The Panama Canal Now for the next 100 years


Half right. In fact, the first world war meant there was almost no commercial traffic on the canal for its firs...


Half right. In fact, the first world war meant there was almost no commercial traffic on the canal for its first six years. But from 1921 onwards, the canal quickly started paying rich dividends_particularly to its owner, the United States.

Now, with the canal soon to complete its first expansion in a century, there are again hopes that it will transform interoceanic trade. Yet canals are worse than buses: wait 100 years and three come along at once. On the eve of the anniversary of the Panama Canal_s opening on August 15th, the Egyptian government has announced a plan to upgrade the Suez Canal for the first time in its 145-year history. Nicaragua has endorsed a 278km (173-mile) route for a $40-billion canal linking the Atlantic to the Pacific, the quixotic-sounding dream of a little-known Chinese magnate and the country_s Sandinista government.

Causing further intrigue, on August 8th a delegation of Chinese businessmen from the state-owned China Harbour Engineering Company visited Panama to explore the idea of building and financing a fourth set of locks_even before the third set, part of the existing expansion plan, are in place. As 100 years ago, numerous commercial and geopolitical interests are at play.

In 1914 Panama_s beauty was its lack of competition. It was the dawn of an American century. The United States_ west coast was enjoying an oil boom and wanted a cheaper way than the steam train to move goods and fuel between the Pacific and Atlantic. The canal lopped 12,600km from the sea route between New York and San Francisco. It also had strategic value. After the Spanish-American war in 1898 gave it territories and protectorates from Cuba to the Philippines, the United States needed a naval route between Atlantic and Pacific.

The gains were swift. By 1922 real shipping rates on some routes had dropped almost one-third below their pre-war average, according to _The Big Ditch: How America Took, Built, Ran and Ultimately Gave Away the Panama Canal_, by Noel Maurer and Carlos Yu. American taxpayers quickly recouped their investment. After the second world war, however, America_s trade with Asia soared above that between its east and west coasts (see chart). Competition to the canal came from America_s interstate highways and new diesel-fuelled railways. That led to the Torrijos-Carter Treaties, which handed control of the canal to Panama in 1999.


Panama has done a good job of running it. But competition is emerging on all sides. When the semi-autonomous Panama Canal Authority (ACP) started planning its expansion ten years ago, it aimed to win traffic from Suez by making room for ships carrying up to 13,000 containers (at the moment the biggest that can squeeze through carry 5,000). But ships have since emerged that can carry 18,000. Suez, a sea-level canal with no locks which can take these bigger vessels, saw its share of traffic between Asia and the east coast of the United States rise from below 30% four years ago to 42% last October. Another problem for Panama is that manufacturing is moving out of China as wage costs there rise_much of it is drifting to more south-easterly parts of Asia, closer to the Suez route.

Panama is also facing challenges closer to home. Technical problems such as dodgy cement, and a row over costs between the ACP and its European contractors, have delayed the $5.25-billion expansion by at least a year and may raise its cost. Meanwhile Nicaragua, once deemed too earthquake-prone for a big canal, is trying to rekindle its 19th-century dream. Many doubt the commitment of Wang Jing, a 41-year-old billionaire, to build a giant waterway through Nicaragua. But the pharaonic project, and the more recent interest of Chinese businessmen in expanding the Panama Canal, reflect the fact that China may want a say in the isthmus_s future.

There is more competition from the United States, too. Shipping a box from Shanghai to New York takes 26 days via Panama. Shipping it to California and completing the journey by train takes only 21 days (though it costs more). West-coast ports are modernising in a bid to _beat the canal_.

In a fiercely competitive shipping market, analysts say the key to Panama_s competitiveness in future may be niggling issues like the size of its tolls. But for now it is focusing on the long term. _They_re not doing this for 2017,_ says Paul Bingham of CDM Smith, an infrastructure firm. _It_s the 100-year view that_s important._

The Economist

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