Panama’s waterway remains key transit point
for global trade after 100 years.
BY JOACHIM BAMRUD
The Panama Canal, which
turns 100 on August 15, is expected to play a key role in global trade the next
century as well, experts say.
“The Canal’s role in global trade will still
be important in another 100 years, though the Canal’s share of world ocean
trade will probably diminish further as global trade evolves with economic
growth elsewhere in the world (e.g. further growth in intra-Asian, Asia-Europe
and Asia-Africa trade), even if Panama were to expand the Canal further, with
even larger locks sometime in the next 100 years,” says Paul Bingham, Economics Practice Leader in the transportation division of infrastructure
consultants CDM Smith.
Robert McMillan, former
chairman of the Panama Canal Commission, agrees. “There is little doubt that
the Panama Canal will have a key role in global economic growth over the next
one hundred years,” he says.
The 80 kilometer (49 mile) long waterway linking the
Atlantic and Pacific Oceans was built by the US government and formally opened
in 1914 after 10 years of construction. Originally,
a French public-private group tried to construct the canal but had to give up
due to financing and local challenges.
In 1999, the US handed ownership of the
canal to Panama’s government, as part of the 1977 Torrijos-Carter Treaties, which also included the handover of the area on both sides of the canal, a railway and two ports.
At the time, a majority of Panamanians as
well as many Americans doubted Panama would be able to run the canal as
efficiently as the US government had. There were widespread fears that the
Panamanian government would mismanage operations taking away revenues to the
detriment of maintenance. The Panama Canal Commission, the US agency operating
the canal, had operated the waterway as a non-profit company, investing heavily
“While I have to admit
that I was somewhat concerned about the capabilities of Panama to effectively
run the Canal operations, that concern soon evaporated,” McMillan says. “I should have realized that the United
States had effectively trained Panamanians to take over the Canal and that we
had left the Canal updated and ready for the transfer. The Panamanians have run the Canal as
efficiently as the United States.”
McMillan wrote a book about his days at the Canal Commission and his take on
the Panama Canal, Global Passage: Transformation of Panama and the Panama Canal.
KEY TRANSIT ROUTE
average the canal handles more than 12,000 ships yearly. Since the 1914
opening, more than one million ships have transited the canal. In 2012, 10.6 percent of
global maritime grain transport transited the Canal, as did 5.8 percent of the
chemical products, and 4.7 percent of the containerized cargo, according to the
Panama Canal Authority (ACP).
Until its current expansion program, which
started in 2007, the canal had been using same infrastructure since it opened. "That
the locks at the Panama Canal are still working nearly 100 years later without
any major problem is testament to the standard of design and construction
employed," writes Matthew Parker in his book on the construction of the
canal, Panama Fever. “The use of concrete was a daring gamble at the time, but it has
stood the test of time.”
The canal has been able to stay relevant for
the past 100 years thanks to its key location. “Shipping goods by vessel is still the most
efficient mode of transportation in term of economies of scale and emissions
footprint,” Bingham says. “The ocean trade on routes able to take advantage of
the short-cut between the Atlantic Ocean and Pacific Ocean remains substantial,
in fact much greater than the original builders probably could have imagined.
The dimensions of the original locks were large enough to still provide
economical sized vessels the ability to transit.”
That stands in contrast to the Erie Canal in
the United States, which has locks that are much too small to be economical for use in
the area of New York State it serves, he adds.
global trade has been growing significantly, providing the continued and rising
demand for the canal’s services.
last one hundred years the global economy has expanded regularly in spite of
global wars,” McMillan says. “Even with
planes capable of carrying fright, the expansion of global trade has been the
main reason for trade through the Panama Canal.”
However, the canal has been impacted by the recent slowdown in global trade. In
fiscal year 2013, which ran from October 2012 through September 2013,
oceangoing transits declined 6.4 percent from FY2012, cargo fell 3.8 percent
and PC/UMS net tonnage declined 3.9 percent.
Ironically, as the canal celebrates its Centennial, it again faces talk of competition
from a possible Nicaragua canal. The US had originally planned to build a canal
in Nicaragua to compete with a French-run canal in Panama, but eventually
abandoned the idea.
Now, a Hong Kong-based company, HKND, is
planning to build a $40 billion, 286 kilometer (178 mile) canal linking the
Atlantic and Pacific Oceans. HKND is owned by Chinese businessman Wang Jing.
“One of the future challenges will be the
possible construction of a new canal across Nicaragua involving Chinese
economic interests [but] I have my doubts about such a project because of
infrastructure challenges and environmental concerns relating to Lake
Nicaragua’s drinking water,” McMillan says.
Meanwhile, Panama has stated that it is
already planning a new set of locks to handle even larger vessels than the current
expansion project will be able to handle, he points out.
Many experts also are
skeptical about the financing of the Nicaragua canal.
The Panama Canal expansion
was originally scheduled to be finished by the Centennial date at a cost of
$5.2 billion. However, it has run into several delays and cost overruns. The
expansion is now set to end in late 2015 with the new locks scheduled to be in
operation in January 2016, according to the ACP. Richard
a former planning director of the Panama Canal Commission who recently served
as Port of Tampa CEO and follows
canal development closely, believes that date may be too optimistic. (See Panama Canal
Faces Delays, Arbitration).
Meanwhile, the official cost estimate has
gone up to $6.7 billion, although it could end up higher than $7 billion, Wainio warns.
However, in the end, the delays will likely
be seen as a minor stain on the canal’s history, some experts say. “With the long-term perspective, these delays
are trivial and will be forgotten by most users within less than a decade,"
McMillan points out that the United States
also had its share of problems when it built the canal.
“There have been glitches in Panama, but we have to remember that one hundred
years ago, we had glitches in the United States effort to construct the Canal,”
he says. “For example, it took us over three years to figure out that there was
an 18 foot tidal difference between the Caribbean side of the Canal path and
the Pacific side. Once realized, that
caused changes in our efforts to build the Canal.”
Joachim Bamrud, the
editor-in-chief of Latinvex, was a Panama correspondent for Reuters and UPI in the early 1990s and is the author of Panama Jack, a spy thriller set around the Panama Canal.