A Canal for the Global Supply Chain

The Isthmus of Panama and its geographic location have always been among the topics of interest for the supply chain and logistics connoisseurs.  It is one of the most important connections between the Pacific and Atlantic Oceans.  Each year, over 13,000 vessels from all over the world transit through the Canal with more than 195 million tons of cargo.  This narrow, man-made pass provides the only alternative to the sometimes dangerous route going around the tip of South America.  The Canal earns Panama over $500 million per year in fees.

A study by INTRACORP for the Panama Canal Authority (2006) projected an increasing trend and strong positioning in the future, with a combined growth of at least 6% throughout the years 2015 – 2025.  According to this study, activities that depend on the Canal for transportation will grow at an even greater rate because of the increasing importance of Panama as a logistics center.  It is not surprising to say that the Panama Canal authorities continuously evaluate future development for the country.  They strive to evolve and adapt to the changing surrounding environment to heighten the country’s important role in the global supply chain.  The expansion project is proof of this. 

In 2007, an expansion project to build a third set of locks began.  In light of the new design for larger ships, the Panamanian government approved the construction of two new locks, one each on the Atlantic and Pacific sides.  The project is set to be completed by 2015 and a growth of at least 3% per year in cargo is expected.

Most of the studies talk about growth and sustainability for this mighty mega-construction; however, there has been some debate about the Canal’s scalability and ability to maintain its position.  Competitors are other factor to consider.  Chinese industrialist Wang Jing has been stirring things up with his idea to invest in a new canal in Nicaragua.  This could be a threat for Panama’s economy as the Canal is one of the country’s main sources of revenue; however, unlike Nicaragua, Panama’s privileged geographic location excludes it of being shook by major natural disasters, especially in the Canal area.  Still, nothing is certain and we could end up with two routes connecting the Pacific and Atlantic oceans.  If that were to be the case, what could the future look like for Panama? Can the thinnest country in Central America keep up with the ever-changing conditions in this Global Supply Chain?

By Elisa Taymes

Source:
Sabonge R., Sanchez R. The Panama Canal in the Economy for Latin America and the Caribbean. United Nations Publications. 2009