The expansion of the Panama Canal transforms trade and the environment
by Antonia Sohns, contributing writer
The Panama Canal has been a symbol of innovation, economic prowess and the future since Ferdinand de Lesseps passionately led the French to develop the route across the isthmus in 1882. Financial turmoil, tropical diseases and difficult weather conditions plagued the French effort and forced them to sell the endeavor to the United States in 1902.
With its completion by the Americans in 1914, the Canal became a vital artery of world trade. Ships could traverse the Canal’s 48 miles from the Atlantic and Pacific Oceans to the level of Lake Gatun, 86 feet above sea level, and back again along a novel system of locks that function as water lifts. Ships could now cut across the narrow Panamanian isthmus instead of sailing the treacherous route around the southernmost point of South America through Drake Passage or the Straits of Magellan to trade goods.
While the construction of the Canal made Panama a conduit for trade, the isthmus of Panama had been a bridge between ecosystems of North and South America since it was created between three and 20 million years ago. Panama’s tropical environment and its geographical position make it home to more than 10,000 plants, 255 species of mammals and 972 indigenous bird species. This rich biodiversity moves north and south across Panama’s biological corridor. More species migrate to Panama as the furthest extent of their journey through the Northern or Southern Hemisphere to breed and feed in the diverse terrestrial ecosystems or winter in the warm waters and raise their young.
Today, approximately 14,000 vessels navigate the fertile waters and sail through the dense tropics along the Canal each year, as it serves as a critical waterway connecting 144 trade routes to 1,700 ports and 160 countries. The Canal is vital to the Panamanian economy through shipping related business and financial markets. In 2014, the Canal netted the country $2.6 billion dollars, half of Panama’s national revenue, from the approximately $9 trillion in commodities that transit the Canal.
In order to protect the Canal’s viability and competitiveness into the future, Panama is overhauling the waterway through an expansion plan that will be finished by June 26, 2016 after nearly two years of setbacks due to contractor disputes, engineering failures, and cost overruns. The expansion project has consisted of deepening and widening the Canal’s Atlantic and Pacific Ocean entrances, and the Miraflores and Gatun locks. A new access lock has been built at Miraflores and Gatun, making them three-step locks that can accommodate the larger New Panamax ships, which have more than twice the capacity of the ships traversing the Canal today.
With larger ships carrying new commodities from along different trade routes, the Panama Canal expansion will significantly affect the environment and global trade patterns.
The Canal expansion impacts shipping and the environment
The expanded Canal’s new corridor for New Panamax ships is predicted to be a game changer in the shipping industry and to the environment by altering trade routes, cargo distribution and port development.
The shifts in global trade patterns will have beneficial and significant adverse impacts on the environment. Potential environmental gains arise through improved efficiency and increased capacity of ships, which will reduce the number of vessels required to transport the same volume of goods, and water-saving operational measures in the Canal. While shipping may adversely affect the environment through heightened trading of coal and gas, degrading local ecosystems or affecting marine wildlife through traffic flows.
According to Peter Hadjipateras of the liquefied petroleum gas shipping company, Dorian LPG, the shipping sector will experience “increased trade flows West to East and vice versa with decreased voyage times.” New Panamax ships traveling to Asia from the U.S. Gulf Coast can arrive two weeks faster and save 23 percent on total transportation costs using the Panama Canal than if they went east through the Suez Canal. The shorter distance traveled through Panama will also reduce greenhouse gas emissions and fuel consumption from the shipping sector.
Shippers seeking to move goods from Asia to the East Coast of the U.S. have heavily depended on the combined use of ship and rail to transport goods to American markets. With the use of New Panamax ships that can carry as much cargo as 16 trains, shippers may forfeit the five-day advantage of intermodal transport and rely on the Canal which will increase economies of scale and reduce per-unit shipping costs.
