Emerging Markets / July 7, 2016

The New Panamax Presents New Opportunities for Global Trade

The Expansion of the Panama Canal

Over the last several decades, the expanding global trade has been greatly conditioned by the engineering achievements of the 20th century. As of the early 2000’s, the shortened circumnavigation of the world, utilizing the Panama, Suez, and Malacca waterways, was limited by the (old) Panamax capacities of approximately 5.000 TEU’s per vessel. However, on June 2016, a Chinese-operated container carrier inaugurated the New Panamax locks. After years of construction and billions of dollars, the New Panamax capacity of approximately 15.000 TEU’s per vessel will revolutionize global commerce. Ports throughout the Atlantic and Pacific Oceans have been upgrading their capacities for the last decade in order to benefit from the lower transportation costs that will open new transoceanic markets. The opportunity of larger shipments through the Panama Canal represents enormous economic potential given that more than 75% of international commercial trade is transported by maritime vessels. Even though the Panama Canal still represents the most limiting of the global trade route funnels, compared to the Suezmax and the Malaccamax, its global impact cannot be underestimated.

The Americas look towards Asia

It is no coincidence that the first vessel to traverse the enlarged Panama Canal was Chinese. The emerging markets of Asia Pacific have been in the sights of Atlantic based manufacturers and commodities suppliers for years. However, companies based along the West Coast of North America as well as South American countries with direct access to the Pacific have traditionally enjoyed the advantage of lower transportation costs. Unsurprisingly, Los Angeles has consistently ranked as one of the busiest ports in North America for many years. Nevertheless, the substantial upgrade that has taken place in the Panama Canal provides an economic boost for the East Coast for North America, for Atlantic nations such as Brazil, and even Western Europe. The New Panamax mega-carriers will soon be docking at ports all over the Gulf of Mexico, the Caribbean, and the Atlantic as a whole. Even though the Suez Canal will remain the preferred route for Mediterranean shipments headed towards Asia, the Panama Canal could become an economic possibility for Western Europe if piracy and political instability continue threatening the Indian Ocean routes.

New markets will be created for the exchange of commodities, food, and manufactured goods amongst Asian, South American, and North American nations. The widening of the Panama Canal has been a long anticipated and analysed socio-political achievement. In this regard, the recently renovated Port of the Americas in Puerto Rico, now the deepest major port in the Caribbean, has been made ready to service New Panamax size vessels. Similar upgrades are ongoing all over the East Coast of the United States. Research conducted by the Boston Consulting Group estimates that the East Coast of the United States could increase its cargo transit up to 10% by 2020 because of the Panama Canal upgrade. The New Panamax not only represents competition for West Coast ports and therefore lower costs, but also an overall commercial market increase because of the cheaper goods. For Latin America, this significant upgrade to the transit capabilities of the Panama Canal has several immediate and long-term implications. Firstly, it renders substantially less relevant the discussion of constructing a second interoceanic canal along Nicaragua’s waterways. Likewise, it represents the inevitable strengthening of Brazil’s relation with its largest and most important commercial partner, China.

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