The Invisible Hand and the New Panama Locks

The Panama Canal has served as the global transshipment shortcut for over one 100 years. By connecting the Pacific Ocean with the Atlantic, it allows ships to pass through without traversing around the southern tip of South America. By saving significant time and energy, this is why it is the preferred route for roughly 14,000 ships annually, and the prime accomodator for 10% of all U.S. shipping, because companies are able to obtain cost savings which eventually get passed on to the consumer. After some minor delays due to labor union strikes and cost overruns, the monolithic Third Set of Locks Project will push America’s international trade strategy in the right direction.

The expansion is 85% complete, with the final cost totaling over $7 billion, and a projected date of completion between this coming December, or the early months of 2016 if there are no other setbacks. A new third lane will double the canal's capacity to assist the passage of Post-Panamax ships, which are 1,200 feet in length and carry three times the cargo of 965-feet-long Panamax ships. Further research has shown many benefits the project will bring to U.S. trade, especially with Asia.

According to the reports by the Panama Canal Authority, the route from Sabine Pass in Louisiana to Japan would be cut by 11.4 days. Furthermore, with the “oil glut” resulting in a gloomy layoff frenzy affecting natural gas workers, the Panama Canal may offer new opportunities for the industry due to the newly expanded canal being able to facilitate close to 90% of LNG tankers, compared to less than 10 percent currently. Also included in the prize are substantial increases in coal and propane exports. But benefits aren’t limited only to North American. According to energy analyst Alexis Arthur of the Institute of Americas, the canal has the potential to alter LNG trade routes globally. For Peru’s Camisea Gas Project, the shipment of its natural gas to Spain via the canal would save eight days transit. Additionally, the route from Trinidad and Tobago to Chile would be cut by 6.3 days.

As reported in a study by The Maritime Administration, the expansion will result in a substantial increase in the exports of grain, including soybean, wheat, and corn products, as this new generation of energy-efficient ships will have 25% more capacity than the earlier models, which according to Rabobank analysts, will reduce the cost of shipping grain from the American Midwest corn belt to Asia by roughly 12%. Again, beneficiaries also include Brazil and Argentina with increased cost effectiveness of their grain exports to Eastern Europe.

Of course, not mentioning the trickle-down effects on the Republic of Panama itself would be shortsighted. After all, 6% of world commerce passes through here annually. In 2012, Panama’s GDP grew by 10.5 percent and unemployment is at the lowest levels ever experienced, at 3.5 percent. Jobs are in abundance, as the canals expansion has been accompanied by a huge hiring spree, especially with financial institutions in dire need of professionals to fill vacancies in over 100 banks holding more than $100 billion in assets.  Furthermore, the expansion is bringing an influx of commercial developers along the banks of the Caribbean who are seeking proposals of projects that could have substantial impacts on water resources and the tropical landscape. The plans include a $US 6.4 billion open-pit copper mine powered by a 300-megawatt coal-fired power plant, a $US 8.7 billion container terminal east of Colon, and a $US 4 billion residential resort.

As author Jeffrey Tucker writes, “Commerce keeps the world orderly and rational and free. It gives us drive and ratifies our efforts. It sparks imagination and defines its boundaries. It feeds the world, sustains and builds civilization, and unleashes the best in the human spirit.”