The Cable

The U.S. Isn’t Ready for Something That Could Drastically Change the Global Economy

The Panama Canal expansion is nearly done. Unfortunately, U.S. port cities on the East Coast are nowhere close to ready for it.


It’s over-budget and two years behind schedule, but the expansion of the Panama Canal, which will allow massive ships from Asia to get to U.S. East Coast ports more quickly, is finally happening. Too bad the United States is ill-prepared for it.

On Wednesday, Canal Authority Administrator Jorge Quijano said the $5.3 billion project, expanding locks to allow bigger ships to pass through the 102-year-old waterway, is expected to be inaugurated on June 26. Construction on the expansion began in 2007 and was slated to be done in 2014. The estimated final cost includes overruns totaling $1.6 billion.

When it’s complete, the canal will allow so-called Post-Panamax ships to pass through. These vessels have the capacity to carry 12,600 containers, almost three times what the existing locks permit. Liquified natural gas tankers also will be able to pass through it.

The expansion could mark a dramatic change in how cargo is moved around the world. Right now, Post-Panamax ships have to unload on West Coast ports, like Los Angeles, that are often backed up. In theory, Asian nations could use the widened canal to more quickly get to the East Coast, where there are ports in New Orleans; Miami; Norfolk, Va.; Boston, and other cities along the Atlantic Ocean. An increase in the number of port destinations would be especially helpful if President Barack Obama cements the Trans-Pacific Partnership, a massive trade deal with Pacific nations that would increase the flow of goods from countries like Japan, and vice versa.

In practice, however, East Coast ports simply aren’t ready for the massive ships the canal can soon let pass; they aren’t deep enough. Dredging projects in Norfolk and Charleston, S.C., are behind schedule; the latter isn’t expected to be completed until 2020. And the raising of the Bayonne Bridge roadway, a $1.3 billion project that is key to the Port Authority of New York and New Jersey’s efforts to attract larger ships, isn’t expected to be done until next year. And much of the rail and highway infrastructure to move more containers away from the coast is not yet in place.

The local impact of the expansion could be dramatic. The International Monetary Fund predicts Panama’s economy will grow 6.1 percent in 2016 due to the increase in canal traffic; the average toll for a ship passing through is $50,000, but some larger vessels pay as much as $375,000.

According to a 2015 report from C.H. Robinson Worldwide Inc. and the Boston Consulting Group, up to 10 percent of container traffic to the U.S. from East Asia could shift from West Coast ports to East Coast ports by 2020. It also found that 15 percent of U.S. GDP could shift between the coasts once it’s complete.

There’s also the economic benefit of increased spending in port cities. The port of Savannah, Ga., is investing more than $1.4 billion to prepare for the expansion, while the port of Miami is investing $2 billion in infrastructure upgrades.

But many of the improvements needed in a Post-Panamax world aren’t complete, and the U.S. could miss out on these benefits.

“The infrastructure’s just not there,” Seaspan Corp. Chief Executive Gerry Wang recently told Reuters. “At the end of the day … you want the volume to come, you want big ships to come, but you just don’t have the infrastructure to handle them.” Seaspan owns many large container ships and leases them out to others.

Once the project is complete, the canal authority estimates shipments through it could rise to 360 million tons in 2017, after reaching a record 340.8 million tons in the fiscal year that ended Sept. 30, 2015. Whether the United States will be able to reap its rewards anytime soon remains to be seen.

Photo credit: MANDEL NGAN/Getty Images

David Francis was a senior reporter for Foreign Policy, where he covered international finance. @davidcfrancis

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