August 15, 1914: A new era in global logistics and international trade began on that hot summer day, when the SS Ancon, a 486-foot U.S. cargo and passenger ship, crossed the continental divide by water and became the first vessel to transit the Panama Canal. The canal’s lock system functioned as a water lift, raising the ship from the Atlantic Ocean to the man-made Gatun Lake (85 feet above sea level) in three stages. Ancon sailed through the 48-mile narrow passageway, descended the locks at the other end of the channel and arrived in the Pacific Ocean.
It was a massive engineering feat. After years of obstacles and setbacks, including malaria outbreaks and a lock redesign to accommodate Panama’s thick jungles and mountainous terrain, the project moved more than 240 million cubic yards of earth, used 61 million pounds of dynamite and cost $400 million (over $10 billion in today’s dollars) to complete. More than 10,000 people died during the course of construction, and the project was almost abandoned on three occasions. But what mattered on that inaugural day was that a 400-year-old maritime dream had finally been realized: at last, the Atlantic and Pacific Oceans were connected. The Panama Canal was open for business.
October 15, 2014: The Panama Canal of today is a flurry of activity. More than 14,000 trips take place annually, and its strategic location serves over 140 maritime trade routes in more than 80 countries.1 The U.S. is the key beneficiary, with over two-thirds of cargo passing through the canal either destined to or originating from America; China is second, with a 22% share.2 The canal handles over 5% of all goods moving around the world – a significant share of the global market, considering the majority of maritime trade is river bound and localized.3
The Gatun Locks (Atlantic side) and the Miraflores Locks (Pacific side) raise and lower vessels in much the same way they did on that maiden voyage. Containerships and bulk carriers line the horizon, waiting for their turn to ascend and descend the system. But the bottleneck has grown worse in the past several years, with average transit times increasing from 9 hours in 1999 to over 13 hours by 2008.4 That its capacity has not been able to keep up with growth in global trade poses a crucial challenge for the canal; shippers operating on tight timetables will increasingly look to other transport methods if the congestion does not improve. Tolls, too, have climbed substantially as the number of containerships transiting the canal has doubled since the early 2000s.
Adding to the chaos, excavators are busy at work on both sides of the channel, constructing a deeper, wider third set of locks. The extensive $6 billion construction project, which was scheduled for fall 2014 completion but has been delayed 18 months, will effectively create a new traffic lane, accommodating between 12 and 14 additional vessels daily (more than 2,000 additional trips per year) and significantly larger ships (13,000 twenty-foot equivalent units [TEUs] vs. the current maximum of 5,000 TEUs).5 In total, cargo capacity will double as the Panama Canal seeks to maintain relevancy on the global stage and provide an answer to its chief competitors – U.S. intermodal (cross-continent transportation via railroad and truck) and the Suez Canal.
As the largest engineering project ever undertaken in the early 20th century, the Panama Canal strengthened the U.S. economy, boosted a global shipping industry and dramatically shortened shipping routes – saving containerships the long and treacherous journey of 5,000-plus miles around South America’s Cape Horn. The current renovation, which even by today’s standards is one of the largest infrastructure projects worldwide, will certainly affect a wide range of parties in the global logistics industry, including steamship companies, logistics providers, shippers and port operators. Yet in an ever-connected, globalized world, with dynamic trade patterns and several exogenous factors at play, it is unclear exactly how these parties will be affected once the project is finished.