to needed infrastructure projects in the region. It will eliminate much of the need for rail cars from the West Coast ports and give eastern truck and rail lines a boost with short and medium length routes. It may prove far cheaper if not quite as quick to take a container off a ship in Charleston, SC and put it on a truck to, say, Cincinnati or a rail container car to Chicago. That may mean big savings for shippers and their customers.

West Coast ports will most likely see some decrease in its enterprises, especially if some of the Central and South American countries expand their eastern ports to accommodate increased traffic. Western rail lines, while losing out to the weakened West Coast demand, may make it up with the boost at New Orleans and Houston. What will not be taking place in the foreseeable future is the proposed Chinese project to build a competing canal across Nicaragua.

When it was completed in 1914, the Panama Canal was a true miracle of engineering and seat-of-pants know how. The project succeeded where even the great Ferdinand de Lesseps, chief developer for the Suez Canal, failed. Conquering malaria and yellow fever around 1900 certainly helped. Today’s new Canal is indeed a triumph. It won’t be the game changer its predecessor was but, in even the short to medium run, exporters and importers will reap the Canal’s cost benefits and increase their shipping options and strategies which will in turn could benefit the nation as a whole.