This transport shift towards shipping may increase emissions from the shipping sector. Globally shipping is responsible for 2.5 percent of greenhouse gas emissions, and unless operational measures and emissions-reducing technologies are implemented, this share may increase by 50 to 250 percent by 2050. While shipping should continue its emissions reduction efforts, container ships emit far less than other transport options. For example, a very large container vessel emits 3.0 grams of carbon dioxide per tonne-kilometer compared to truck and air freight which emit 80.0 and 435.0 grams of carbon dioxide per tonne-kilometer respectively.
In addition, large ships burn heavy fuel oil — a by-product of refining crude oil — which emits large amounts of sulfur oxides, nitrogen oxides, diesel particulate matter, and other pollutants. While the governing body of shipping, the International Maritime Organization mandated that ships no longer solely use heavy fuel oil for operating in 2015, ships continue to use it alongside liquefied natural gas and other fuels, and implement clean technologies such as scrubbers that capture emissions. Ship fuel currently in use is on average 2,700 times dirtier than the fuel used in on-road vehicles where strict limits have applied for many years. Due to the poor quality of heavy fuel oil used by maritime transport, SOx shipping emissions are projected to increase and by 2020 exceed SOx emissions from all land-based sources such as power plants in the EU.
The increased capacity of New Panamax ships may also change shipping patterns as port calls are consolidated and receive larger volume shipments, and smaller vessels serve local markets. Shippers moving commodities between American and Asian markets may increase shipment to Gulf Coast ports in order to take advantage of the robust rail and highway network in the middle of the U.S.
Trade flows may be further altered due to new commodities brought online. In this regard, the increased capacity of New Panamax ships will facilitate trade and development of the global liquefied natural gas market. Before the expansion project, only 23 LNG ships could travel through the Canal due to their size. The new locks will allow 89 percent of the global LNG fleet to transit the waterway, rising to 92 percent of the LNG fleet once ships on order are constructed.
When the expansion project began in 2007 the U.S. was the fourth largest buyer of LNG. Due to hydraulic fracturing and horizontal drilling, the U.S. is now the world’s largest producer of natural gas. According to Hajipateras, the Canal’s expansion is expected to “alter the current trade dynamics for LNG by reinforcing the bifurcation of supply that is occurring. The Canal will facilitate competitiveness of LNG supply for the U.S. to reach Asia, however the recent drop in commodity prices is challenging this presumption as a large portion of contracted volumes are now under market value.”
As shippers increase trade flow through the Canal, LNG ships will be competing with bulk carriers and cargo ships due to daily limits on vessel movements through the Canal. Hadjipateras noted, “the shipping sector could see more waiting time for both sections of the Canal given that there are overlapping entry and exit points.”
In order to compete for shipments from the New Panamax vessels and a greater share of the market, countries are investing in ports and their supporting infrastructure. In the U.S. it is estimated that public ports and their private sector partners will spend more than $46 billion in port-related improvements through 2016. The Port Authority of New York and New Jersey have pledged $1.3 billion to raise the Bayonne Bridge to 215 feet from 151 feet to accommodate the passage of New Panamax ships.
According to Hadjipateras, “countries that will benefit the most are American energy exporters and commodity importers, and Asian energy importers.” Other countries that stand to gain due to the Canal’s expansion are exporters of oil, coal and copper such as Colombia, China, Chile and Mexico. Furthermore, transshipment activities will likely grow in deep-port locations such as Jamaica and the Dominican Republic, which could create new sourcing and distribution alternatives.
The expansion’s ripple effects promise economic opportunities from the direct investments in ports transforms local and regional economies due to the flow of investment into the network of supporting infrastructure, such as nearby distribution centers and shipping-related supply sourcing. The Port Authority of New York and New Jersey has spent an additional $2.7 billion on port facility infrastructure improvements that facilitate water and land connections with new-Panamax ships.
Yet, in development, nations must also manage the pressures on the environment. In Jamaica, the China Harbour Engineering Company has an agreement to build a new port and logistics hub, including a coal-fired power plant on the uninhabited and environmentally protected Goat Islands. The environmental concerns surrounding the plan have delayed it, but the project remains active.
