Editor’s Note: In today’s Thursday Feature, we look at the reasons behind the recent multi-billion expansions of the Suez and Panama canals and how they could ultimately affect the ordinary consumer.
The Suez Canal is in the middle of a $6.8 billion expansion project that will nearly double its capacity and allow super oil tankers to pass through it safely.
Meanwhile, the finishing touches are being put on a $5.25 billion upgrade to the Panama Canal that will finally allow supersized cargo ships from Asia to pass through and dock at ports up and down the East Coast for the first time.
As a result, ports on both US coasts and in Europe are investing billions more on upgrades, including new facilities and deeper trenches to accommodate these new monster-sized ships.
The question is: Why now?
Catching Up with the World Economy
Both the Suez and Panama canals have been operational for more than a century. Both shave thousands of miles off of the journies of sea-going vessels, allowing tankers, cargo container ships, and other vessels to reach their final destinations faster and more cheaply.
Yet for the past several decades, both canals have been operating well below capacity.
The Suez Canal — which links the Red Sea with the Mediterranean — is the primary waterway connecting the Indian Ocean with the Atlantic. But in some parts the 145-year-old canal is so narrow that vessels are not able to able to pass through in either direction at the same time. So wait times for ships seeking to pass through the canal averaged 11 hours.
But in some parts the 145-year-old canal is so narrow that vessels are not able to able to pass through in either direction at the same time. So wait times for ships seeking to pass through the canal averaged 11 hours.
Plus, the Suez Canal couldn’t accommodate super-sized tankers transporting crude oil from Middle East oil tankers. Oil companies were forced to use either smaller sized ships or make the longer journey around the Cape of Good Horn off the coast of Africa in order to reach US and European ports — both of which pushed transportation costs higher, were then passed on to consumers.
Asian Mega ShipsÂ
Meanwhile, the Panama Canal, which connects the Pacific with the Atlantic oceans, was too shallow. New super-sized cargo ships had a displacement that was too deep to make it through the 50-mile long canal.
So they could only dock at West Coast ports, once again resulting in higher transportation costs for the Asian-made products they carried that were bound for the central or Eastern US.
Although Panamanian and Egyptian officials have known for decades that their canals weren’t big enough to deal with modern sea traffic volumes, it wasn’t until this decade that they finally bit the bullet and decided to make the massive necessary investments.
Two things prompted this: The booming Chinese economy and the increasing dangers associated with traveling along the coast of East Africa.
China’s Massive Exports
Although the People’s Republic of China technically remains one of the few remaining Communist countries, since the death of its founder Chairman Mao Tse Tung in 1976, the giant Asian nation has been inching ever closer to capitalism. It currently has a mixed economy with an increasingly open market environment.
Thanks to a combination of having both the world’s largest population and a sustained annual economic growth rate of 11.2%, China has become a leading world power and one of the biggest global manufacturer of durable goods, including clothing, shoes, electronics, and housewares.
Most of these products are sold to the West, where they are shipped on ever-increasingly larger cargo container ships. But up until recently, Asian cargo ships could go no further than West Coast ports without having to make the arduous and costly trip around Tierra del Fuego on the tip of South America.
21st Century Pirates
Meanwhile, ships bound for the West from the Middle East and the Indian Ocean that were too large to fit through the Suez Canal had to travel through increasingly dangerous shipping lanes along the coast of East Africa, where they were potential prey to bold and desperate pirates from Somalia and Ethiopia.
Widening and deepening the Suez and Panama canals offers a solution to both problems. Plus, the operators of the canals can pay for the improvements quickly by collecting higher fees from the increasing number of ships that will be passing through them.
The real winner, however, is the consumer who can now get better access to cheaper goods more quickly, something that is critical now that the world economy is shifting to web-based ordering in which consumers demand near-instantaneous delivery.