Panama Canal expansion will impact US trade dynamics

on January 29, 2013

The project to widen the Panama Canal was initiated in 2006.  5.6 billion dollars was approved for the project and it is currently due to be completed in 2014.  Two major issues are addressed by this expansion project:

  1. The Panama Canal is at maximum capacity in terms of traffic it can handle.
  2. The Panama Canal cannot handle the super sized container ships that are slowly becoming the mainstay of most shipping companies.

The super sized cargo carriers are vessels with capacities of at least 12,000 20-foot equivalent units.  They are longer than aircraft carriers and are more fuel efficient and environmentally friendly than past ships.  Some cargo costs will drop as these carriers become the norm for global shipping, but they are only being used now for shipments from Asia to the US west coast.

Currently these large cargo ships from China can only port on the West Coast (mainly Los Angeles and Long Beach) as they can’t get to the east coast.  However once the canal project is completed, these super cargo ships will be able to deliver product to ports in the gulf of Mexico and all the way up the eastern coast.

Experts are expecting some changes in the US transport Industry:

  • The Texas and east coast ports will gain traffic as the super sized cargo vessels can avoid long ground transport and haul goods directly from China.
  • The West coast ports will lose traffic as many vessels will no longer be restricted from using the Panama Canal.
  • Over the road haulers will lose business hauling goods from the west coast to Midwest and Eastern cities.
  • Many products will become cheaper to haul, making them more competitive in Asian markets.
  • Producers in the Midwest will be able to ship product to Asia out of Texas ports.

No one is predicting exactly how these changes will impact the US and Global economy, but many economists are labeling the widening of this canal a “game changer”.

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