The $5.4 billion expansion project will no doubt enable the Panama Canal to retain its competitiveness in a world where vessels are getting longer, heavier and deeper each year. The new locks were designed in such a way to allow ships carrying up to 15,000 containers to cross the canal – up from today’s maximum capacity of 5,000 containers – thus having a major impact on logistics managers and retailers.
As of today, approximately 60% of container traffic from East Asia has been passing through West Coast ports, with only 20% of vessels using the Panama Canal to reach America’s East Coast. In order to fully appreciate the commercial and logistic implications of the project, suffice to say that the Panama Canal is now expected to be utilized more often than its top competitor, i.e. the Suez Canal, to reach the East Coast as it is a much more convenient and shorter route. Inefficiency-related issues experienced at West Coast ports over the past few years have already contributed to redirecting a lot of traffic to the East Coast.
However, the Panama Canal expansion is going to make it even easier for this to happen. Experts believe that the expansion will result in up to 35% of cargo traffic from East Asia to the United States shifting from America’s West Coast rail and ports to the Panama Canal by the end of 2020, thus having a progressive but significant impact on the global shipping industry. From a purely economic point of view, it is highly likely that rates will drop as a result of ships’ increased capacity, thus benefitting both retailers and carriers. However, as the value of goods transported through the canal grows, insurance companies will have to come up with new strategies to deal with a significant increase in operational, commercial and environmental risks.