Economist: The Panama Canal’s next 100 years

In 1914, troubled by the onset of the Great War, the Economist published a 176-page special edition on what it called a great “achievement of Peace”: the opening of the Panama Canal.

“It may be long before the tolls become remunerative, but its immediate effect on commerce will be stimulative,” it said. “Eventually the Isthmus is likely to become one of the busiest resorts of shipping upon the face of the globe.”

Half right. In fact, World War I meant there was almost no commercial traffic on the canal for its first six years. But from 1921 onward, the canal quickly started paying rich dividends - particularly to its owner, the United States.

Now, with the canal soon to complete its first expansion in a century, there are again hopes that it will transform interoceanic trade. Yet canals are worse than buses: Wait 100 years and three come along at once.

On Thursday, the eve of the anniversary of the Panama Canal’s opening, the Egyptian government has announced a plan to upgrade the Suez Canal for the first time in its 145-year history. Nicaragua has endorsed a 173-mile route for a $40 billion canal linking the Atlantic to the Pacific, the quixotic-sounding dream of a little-known Chinese magnate and the country’s Sandinista government.

Causing further intrigue, on Aug. 8, a delegation of Chinese businessmen from the state-owned China Harbour Engineering Co. visited Panama to explore the idea of building and financing a fourth set of locks - even before the third set, part of the existing expansion plan, is in place. As 100 years ago, numerous commercial and geopolitical interests are at play.

In 1914, Panama’s beauty was its lack of competition. It was the dawn of an American century. The United States’ west coast was enjoying an oil boom and wanted a cheaper way than the steam train to move goods and fuel between the Pacific and Atlantic. The canal lopped 12,600 kilometers from the sea route between New York and San Francisco. It also had strategic value. After the Spanish-American war in 1898 gave it territories and protectorates from Cuba to the Philippines, the United States needed a naval route between Atlantic and Pacific.

The gains were swift. By 1922 real shipping rates on some routes had dropped almost one-third below their prewar average, according to “The Big Ditch: How America Took, Built, Ran and Ultimately Gave Away the Panama Canal,” by Noel Maurer and Carlos Yu. American taxpayers quickly recouped their investment. After World War II, however, America’s trade with Asia soared above that between its east and west coasts. Competition to the canal came from America’s interstate highways and new diesel-fueled railways. That led to the Torrijos-Carter Treaties, which handed control of the canal to Panama in 1999.

Panama has done a good job of running it. But competition is emerging on all sides.

When the semiautonomous Panama Canal Authority started planning its expansion 10 years ago, it aimed to win traffic from Suez by making room for ships carrying up to 13,000 containers (at the moment the biggest that can squeeze through carry 5,000). But ships have since emerged that can carry 18,000. Suez, a sea-level canal with no locks which can take these bigger vessels, saw its share of traffic between Asia and the east coast of the United States rise from below 30 percent four years ago to 42 percent last October.

Another problem for Panama is that manufacturing is moving out of China as wage costs there rise - much of it is drifting to more southeasterly parts of Asia, closer to the Suez route.

Panama is also facing challenges closer to home.

Technical problems such as dodgy cement, and a fight over costs between the Panama Canal Authority and its European contractors, have delayed the $5.25 billion expansion by at least a year and may raise its cost. Meanwhile Nicaragua, once deemed too earthquake-prone for a big canal, is trying to rekindle its 19th-century dream. Many doubt the commitment of Wang Jing, a 41-year-old billionaire, to build a giant waterway through Nicaragua. But the Pharaonic project, and the more recent interest of Chinese businessmen in expanding the Panama Canal, reflect the fact that China may want a say in the isthmus’ future.

There is more competition from the United States, too. Shipping a box from Shanghai to New York takes 26 days via Panama. Shipping it to California and completing the journey by train takes only 21 days (though it costs more). West-coast ports are modernizing in a bid to “beat the canal.”

In a fiercely competitive shipping market, analysts say the key to Panama’s competitiveness in the future may be issues like the size of its tolls. But for now it is focusing on the long term.

“They’re not doing this for 2017,” said Paul Bingham of CDM Smith, an infrastructure firm. “It’s the 100-year view that’s important.”

From the Economist magazine.