The Panama canal Expansion,The Game Changing Factor!

The Panama Canal has been used as a primary maritime route for international trade since 1914. With 77 kilometers in length, the artery is constructed around the Isthmus of Panama to connect and shrink commutes between the two oceans in significant ways, i.e., the Pacific Ocean and the Atlantic Ocean.  Previous to the Panama Canal, journeys took D-tours around Drake Passage and Cape Horn to the far south of Southern America over 22,500 kilometers. Thus, the Panama Canal has remained a crucial logistics artery for the world, to-date.

To-date, the spike in demand for transport services to coup with international economy expansion has held the trail as the logistical itinerary of choice, with the capacity to see over 278.8 million tons of cargo through every year.

Recently, however, structural changes to logistics systems has impacted the capacity of the Panama Canal, namely, the size of cargo ships that are too large to sail through the canal. Ultimately, continuing the same development trends can see the Panama Canal lose market share. And that is a game changing factor to Supply Chain developments between the Pacific and Atlantic Coast.

Panama Canal Expansion Project, or “The Third Set of Locks”, began in 2014 and required an investment of 155 million US dollars to expand wider and deeper water traffic channels. To accommodate the larger fleets, “New Panamax” is nearly twice as large as the average transport ship. The volume of goods to be transported after the project is completed is projected to increase by 3% per year, and in 2025 the volume of goods will double that of 2005, according to studied statistics. Most products that generate revenue for the Panama Canal is dried bulks such as seed corn, soybeans, wheat, ore, etc., and in liquid forms, such as chemicals, crude oil, along with other products. The post New Panamax era, though are expected to see containers replace the aforementioned products while automotive transporting are expected to become the third largest income, reigning in approx. 30.4 million US dollars in 2015 and with projected increase of 20% per year.

The project has resulted in the improvement of coastal cities infrastructure, especially in the East Coast of the United States. The Port Authority of New York and New Jersey who oversees the largest port on the East coast plans to invest more than US $3 million in construction to improve the height of the Bayonne Bridge to accommodate traffic, larger vessels, and more than 1.6 million US dollars to improve the depth of the channel. The Port of Charleston will become a port with the deepest depths on the East coast. In addition to ports and shipping capacities in the US, the development also affects by-land locomotive rail and truck transport. A town near Greenville, for example, about 200 miles away from the Port of Charleston, was planned to be developed into an Inland Port and a major distribution center that accommodates a new wave of increasing transport containers, and so on. A ripple effect takes place on the economy and all companies doing business in Asia, both manufacturers and suppliers. The analysis of the Boston Consulting Group predicts that by 2020 the volume of container shipping from the West Coast to the East Coast will rise 10 percent, the volume of shipments including the drop in freight traffic between Eastern Asia and the United states, as well.

However, several factors and details remains to be considered for the expansion development, e.g., water level of the Panama Canal needed to accommodate the massive ships, as the El Nino may cause water inadequacy to the canal, thereby, limiting the capacity for overall shipping weight. The design lock of the project is designed for the exact purpose – to prevent water shortages by the reuse 60% of water in the canal. However, that still sees two time the usual water quantity required to distribute water.

When the massive fleets transport through the canal, a question remains to be answered, as well, of to whether cargos can be transported along the ports in the Caribbean Sea effectively or not, such as the ports in the Bahamas, Kingston, and Jamaica, where cargos are disseminated onto smaller ships to be distributed to destinations along the East Coast. Meanwhile, China will lose the benefit of having products from China going in to North America and Mexico replaced by goods from other countries that are transported through the canal with overall relatively the same cost, if not lower.

The expansion of the Panama Canal will be a turning point for manufacturers with bases and raw material sources in Asia. The trade-off is between the cost of transport that is 30% cheaper than other modes, comparing transportation costs from eastern Asia to the East Coast, and the increase time required to transport. After the project is completed, there are surely major developments and trends awaiting us.

Compiled by BLOG.SCGLogistics

References and Pictures forbes.com, npr.org, micanaldepanama.com, rita.dot.gov, supplychain247.com, en.wikipedia.com

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