Panama Canal Expansion Impact on U.S. Economy

How the Expansion Lowers Your Food Bill and Creates U.S. Jobs

Panama Canal expansion
A rail car pulls a massive cargo ship through the Miraflores locks as it crosses the Panama Canal. Photo by Joe Raedle/Getty Images

 

What Is the Panama Canal Expansion?

The expanded Panama Canal opened on June 26, 2016. The expansion added a new third lane. That doubled the canal's capacity. Most important, it accommodated Post-Panamax ships. Each one is 1,200 feet long and carries three times the cargo of 965-feet-long Panamax ships. That efficiency will lower your food costs. (Source:  "Super-size container ships require larger locks," Today, August 5, 2009.

 "Panama Canal Expansion," CBS News, June 23, 2016.)

The Panama Canal connects the Atlantic Ocean to the Pacific Ocean via the Caribbean Ocean. It allows ships to avoid sailing another 5,000 miles around the southern tip of South America.

The Canal's engineering is complex. It's more than digging a long trench at the shortest point, the Isthmus of Panama. First, the sea level of the Caribbean is eight inches lower than the Pacific. Second, the two oceans have different tides. Third, the Isthmus at Panama rises 26 meters above sea level.

To solve these problems, ships go through a series of three locks. The locks lift the ships up to Gatun Lake. They then lower the ships through three more locks back down to sea level. It takes, on average, 13 hours to move through the Canal's 51-mile length.

Why Is the Canal Important to the U.S. Economy?

The Panama Canal keeps the cost of imported goods down.

That reduces inflation. Five ports carry 70 percent of U.S. ship imports. They are the ports at Los Angeles/Long Beach (LA/LB), New York/New Jersey (NY/NJ), Seattle/Tacoma, Savannah, and Oakland. All of these, and the port of Charleston, either already can or will be able to receive Post-Panamax ships by 2018.

Traffic is expected to double to these ports by 2030.

Expansion of the Panama Canal makes the U.S. transportation system run more efficiently. That's because it relieves congestion to the LA/Long Beach port. It receives most of the traffic from Asia.

The Canal will create more U.S. jobs. That's because it gives U.S. exporters better access to China and other Asian markets

How the Expansion Lowers Shipping Costs

The fastest way to get cargo from China to the U.S. east coast is by ship and rail. It takes 12.3 days for a ship to go from China to the U.S. west coast. Cargo on a train takes six days from the west coast the east coast. That's a total of 18.3 days. For this reason, 75 percent of Asian imports take this route.

Before the expansion, only 20 percent took the Panama Canal route. That's because it's longer, at 21.6 days. The remaining 5 percent of China's trade to America goes through the Suez Canal in Egypt directly to the U.S. east coast. That takes 21 days. (Source: USDA, Impact of Panama Canal Expansion on the U.S. Intermodal System, January 2010)

The Canal expansion could take 35 percent of current West Coast freight. That's because rail doesn't carry as much cargo as the Post-Panamax ships. One ship carries as much as 16 trains. Expanding the Canal makes this longer route more profitable for commodities exporters. That's because they are more concerned with cost than time. The expansion will open the Asian market for U.S. natural gas exporters. Before the expansion, the Canal was too small for Liquified Natural Gas ships. High-value, time-sensitive goods, such as electronics, will still use West Coast ports and rail.  (Source: "Trade in the Americas: Expanding the Panama Canal for the 21st Century," World Trade 100, November 2, 2007)

Canal History

The French began building the canal in the late 1800s. They gave up when they ran out of money and lost too many workers to tropical diseases.

In 1904, the United States bought the Canal Zone. It wanted to expand its shipping and naval power between the Atlantic and Pacific Oceans. It paid $10 million to Panama and $40 million to the French. U.S. engineers decided a lock canal would protect ships from landslides in the Andes Mountains. U.S. doctors found treatments for the tropical diseases of malaria and yellow fever. It created jobs for Pittsburgh steel mills, Portland cement factories, and General Electric machinery. The Canal hired 45,000 construction and support workers. Between 10,000 - 15,000 people died from accidents and diseases. In 1914, the Panama Canal was completed, costing $375 million.

The United States owned the Canal inside the country of Panama. In 1977, President Carter signed a treaty with Panama that promised to turn the Canal over in 1999. The treaty allowed the United States to intervene anytime its use of the Canal was threatened. By that time, the Canal cost more to run than it returned in profit to American companies. Railroads were much faster, and their costs had fallen. The treaty also improved relations with Panama and the rest of Latin America. But many Americans saw it  as an American retreat from its global power. (Source: "Panama Canal Study," U.S. Department of Agriculture. "The Panama Canal Helped Make the U.S. a World Power," PBS Newshour, August 15, 2014.))

Panama receives $1 billion in tolls from the Canal. That will double or even triple now that the expansion is complete. It was delayed by a year. Cost overruns added $1.6 billion to the $5.2 billion price tag. (Source: "Panama Canal's Woes Ripple Globally," The Wall Street Journal, February 18, 2014.) 

More on Post-Panamax Ships

Post-Panamax ships carry 5,000-8,000 containers. Each ship is 14 to 20 containers wide. They need a channel 17 meters deep. Super Post-Panamax vessels more than 13,200 containers. These ships carry 27 percent of the world's cargo. To remain competitive, the Panama Canal had to expand to accommodate these ships.

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