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Panama Canal Expansion Equals Trade Expansion

ASCM CEO

Friday June 24, 2016


The Seven Wonders of the Ancient World include The Great Pyramid of Giza in Egypt, the Temple of Artemis at Ephesus in Turkey, and the Hanging Gardens of Babylon in Iraq. The modern world has its own wonders. According to the American Society of Civil Engineers, the Panama Canal is one of them. Its expansion will open June 26, and The Wall Street Journal reports that this improvement is critical to Western trade in the economic long run. The canal accommodates about one-third of Asia-to-Americas trade but required infrastructure upgrades to keep up with the latest shipping trends. 

“As the [shipping] industry copes with its downturn, major shipping companies are pooling their resources and using fewer but much bigger ships—ones that are too large to fit through the pre-expansion Panama Canal,” Costas Paris, Robbie Whelan, and Kejal Vyas write.

Here are some details, according to The Wall Street Journal:
  • The expansion enables the canal to more than double its capacity.
  • The project took nine years and cost $5.4 billion.
  • Once open, the canal’s third lane will accommodate ships that can hold as many as 14,000 containers. Now, the canal can only accommodate ships with a maximum of 5,000 containers.
  • Even with the expansion, the canal won’t be able to handle the world’s largest ships, which carry as many as 20,000 containers.
“Expansion was a must if the Panama Canal was to continue to play its key role in global trade,” the authors conclude. “In the shipping industry, supply exceeds demand by about 30 percent and freight rates barely cover fuel costs. In the move to bigger and more efficient ships, many of the smaller ships that were tailor-made for the Panama Canal are expected to soon become obsolete. The Panama Canal had to expand to continue to expedite trade to the U.S. East Coast, to lessen cost for shippers and, over time, take pressure off West Coast ports.”

Ports in Baltimore, Maryland; Miami, Florida; and Norfolk, Virginia, are all set to accommodate bigger ships, but others are not. Paul Bingham, port economist with EDR Group, says in the article that dredging projects are still in process at the ports of Savannah, Georgia, and Charleston, South Carolina. Depth is one limitation; height is another. At the port of New York and New Jersey, the Bayonne Bridge prevents large ships from accessing the port’s three largest terminals.

Apart from the East Coast ports, experts are expressing concerns about the infrastructure of the expanded Panama Canal itself. An article from The New York Times points to a challenge that is more fundamental—the safety of the expansion itself. “In simple terms, to be successful, the new canal needs enough water, durable concrete and locks big enough to safely accommodate the larger ships,” Walt Bogdanich, Jacqueline Williams, and Ana Graciela Méndez write. “On all three counts, it has failed to meet expectations, according to dozens of interviews with contractors, canal workers, maritime experts and diplomats, as well as a review of public and internal records.”

For example, one of the biggest risks, the reporters contend, is the concrete that lines the walls of the six huge locks that connect the two oceans. The project budgets for this concrete and its steel reinforcement were 71 percent less than those proposed by the next lowest bidder for the project. Last summer, water began seeping through the concrete in some places and gushing through in others.

“Now, the locks are patched up, their christening near. But in the Panamanian circles where people talk and worry about the canal, there is little unanimity about what exactly went wrong and what should have been done about it.”

Logistics and risk

Balancing risk is a fundamental part of everything supply chain management professionals encounter. For example, consider the scope of “logistics network design” as it is outlined in the APICS Certified in Logistics, Transportation and Distribution (CLTD) exam content manual: “The design of the network of warehouses and transportation lanes enable supply to be provided at the place and time of demand most effectively. This involves choosing the optimal number, location, and type of warehouse facilities, which can be supported by using both manual and automated decision support tools. Risk management helps logistics professionals determine how they can help minimize uncertainty and provide more reliable organizational results.”

On July 1, APICS will release its new CLTD learning system, which sets individuals on a personal path toward success for the CLTD exam. A free online demo is available here. You can learn more about the new certification and its learning system during free webinars on June 28 at 9 a.m. and 1 p.m. central time. Visit the APICS website for more information. 



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