Panama Canal Turns Hundred

GLOBAL CENTRE STAGE

The Panama Canal, one of the major engineering achievements of the modern era, celebrated 100 years of service to world trade on August 15, 2014. Marianela Dengo and Jaime Castillo understand the significance of the Canal and find out how it will continue to change the world in future

August 15, 2014 was a significant date for the Republic of Panama, as the Panama Canal, one of the major engineering achievements of the modern era, celebrated 100 years of service to world trade. During this timeframe, the waterway has served as a shortcut for international commerce, connecting 144 trade routes worldwide and serving over 1,700 ports in 160 countries. Today, Panama is one of the major transhipment hubs in the world, connecting east-west routes and providing north-south transits through the Americas.

Building an Engineering Marvel

The first step to turn Panama into an important transportation artery dates back to the 16th century, when the Spanish Crown took advantage of Panama’s geographical location at the narrowest point of the Americas, and used the isthmus as a connecting hub for the shipment of gold and precious stones mined from South America to Spain.

Three centuries later, in 1879, Ferdinand de Lesseps, the renowned builder of the Suez Canal and France’s national hero, created the Compagnie Universelle Interoceanique du Canal de Panama to build a sea level canal across the Isthmus of Panama. Work began in 1880, however, tropical diseases as well as financial woes and poor project management led to its failure in 1889.

By 1903, Panama had seceded from Colombia and negotiated the Hay-Bunau-Varilla Treaty with the United States that allowed the construction of a lock-type canal across the isthmus. The Hay-Buneau-Varilla treaty gave the waterway and its adjacent areas to the United States in perpetuity in exchange of a $10 million payment and an annual rental fee of $250,000. The French sold the rights to build the Canal to the United States in 1904 for $40 million.

The Canal was inaugurated in 1914. Over the course of the 20th century, Panama sought to recover its full sovereignty and rightful ownership of the waterway and its territory. For a span of 50 years, diplomatic efforts failed to reconcile differences. Finally, on January 9, 1964, clashes between Panamanian citizens and Canal Zone military forces resulted in the death of several Panamanian high-school students and civilians. This event provoked a brief rupture in diplomatic relations between the two countries.

On September 7, 1977, Panama and the United States signed the Torrijos-Carter Treaties, which established the transfer of the Canal at noon on December 31, 1999. The transition was seamless and with the transfer, Panama gained sovereignty over its whole territory. Thereafter, the Panama Canal Authority (ACP), the autonomous agency of the Government of Panama established under the National Constitution, took over the administration and operation of the waterway.

A World of Possibilities for International Commerce

In the last hundred years since its inauguration, the Panama Canal has played a significant role in world trade. It opened a world of possibilities for international commerce, allowing the exchange of commodities and manufactured goods between regions not traditionally interconnected because of their geographical distance.

Cargo flows have grown steadily. However, the waterway has not been immune to the ups and downs of the global economy. For example, traffic diversion stemming from the closure of the Suez Canal in 1967 brought a significant increase in tonnage through the waterway. Between 1980 and 1982, the surge in oil flows from Alaska triggered traffic our way and then decreased in 1983 after a trans-isthmian pipeline was opened. In 2001, the entry of China to the World Trade Organisation boosted cargo volumes, particularly containerised shipments originating in this Far East country to the East, and Gulf Coasts of the United States.

Today, the Panama Canal offers a safe, reliable and cost-competitive service to nearly 14,000 vessels on a yearly basis, and handles around 200 million tonnes of cargo. Historically, the United States has been the primary user of the Canal. Sixty-five percent of the cargo that transits the waterway originates from or is destined to a maritime port located in the United States. In terms of tonnage, China is the second trading partner. The market is segmented by vessel types that carry different commodities. For example, ships originating in China move containerised goods to the United States, while dry bulk carriers transport grains from the United States Gulf Coast to Asian countries.

