The Panama Canal expansion: myths and misconceptions surround economic impacts

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In early 2016, an estimated $6.2 billion project will conclude with the opening of a new set of locks enabling the Panama Canal to handle larger ships. This increase in capacity has triggered many expectations about its potential impacts on global trade, in particular for ports on the American East Coast.

The common belief is that the expansion will bring additional traffic and economic opportunities—but many experts disagree. In the luncheon session of the CTS Transportation Research Conference on May 20, Hofstra University professor of global studies and geography Jean-Paul Rodrigue outlined the controversy surrounding this multi-billion dollar transportation project.

“It’s true that the new canal will have operational benefits including improved capacity, reliability, and transit times, along with lower unit costs,” Rodrigue said. “However, these benefits tend to be exaggerated while the costs tend to be underestimated. In reality, lower shipping costs will likely not be passed on to the consumer, the prevalence of a hub-and-spoke transshipment model will increase, and most of the growth will continue to occur in Latin American and other emerging economies.”

In evaluating the impacts of the canal expansion, Rodrigue emphasized the importance of understanding the current economic realities of trade in North America. “Global trade is now stalling and declining, and since the financial crisis it has diverged. Growth has shifted to South America and the Caribbean, and it is difficult to see how expanding the Panama Canal is going to change this.”

While the canal expansion has triggered upgrades at U.S. ports, such as dredging for increased channel clearance, improved piers, and new cranes and yard equipment, it will also create a need for expanded inland infrastructure.

“The ‘massification’ of water ports is useless without the massification of inland ports where those huge loads can be broken,” Rodrigue said. “Larger ships will carry more containers at a time, so more space will be needed on trucks and trains to unload more cargo in a shorter time frame, which could impact local roads, rail crossings, and communities near the ports.”

Other disadvantages of the new, larger ships calling on U.S. ports are the negative impacts on manufacturing supply chains and import/export businesses. “If you shift to bigger boats, you get the same amount of cargo but within a compressed time frame and fewer calls per week, which makes importers, exporters, and supply chain managers unhappy.”

On the national level, Rodrigue says the canal expansion may have limited impacts on the inland transportation system and Midwestern economy. “In the Midwest, we may see a slightly lower transportation cost for containers, increased access to a wider variety of gateways that will reinforce overland transportation services, and better connectivity with key inland logistical platforms that link the ports with rail services.”

The bottom line, said Rodrigue, is that while U.S. ports have upgraded their facilities to handle larger ships, exactly where the positive impacts will be felt is completely outside government control. “The people who make decisions about how freight is going to be moved have nothing to do with the U.S. economy. These are maritime shipping companies, and they say how they’re going to use the canal and which port they will call on.”


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Michael McCarthy