Although global trade has had a bad couple of years, a look at the Panama Canal would seem to indicate otherwise. At least at first glance.
Following a $5.25 billion construction project aiming boldly to almost triple cargo capacity, the Panama Canal Authority boasted its third highest tonnage in history for the 2016 fiscal year. 330 million tons (PC/UMS, or Panama Canal tons) passed through the canal in the fiscal year, quelling some fears that the third set of locks, rolled out on June 26th, was not entirely safe. The new locks are much bigger, large enough to fit Neopanamax-sized vessels; these vessels have over twice the cargo capacity of the Panamax, the previous largest Panama Canal-passable size class. Overall, the new locks were intended to more than double cargo capacity (1)(2).
While these numbers are exciting, one should exercise caution in celebrating them as a groundbreaking counterpoint to the global trade decline. In fact, they could be much higher. A more than doubling of capacity should create an ultimate tonnage increase that, if not equal to current capacity, would at least be significant. Yet since 2014 transit has only increased around 1%. 2015 actually saw a higher tonnage than 2016; year over year, Panama Canal traffic is actually in decline (3). That said, the new investment has created many jobs and will significantly reduce costs for shipping many more goods in the global trade ecosystem on Neopanamax ships.
The Canal is currently exposed to a host of cyclical risks. The large majority of its traffic moves between the Far East and the Eastern United States. Both of these geographies have experienced declines in demand, which has held back trade along this route (4). Consider that in 2016 trade between the U.S. and China dropped 30%. U.S. imports in general are in decline, and have approached a five year low in 2016 (5)(6).
Independent of whether underlying forces of trade strengthen, the Panama Canal Authority intends to continue investing in new infrastructure over the next year. A request for bids has been made to build The Corazon Container Terminal, which will open space for millions of TEUs of containers for transshipment. Transshipment is a process whereby cargo is dropped at an intermediate destination before continuing on a different vessel (7). The Authority is also making strides toward more environmental friendliness. In 2017 it plans to begin a system of expediting transit for ships with lower emissions (8).
In short, the Panama Canal is in a period of revamping and investment in the face of an extended and potentially very long-lasting global trade decline. In much the same way that the oil economy drives livelihood in Saudi Arabia, the continuation and improvement of traffic increases on the Canal will be decisive for the future of the Panamanian economy. It remains to be seen whether the slowing tide of trade will be a mere roadblock or a chronic pain point.
(1) Buxbaum, Peter. "Panama Canal Records Third Highest Annual Cargo Tonnage | Global Trade Magazine." Global Trade Magazine. N.p., 04 Nov. 2016.
(2) Buxbaum, Peter. "Could Safety Concerns Undermine Economic Advantages of Expanded Panama Canal? | Global Trade Magazine." Global Trade Magazine. N.p., 11 July 2016. Web.
(3) Panama. Panama Canal Authority. Top 15 Countries by Origin and Destination of Cargo. N.p.: n.p., n.d. Web.
(4) "Https://www.pancanal.com/eng/op/routes.html." Canal De Panama. Panama Canal Authority, n.d. Web.
(5) USA. National Census. Trade in Goods With China. N.p.: n.p., n.d. Web.
(6) CNBC. "US Trade Deficit Narrows as Goods Imports Tumble." CNBC.com. CNBC, 06 Jan. 2016. Web.
(7) Buxbaum, Peter. "Panama Canal Issues RFP for Corozal Container Terminal | Global Trade Magazine." Global Trade Magazine. N.p., 14 Oct. 2016. Web.
(8) McKevitt, Jennifer. "Panama Canal to Reward Ships with Low Emissions by 2017." Supply Chain Dive, n.d. Web.
Image: © Vintagepix | Dreamstime.com - Panama Canal New Construction
Evan is an international student and writer, who has lived and studied in Los Angeles, Hong Kong, and Milan. This background has lent itself to special insight on trade and international economic issues, topics on which he primarily writes at GIT. Recently, Evan has taken particular interest in regional and multilateral trade deals, sanctions, OPEC, and other economic diplomacy topics.