Chile, Japan, Colombia and South Korea are also major users. Vessels loaded with refrigerated cargoes from Chile and other West Coast South American countries sail to the United States East Coast and Europe. Japan is a major importer of grains, particularly corn, sorghum and soybeans harvested in the Midwest of the United States, and shipped through Gulf ports. Colombia’s major export is coal destined to Chile, used for energy-producing purposes. Meanwhile, specialised vessels carry cars and light trucks exported from South Korea and Japan for the American market.

Expansion Project: Positive and Pivotal

The Panama Canal has embarked on a $5.25 billion expansion project that will double capacity and allow the transits of larger, wider and deeper-draft vessels. Already almost 2/3 complete, the project consists of the construction of a new lane of traffic, with two locks complexes, one at the Atlantic and the other at the Pacific. This multimillion-dollar project also includes the creation of a new access channel that will join the Culebra Cut to the new locks in the Pacific; the widening and deepening of existing navigational channels; the deepening of Canal entrances at both sides of the isthmus and the elevation of Gatun Lake’s maximum operating level to provide for a larger water reservoir.

Once the new lane is operational in the beginning of 2016, the ACP will be able to handle vessels of 49 meters in beam, 366 meters LOA, and 15 meters deep, and with a deadweight tonnage of up to 170,000. Container ships deployed through the waterway will be able to carry three times more containers that the ones that transit today (from 4,400 TEU to 13,200 TEU) and dry bulkers and tankers will be able to transport twice the tonnage allowed in the Panamax-size vessels that currently trade within the Canal routes. All in all, this is a project that will provide economies of scale and cost reductions along the supply chain – especially for shipping lines and shippers – as well as growth opportunities for the ports and areas that are origins and destinations of cargo.

After the expansion, the ACP foresees the deployment of specialised Liquefied Natural Gas (LNG) vessels through the waterway, which cannot transit through the current Canal as they are too wide to fit the existing locks. The waterway will become a new competitor for LNG cargo originating from Peru to Europe, and for shipments originating in Trinidad and Tobago to Chile. There is also a potential trade of LNG that could result from the development of shale gas from the United States to Asia.

The expanded Canal will allow the transportation of grains in larger vessels of 100,000 deadweight tons, resulting in economies of scale in shipping. Approximately 35 million metric tonnes of grains, particularly soybeans, corn and sorghum, are transported annually by barge across the Mississippi river to ports on the Gulf Coast, where they are transhipped in dry bulk vessels to Asian markets, via the Panama Canal. The savings from using a larger vessel could amount to around $6 per tonne. There is also a potential for soybean shipments originating in the northeast of Brazil with destination Asia.

Colombian exports of coal and iron ore could also be shipped through the expanded Canal in capesize vessels of 175,000 deadweight tonnage. It is expected that in the next 10 years, coal exports from Colombia will increase by more than 200 million tonnes. There is also potential of iron ore shipments originating from Venezuela and Northern Brazil; however, these would be shipped in Panamax-size vessels due to draft limitations in ports of origin.

One of the greatest impacts is expected to take place in Panama as the volumes handled by its modern and efficient port system are expected to increase from 6.6 million TEU in 2013 to over 12 million in the next decade. Around 85 percent of the containers currently handled are transhipped to Latin American and Caribbean markets. In the future, Post Panamax vessels would be deployed in long hauls from Asia to Panama, and feeder vessel networks distributing the cargo in short haul to the rest of the Americas.

Furthermore, the expansion will also contribute to reduced CO2 emissions across the globe. It is expected that during the first 10 years of operations of the expanded Canal, global CO2 emissions will be reduced by 166 million tonnes through the deployment of larger ships carrying more cargo through the waterway.

Making existing trade routes cleaner and more efficient, facilitating the development of new trades, and the creation of significant business opportunities are some of the results of the expansion project. The Canal has and will continue to change the world forever, as the on-going expansion is already considered a positive and pivotal turning point not just for the country, but for all trade-driven commerce that is impacted by the Panama route.

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Author

Marianela Dengo

Marianela Dengo is the Customer Relations Unit Manager of the Panama Canal Authority.

Jaime Castillo is a Customer Relations Specialist for the Executive Vice-Presidency for Planning and Business Development in the Panama Canal Authority.

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