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Jun 24, 2013 | 14:05 GMT

3 mins read

Expansion of the Panama Canal and Global Shipping

The expansion of the Panama Canal is scheduled to be completed in 2015, tripling the size of ships that can pass through. The expansion will make shipping between the Atlantic and the Pacific oceans easier, and increased access to the Pacific from the U.S. Gulf Coast may increase the competitiveness of the American agricultural sector in Asia. Additionally, the expansion will permit the Panama Canal to remain competitive as a shipping route amidst an ongoing growth in the size of ships in the global shipping fleet. Though there remain many uncertainties about exactly how various routes will compete with one another, there are clear implications of the canal expansion that will impact both Pacific and Atlantic supply chains.

The most obvious shift that will occur from the canal expansion is that there will likely be a higher volume of goods transited from Asia to the east coasts of North and South America, and vice versa. This may affect the West Coast in the United States by creating a more heavily used all-water route to the East Coast. At the same time, greater canal capacity could lower costs for Midwest-based agricultural producers to use the Mississippi ship to Asia, increasing U.S. agricultural competitiveness. The U.S. petroleum industry will also benefit. Ethylene and other products derived from natural gas and petroleum production in the United States are being produced in significant quantities in the U.S. Gulf Coast region, and these will have cheaper access to Asian markets.

The expansion will also keep Panama and the canal competitive in global shipping. Ships that are too large for the canal’s current capacity make up about 16 percent of the global container fleet and carry 45 percent of the fleet’s capacity, and that percentage is on the rise. Even after the expansion is completed in 2015, the Panama Canal will not be able to accommodate the largest vessels in the global shipping fleet, which carry about 15 percent of container shipping and about 17 percent of the current and on-order bulk vessels. 

Changes in the vessels using the canal will mean changes at nearby ports. The post-expansion, New-Panamax ships at full capacity will require ports with depths of 15.2 meters, or 50 feet. Most ports on the U.S. West Coast are deep enough, but only a handful are deep enough on the east coast. Shallower ports will not be able to handle the larger ships. This has the potential to create a hub-and-spoke system where deeper ports host larger ships while smaller ships service shallow regional ports. This model would be most feasible in the Gulf Coast region, where the nearest deep water ports are in the Caribbean.

The exact impact of the canal’s expansion will depend on shifts in infrastructure quality, the cost of shipping and the price of fuel. Improvements to coast-to-coast railways in the United States and ports in Mexico could keep Pacific ports competitive for East Coast shipments. Similarly, time to transit as well as shifts in fees at the Panama Canal will influence calculations of global shippers. But from a geopolitical perspective, changing the Panama Canal is fundamentally a change in geography, a fact that will change logistics dynamics throughout the Western Hemisphere for the foreseeable future.

 

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