World Economy

Canals Schemes Miss the Trade Boat

Canals Schemes Miss the Trade BoatCanals Schemes Miss the Trade Boat

Vast projects to expand the Suez and Panama canals are being discussed as the biggest upheaval for decades in global maritime traffic, but experts say they could be outflanked by a trade shift towards Asia.

In recent years, freight traffic travelling from Asia to the east coast of the United States has increasingly circumvented the Panama Canal and its restrictions on ship size in favor of the Suez route open to most big vessels.

Egyptian President Abdel Fattah al-Sisi has launched plans for a second Suez canal in parallel to the existing one at a cost of $4.0 billion.

To attract business back, the board of the Panama Canal began work in 2007 to widen the channel to permit the passage of ships carrying a much greater volume of containers.

The broader channel would allow for vessels carrying 12,000 TEU containers (TEU, or "twenty-foot equivalent unit", is the standard unit of measurement for containers) – a big increase from the current capacity of 5,000 TEU.

Work on widening the Panama Canal continues despite a dispute on cost overruns.

'Impact' on Container Trade

The enlargement of the Panama Canal "should have some impact on container trades", explained Ralph Leszczynski, head of research at the Banchero Costa brokerage.

"However, for most shipping business such as dry bulk and tankers it's not really such a big deal," he said.

There are 4,500 container ships in the world compared to at least 10,000 dry cargo ships and more than 7,000 tankers.

"These days, most imports of coal, iron ore and oil are dominated by China, India, Japan and they do not require using any of the canals, as the main sources are Australia, Indonesia, Africa and the Middle East," said Leszczynski.

The Suez Canal remains "fundamental for all Middle East states to Europe crude oil trades... but even there it's losing importance, as the main sources of growth in oil demand are China and India, and their imports do not cross any canal," said Leszczynski.

The only real problem is that you cannot get a fully loaded VLCC (very large crude carriers) through the Suez Canal. These tankers must unload part of their cargo at the beginning of the channel and reload at the end, in order to maintain the correct waterline to pass through.

Leszczynski believes that there is also no economic justification for the construction of a competitor to the Panama Canal in Nicaragua.

"If, magically, it turned out to be cheaper to use than the Panama one then I'm sure shipowners would appreciate it, but again I'm afraid this will not be the case," he said.

It is interesting to note that it is the Chinese who are responsible for building the canal in Nicaragua. Perhaps they do not want to submit to American hegemony for passing from the Pacific to the Atlantic.

The United States led the construction of the Panama Canal, and granted themselves the lion's share of concessions from its opening in 1914 until its surrender in 1999. An agreement still in force today allows them to intervene if they believe the neutrality of the channel is threatened.