The Panama Canal Project Facilitates World Trade.

The Panama Canal and an Invisible Line

by Elaine Schwartz    •    Dec 12, 2012    •    410 Views

When a desk destined for Ohio leaves China on a super-sized container ship, should it enter the US in LA or NY?

The Panama Canal could determine the answer.

Imagine a jagged north south line dividing the US. Located somewhere between the East and West Coast, the line determines where supertankers carrying Asian cargo will dock. All places to the east of the line will receive goods from NY/NJ or maybe Savannah or Charleston. On the west side of the line, maybe Los Angeles or Oakland.

But here is where it gets interesting. The position of the line relates to cost. And that is where the Panama Canal’s renovation enters the picture. In 2015, ships that had been too big for the canal will be able to pass through and head for the East Coast. Cargo that had gone to congested West Coast ports like Los Angeles will have a less expensive alternative. Choosing the cheaper destination, they will nudge that jagged north south demarcation line westward.

Seeing that line move, eastern ports (please see below) are preparing for more business. Savannah Georgia has a river to deepen 6 feet while Bayonne NJ has to raise a bridge 64 feet. Sort of like the butterfly effect where a flutter can make a difference half a world away, the yet to be finished Panama Canal project is creating jobs, environmental concerns, new distribution patterns, and countless other big and small responses as it ripples around the world.

As James Gleick says in Chaos...

  • For want of a nail, the shoe was lost;
  • For want of a shoe, the horse was lost;
  • For want of a horse, the rider was lost;
  • For want of a rider, the battle was lost;
  • For want of a battle, the kingdom was lost!”

And so…LA or NY for that Asian cargo? Much more than we might imagine relates to that decision.

Our bottom Line: As the first person to explain comparative advantage, 19th century economist David Ricardo (1772-1823) would have been delighted that the Panama Canal was facilitating world trade.

Sources and Resources: At econlife, we have looked at the Panama Canal project here and here, but this Businessinsider article and the Transportation Nation blog had interesting new facts that led me to the more scholarly considerations in this 2008 US Army Corps of Engineers Panama Canal paper.

Bigger than the panamax container ships, this post-panamax will be able to move through a deeper wider Panama Canal.

The Post Panamax will be able to navigate the Panama Cana after its renovation.

From the 2008 US Army Corps of Engineers Panama Canal paper:

Ports Will Have to Widen Channels and Raise Bridges Because of Larger Container Ships

 


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