Panama Canal: A Monolith of Trade and Economics

We live in an era where the significance of everything or anything is determined by the degree of impact or influencing power that it possesses, i.e. when it changes the entire globe is affected by that.

The clearest illustration of this is how the credit crisis in the United States in 2007-08 affected the entire banking industry throughout the world. The apparent explanation for this is that the United States has the world’s largest economy, with a $25.3 trillion economy. As a result, anything that affects the economy of the United States, whether directly or indirectly, will undoubtedly have an influence on the rest of the globe.

Panama Canal: The Artery of Two Economies

So, today we’re going to talk about something that is undeniably important to two nations and by extension two continents i.e the United States of America for North America and to Panama for South America but is also of great value to the rest of the globe. The Panama Canal is what we’re talking about, and it’s one of the most incredible works of engineering ever devised by mankind. Its immense scale offers a wonderful storey about human perseverance, drive, and achievement.

Shipping Lines Operation Across Panama Canal

The issue that emerges here is why this canal is of such particular importance to the United States and Panama. The answer may be surmised from the canal’s economic worth. For the United States, the canal is worth $1.6 billion in economic terms, while for Panama, the canal is a direct contributor to the country’s nominal GDP, i.e a contribution of 2.7 percent which is 40% of Panama’s total GDP. Apart from that, the canal is very important to the rest of the globe since it goes through approximately 6% of the world’s economy, valuing it at $6 billion in addition to the state of Panama and the United States.

Panama Canal: A Megaproject

Now, you may be wondering how such a thing can be of such economic worth to the world’s power and the rest of the globe. To understand this, consider the reason for which it was constructed.
The Panama Canal is an 82-kilometre-long manmade canal in Panama that links the Atlantic and Pacific Oceans. The Panama Canal runs across the Isthmus of Panama and serves as a passageway for marine traffic. The Panama Canal shortcut, one of the world’s largest and most difficult engineering projects, greatly reduces the time it takes ships to travel between the Atlantic and Pacific oceans, allowing them to avoid the long and dangerous route around the southernmost tip of South America via the Drake Passage or Strait of Magellan, as well as the even less popular route through the Arctic Archipelago.

In plain terms, a ship travelling from San Francisco to New York or on to Europe in the early twentieth century had to sail almost 13,000 miles around the whole continent of South America. With the completion of the Panama Canal in August of 1914, the Atlantic Ocean was connected to the Pacific Ocean through the Caribbean Ocean, decreasing the sailing distance from the Atlantic to the Pacific and vice versa by a massive 8000 nautical miles (approximately).

In addition, crossing the Panama Canal takes only 8 to 10 hours. As a result, we can state that it not only saves money and time for ship owners and operators, but also aids in the reduction of CO2 emissions, allowing the maritime sector to minimise its carbon footprint.
So far, we’ve just looked at the geographical advantage in depth.

Panama Canal: The Economic Juggernaut

To go deeper into the canal’s economy, we must first comprehend the canal’s economic importance to many countries and the types of trade that pass through it. To grasp this, consider the volume of trade that travels through it: The Panama Canal serves as a transit route for 38 to 45 ships each day, for a total of 14,000 ships per year, equating to 1,837,500 tonnes of goods transported daily to 670,687,500 tonnes of goods transported annually, all this adds up making a trade of $270 billion annually.We may also say that this canal is a God to the 144 routes that rely on it, and it is connected to 160 ports in various nations, including important commercial powers such as the United States, China, and Korea, which utilise it to deliver their products to the Americas.

When it comes to the type of trade that passes through it, it mainly transports oil, food, and industrial goods, and it is because of this nature of trade that this canal is one of the ten members of the Council of International Maritime Organization (IMO) that aims to increase global interest in providing international shipping services.

Another method to tell if something is important or not is to look at the sort of investment individuals make in it. Let us look at the sort of investment that has lately been made in the Panama Canal, which will leave no doubt in your mind that this Canal is extremely valuable to the world’s economy.

Panama Canal: Unfurling Sails

As we all know, 90 percent of all worldwide trade currently takes place by the sea, and the Panama Canal controls 6% of the global economy; thus, it is critical for a canal of such importance to maintain infrastructure to facilitate global trade. Previously, only the old “Panamax” ships could pass through, which could only transport around 5,000 containers, but with this new improvement, the efficiency has skyrocketed.

The new construction in question is a 5.5 billion extension in which enough steel was used to construct 22 Eiffel Towers, and all of this was done to create a new lane and larger locks that will shake up shipping patterns and make seaborne trade less expensive and more efficient.
With such advancements, the way will be cleared for the larger Neo-Panamax ships, which can transport up to 14,000 containers—nearly three times as many as the previous ships—to pass, allowing the globe to benefit from economies of scale.

Panama Canal: Over The Horizon

Looking at such a huge development Marianela Dengo, a Panama Canal Authority Analyst, said in response that “The development of the canal is providing new economic prospects that were not even possible, also this magnitude of economics did not occur previously.”
So, we may argue that it is simpler for nations or areas that share an ocean to do business with one another because of the Panama Canal. Eastern Canada, for example, finds it simpler to do business with Europe than with Asia. As a result, this proposed extension or expansion of the Panama Canal has the potential to dramatically enhance trade between different geographic locations.

According to a report issued this year by the Panama Canal Authority, the new extension project would generate $2.1 billion in additional income per year, representing a direct contribution of 2.8 percent to Panama’s nominal GDP. The International Monetary Fund estimates that the canal extension will save $8 billion per year in worldwide ocean transport expenses.

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Atharva Aggarwal
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