- January 7, 2016
- 2:31 pm
- John Caltagirone
- no comments
Panama Canal’s Growing Business
In his remarks at the 4th Annual Chicago Supply Chain and Sustainability Summit, Chief of Mission, Kevin O’Reilly, exclaimed the forever comparative advantage the Panama canal has had throughout history and even more so with the canal’s ongoing expansion. Currently the canal is responsible for 85% of the country’s economy, simply from shipping and services. Even more so the Colon Free Trade Zone allows for the growth of ports, insurance, telecom, financial services and tourism.
Since the establishment of the Panama Railroad Company to move mail in the 1800’s, the canal’s purpose has shifted with the Gold Rush in states, solidifying it as a heavier business and trading location between the US and other countries. Today the US is responsible for almost two-thirds of business that occurs in the canal, attesting to the role of the US in the canal’s success.
The canal is responsible for about 3% of global trade and with the expansion of the canal that number will only grow in the next decade. The statistics speak for themselves. About 14,000 vessels transit through the canal each year, and the expansion allowing for about 2,000 more. The physical changes to the canal will allow larger vessels to run through.
In his statement he mentioned a report issued by Boston Consulting Group in collaboration with C.H. Robinson supporting the boom of business for the canal in 2016. He went ahead to say it would be the beginning in the decline of port activity and revenue of Western ports in the United States. More good from Asia would be filtered through the East Coast, especially goods destined for the Midwest. With changes in manufacturing from China to South and South East Asia, the Suez Canal made the East Coast a more optimal option.
O’Reilly argued that the West Coast ports would likely be able to hold ground in terms of the Asia-Pacific group, but they will be competing more heavily and the Midwest would be a market share everyone will be fighting over. There is growing competition in shipping rates, product and energy availability, and new opportunities that will all factor into the success of ports across the country. He also goes to mention the impact of Panama’s geographic location as an optimizer in terms of third party logistics and shipping internally in Latin America.
With year 2016 just around the corner, it will be interesting to see the changes in shipping and trade that occur with the completion of the expansion of the Panama Canal. Click here for a link sharing his entire link. More information about the report issued by the Boston Consulting Group, please click here.
-Riti Patel