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The Expansion of the Panama Canal and its Economic Impacts on the U.S.

Introduction

The Panama Canal has a long history behind it, starting with its initial construction by the French in the late 1800’s and its completion by the United states in 1914. However, with a rise in population and modernization, there has been a requirement for expansion of the canal. This is to facilitate great economic impacts.

Economic Impacts

The expansion of the canal is expected to be complete by 2014 with an increase in capacity of the ships to more than 75%. It is expected that it will ease congestion of the transport system in U.S. by relieving the congestion of the ports that receive a lot of traffic from Asia. This is especially so when it comes to the imports from China and other Asian countries. The canal connects the Pacific Ocean to the Atlantic Ocean, through the Caribbean Ocean. This creates a short cut for the ships travelling here thus making it cost effective compared to shipping around the South America southern tip, reducing the costs of imported goods and further reducing the inflation rates. Currently, it handles 20% of the port imports, but with the expansion, it is expected to take up to 35% with little on the time sensitive imports like electronics.

It will also be a great connector of the other U.S. ports as they take advantage of the freight traffic that comes in through the canal e.g. the West Coast ports. This may also lead to capacity enhancement projects of these ports as they improve on access to the Panama Canal with construction of longer docks, deeper waters at the docks, increased storage areas, and a large capacity of truck or rail transport to move the cargo from the terminal. According to Michael Economides, a professor at the University of Houston, it can also boost the energy trade of the U.S. by allowing for super tankers exporting energy to places like Europe and Asia carrying energy in form of Liquid natural Gas (LNG).

The $5.2billion plan was overwhelmingly approved through a referendum with the vision of a bright future especially as a trade route allowing for larger vessels to pass through, with more goods and thus more benefits for the citizens. This includes both the direct and indirect job opportunities and an increase in business investment.

Challenges

The main challenge of the expansion is predicting on when the impacts will occur and when the benefits will come into focus. There is also a consideration of strong competition from other ports especially during good weather conditions. This could lead to permanent and/or irreversible changes in the trade patterns losing relevance a global trade route.

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