World Review | Panama Canal improvement will boost world shipping trade

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Panama Canal improvement will boost world shipping trade

Panama Canal improvement will boost world shipping trade
Container traffic using the Panama Canal is set to grow (photo:dpa)

THE DYNAMICS of world trade are expected to change significantly once a project to increase the width and depth of the Panama Canal is completed in 2015.

The Panama Canal Authority (ACP), which operates the canal, announced at the end of 2012, that the US$5.25 billion project, which started in 2007, is almost half complete.

The project, which created more than 28,600 direct jobs, will give the canal a third lane, wide enough to take super-sized ships nearly three times larger than any vessel that has ever been through the isthmus before.

The ships will be slower than current smaller vessels, but the economies of scale mean that one ship would be able to carry twice the current volume.

The new canal will open just over a 100 years after building work for the original canal by the United States was completed in 1914.

The 50-mile-long waterway, linking the Pacific Ocean with the Atlantic Ocean, saved cargo shipping the long journey around Cape Horn and through the stormy Drake Passage at the southern tip of South America.

The canal was highly profitable for the United States until the Second World War. However, its value to the US declined with the construction of the US highway system and changes in the world economy.

Some observers had predicted that the canal would be inefficiently run and unprofitable in the hands of the Panamanians.

But, under the control of the Panama Canal Authority, it has been profitable, and has succeeded in staying clear of interference from government and the corruption that once characterised business in Panama.

The expansion project has been carried out to meet a sustained increase in international trade and a rise in demand for movements through the canal.

The number of shipping containers aboard freighters using the canal has risen from 200,000 in 1995 to 6.6 million in 2011.

International trade is expected to continue to grow substantially during the next two decades, at rates higher than the growth rate of the main world economies.

During the next 20 years, cargo volume using the canal is predicted to increase at an average rate of three per cent per year, with tonnage expected to double between 2005 and 2025.

Containerised cargo, the main growth area for canal traffic, makes up 35 per cent of the volume passing through the canal, and 40 per cent of its revenues.

Panama is expected to be transformed into the most important transport hub in the Western hemisphere by linking the north-south continental truck and rail routes with the east-west transcontinental routes in the United States with the new Trans-Amazonian highway nearing completion in South America.

Venezuela and Iran have held talks with Nicaragua on the possibility of building a rival canal through Nicaragua, but the project now looks less likely to go ahead.

The canal expansion, which is self-financing and will not be part of Panama's sovereign debt, will be a boost for the Panamanian economy.

When the project was started in 2007, Panama’s then-president, Martin Torrijos, said the canal would generate enough wealth to transform Panama into a first world country. It was hoped it would reduce poverty by 30 per cent.

The widening of the canal is expected to affect trade across Latin America.

Very large ships carrying coal from north eastern Colombia and iron ore from Brazil would be able to take raw material to China through Panama more cheaply, giving a boost to those industries and creating jobs. Chilean copper producers should find it easier to export to European markets.

There are benefits to other countries including the United States.

The expansion is widely expected to be a boon to East Coast and Gulf Coast ports.

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