Panama Canal Expansion Opens Tomorrow

June 25, 2016, 7:47 PM UTC
Expanded Panama Canal
Panama Canal Authority

As one pillar of globalization threatens to crumble, another is leaping into the future. The Panama Canal, which since 1914 has been a keystone of both global trade and Panama’s economy, opens its long-anticipated expansion tomorrow.

The inaugural ship to transit the new locks will be a container vessel owned by the Chinese shipping line COSCO. Though the ship was apparently selected by lottery, the symbolism is nonetheless significant – Chinese trade will experience some of the biggest impacts from the new canal.

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The opening comes almost 2 years behind schedule, following everything from labor disputes to engineering failures to a contentious lawsuit with contactors. Given the scale of the project, however, a delay of only two years begins to look, if not laudable, at least not particularly embarrassing.

The expanded canal is expected to have both local and global benefits. The basic reason for the expansion is to allow a new generation of larger, more efficient ships to pass through the canal. Over time, that should lower overall global shipping costs.

It will also significantly reshape global shipping routes, including, according to projections, increasing shipping traffic to the U.S. East Coast. Ports from Georgia to New York have undertaken major dredging and refitting operations to get ready for the influx of larger ships.

The Panama Canal Authority has projected that the expansion will have a huge effect on the domestic economy. In 2014, the canal earned $2.6 billion, about 5% of Panama’s GDP. The PCA says the expansion will multiply those revenues eight times – though some have questioned their generous assumptions.

For instance, Egypt’s Suez Canal Authority, which has long offered a competing route for shippers, recently announced an ‘experimental’ reduction in certain tolls, the sort of move which could reduce Panama’s attractiveness.

For more on the shipping industry, watch our video.

The expanded Canal is opening at a deeply troubled time for the broader shipping market. Global trade has remained stagnant, even as the expanded capacity of all those bigger ships has driven container rates to historic lows, leading to heavy losses and looming consolidation. Even the occasional bump in spot shipping rates has come to be greeted with skepticism verging on cynicism.

Still, even shippers getting underpaid for their cargo need to get where they’re going. In other words, it’s probably a better time to own a canal than a ship.


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