Oil Prices Rise, the Panama Canal Benefits
Shipping companies will see more benefits from The Canal “short cut”
While much of the business world suffers as oil prices reach all-time highs, the tiny nation of Panama and its massive Canal continue to profit. The ‘worlds greatest short cut’ saves international shippers hundreds of thousands of dollars by shortening shipping routes significantly. For example, a common route from Japan to New York City typically cost a container ship $400M in fuel back in 2003 today costs the same vessel $700M to make the same trip. Thus, the fuel and time savings represented to shippers by using the Canal is more significant than ever.
It was a risky gamble for the government of Panama to undertake the Canal Expansion project, which will run an estimated toll of $8B to complete. However, with the soaring prices of fuel, it may prove to have been a very smart bet.
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Image from www.boatingsf.com
| Written by Casey Halloran |  |
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Filed under: Business on March 18th, 2008
Actually, I’ve been doing some research on this after reading a story in the Los Angeles Times… The decision to expand the Panama Canal may become one of the largest financial errors that any country has made in recent history.
If the price of oil goes to $150/$200 per barrel expect the price of US$8 billion for the Panama Canal expansion project to triple or quadruple. I predict that costs will spiral so high within the next year that the project will never be completed.
With the increasing expense of bunker fuel larger freighters will become a thing of the past in favor of smaller “hybrid” ships that are wind and wind/diesel powered and made with composite materials. The so-called “Panamax” freighters will become dinosaurs in the new global energy environment and Panama will find itself spending itself into a deep financial hole with the new project.
With the soaring price of oil much of the products shipped through the Panama Canal will not be cost effective even shipped through the canal. As the global economy suffers, transit of products through the canal will also suffer; expects transits to drop. Markets that are now global will become regional and even the transit of oil will be cheaper via North American pipelines and the small diversion of ships from the U.S. Pacific coast will become too costly.
As the price of oil goes up and economies slide, it will be interesting to see the tonage and transit data for the Panama Canal over the next couple of years.