With altered shipping patterns due to changes in port development and the global economy, countries may face other localized environmental impacts. As New Panamax ships with larger ballast tanks travel across the isthmus in a shorter time, countries may have a heightened exposure to nonnative aquatic organisms. Nonnative species will therefore have a greater chance of surviving the journey and of being introduced to a port and environment through ballast discharge. If the introduced species spreads in the new environment and becomes invasive, it degrades the local environment, and can damage the economy or human health.
Additionally, the altered shipping routes will impact whale populations that migrate along the Pacific coasts of the Americas. Dr. Hector Guzman of the Smithsonian Tropical Research Institute has studied how humpback whales that breed in the rich, upwelling waters of Las Perlas have many close encounters with ships moving through the Canal. According to Dr. Guzman, “the increased vessel dimensions along the shipping routes to and from Panama bring a new challenge to whale conservation.” In particular, Dr. Guzman points to the deeper draught of the New Panamax ships of “over 3 meters and vessel speed, as causes for concern.”
In order to reduce the chance of a ship striking a whale, Dr. Guzman has outlined shipping schemes in countries from Costa Rica to Peru, among others, that would establish a corridor for ship travel at a reduced speed separate from whale populations. Panama implemented a traffic separation scheme in December 2014 that is estimated to reduce the risk of collision between whales and ships by 95 percent. Yet, enforcement remains an issue, as Dr. Guzman stated in an interview, “during the first year of implementation the speed restriction was not seriously observed by most ship captains.”
The interrelated relationships between variables in shipping complicate how the Canal’s expansion will affect many in the industry, and how shifts in global trade will impact the environment. Change in the shipping industry will likely be incremental as target markets and trade flow options are fully realized over time. However, governments can more immediately defend their terrestrial environments through the sustainable development of ports and environmental assessment protocols.
To better protect marine life from shipping, traffic separation schemes similar to Panama’s model should be implemented and enforced “in most countries along the Central and South American Pacific region where migratory whale species from blue whales to humpbacks are commonly observed along the route of thousands of vessels, including the New Panamax,” says Dr. Guzman. Such regional efforts would create a migration corridor for whales that is distinct from shipping traffic.
The expansion nears completion
The expansion project is 97 percent complete, but faces risks due to insufficient water supply as a result of a harsh El Nino-Southern Oscillation, a periodic and temporary weather pattern in the equatorial Pacific Ocean characterized by an increase in sea surface temperature. ENSO’s impact on reducing rainfall in headwaters of Central America has caused a drought in a watershed that the Canal depends on for water supply and has reduced water levels in Gatun Lake. The drought forced the Canal’s operators to limit the draft of ships traversing the waterway and will continue to delay the project until further rainfall or the construction of new dams.
To make the passage, every one of the estimated 35 ships that transit the Canal daily require 55 million gallons of water supplied from the Chagres River and Lake Gatun. In order to mitigate the impact of climate change on the Canal and the national economy, the expansion project has constructed water-saving basins that will recycle water from each ship’s transit and has built new locks that will reduce water use by seven percent.
The Panama Canal Authority has also worked to improve watershed management through forest protection and planting trees along the riverbanks. Vegetation and forests not only manage water flows, but also prevent erosion and sedimentation of the Canal. While these measures cannot safeguard the Canal’s prospects in the wake of extreme climate impacts such as severe storms or rising seas, these efforts improve the Canal’s resiliency.
The Canal will endure as a competitive trade option through continued climate-minded planning and additional expansion projects that will allay the competition posed by the Hong Kong Nicaragua Canal Development Group’s concession to construct a potentially environmentally devastating, trans-oceanic canal across Nicaragua. In its changing yet irreplaceable role as a link in world trade and home to rich biodiversity, Panama will remain a bridge between the hemispheres.