Expanding the Panama Canal: What Does it Mean?

In 2006, the people of Panama overwhelmingly approved a national referendum to expand and enlarge the Panama Canal. This $5.25 Billion project, currently 6 months behind schedule, is due to be finished around June 2015. The project will double the capacity of the canal by adding 4 new locks, which will be able to handle much larger ships, known as New Panamax. The question becomes how the expansion will impact global trade and shipping routes.

The expansion of the Panama Canal will allow many New Panamax ships to use the canal and sail directly to ports on the Atlantic or Caribbean. This would increase efficiency in the shipping industry as compared to ships having to stop on the West Coast and then ship the material by land. Panamanian officials hope this will entice shipping companies to use the canal, possibly causing more ship traffic from Asia to bypass Western ports and head straight to ports on the East Coast.

This sounds good, but there are several problems that could lessen the impact that the expanded canal has on shipping routes. Since the expansion of the canal will cost Panama over $5 billion, tolls to use the canal have increased. In March, the Maersk Shipping Line announced they were rerouting their ships to go through the Suez Canal instead of the Panama Canal because of the increasing tolls and costs to use the Panama Canal. Wait times to use the canal also pose problems for companies, as the average wait time to cross the canal is over 25 hours. This extra time makes the canal less appealing to shippers and consumers as compared to docking on the west coast, since using the canal already takes a longer time. The new locks also will still not be able to handle some of the largest container ships, known as Super Post Panamax, which have to use the Suez Canal.

Even with these problems, the expanded canal will still impact trade throughout the world. Post Panamax ships sailing to Europe will now be able to utilize the canal instead of going through the Suez. Traffic that once went to major West Coast ports, such as Los Angeles and Vancouver, could shift to Atlantic ports as they become Post Panamax ready. Trade routes to and from Asia could change, and South American emerging markets such as Brazil and Chile could see increases in trade. The possibilities are great, but they will depend on how efficient and cost effective the expanded canal proves to be.