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 in maintenance.

“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

On 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.

Meanwhile, global trade has been growing significantly, providing the continued and rising demand for the canal’s services.

“Over the 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.

NICARAGUA COMPETITION?

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.

DELAYED EXPANSION

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 Wainio, 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," Bingham says. 

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.

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