Will the Panama Canal expansion distort global trade patterns?

On Sunday June 26, the first transit of the Panama Canal’s newly expanded locks was successfully completed by a vessel carrying over 9,000 TEUs. On the face of it then, despite being severely delayed, the expansion now works as intended.

However, that is a question worth exploring further, as this excellent long-read in The New York Times does. It states, “In simple terms, to be successful, the new canal needs enough water, durable concrete and locks big enough to safely accommodate the larger ships. On all three counts, it has failed to meet expectations, according to dozens of interviews with contractors, canal workers, maritime experts and diplomats, as well as a review of public and internal records.”

Presumably the greater the extent to which the expanded locks do not deliver as promised, the lesser any distortions on world trade will be. Under the assumption that they do however, what will be the impact?

According to the official website for the Panama Canal expansion, container vessels with capacities of up to “13,000/14,000 TEUs” can now transit the waterway, compared to 5,000 TEUs previously. To put this into context, whilst the world’s largest ships carry almost 20,000 TEUs, the majority of the world’s container vessels will now be able to navigate the Canal.

According to this article, the fastest way to get cargo from China to the US East Coast is by ship and then rail (12.3 days from China to US West Coast by ship, 6 days from West Coast to East Coast by rail), with around 75% of Asian imports coming this way. Only around 20% use the Panama Canal because it’s longer, at 21.6 days. The rest goes through the Suez Canal. As the expanded Panama Canal offers improved economies of scale, reducing per-unit shipping costs, this may well tilt the balance of the cost/time trade-off towards it.

But to what extent? It seems extremely difficult if not impossible to offer any kind of concrete figures, because there are so many other factors at work.

For example, how will global economic changes, shifting trade patterns and the trend towards regionalisation impact the future of the Canal? How does the situation in the container shipping market (overcapacity, freight rate volatility, lack of profitability and the trend towards consolidation) affect things? How and why are shippers already adjusting their sourcing strategies? The Panama Canal expansion is just one more thing to take into account in the ever-increasingly complex world of supply chain management.

As succinctly summarised by this assessment: “the expansion of the Panama Canal is going to be a game-changer, but the new rules of the game are not clear.”

More insight?

Source: Transport Intelligence, June 28, 2016

Author: David Buckby