Panama Canal vs. Suez Canal: Global Shipping Insights

Panama Canal vs. Suez Canal: Global Shipping Insights

01/22/2024
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The Panama Canal and Suez Canal are longtime rivals within the container shipping industry as both canals support the flow of global trade by shortening historical trade routes. These man-made waterways not only revolutionize the way goods are transported across continents but also significantly shape the geopolitical and economic dynamics of international trade. In this blog, we explore the histories, expansions and current challenges of these canals, revealing their ongoing efforts to navigate the complexities they present in the face of evolving maritime trends and geopolitical uncertainties. 

Why Are the Suez Canal and Panama Canal Important to World Trade? 

The Suez and Panama Canal are essential arteries in global trade, significantly reducing transit times and facilitating the movement of time-sensitive goods across major trade regions. Each canal, while serving a similar purpose, caters to distinct trade routes. The Panama Canal is a crucial link for the Americas, particularly for South American trade, offering a direct route between the Pacific and Atlantic Oceans. Meanwhile, the Suez Canal is a key passage for ships traveling between Europe and Asia, highlighting its importance in international commerce.

History of the Canals

Suez Canal

With a rich history spanning nearly 150 years, the Suez Canal, completed in 1869, transformed maritime trade by linking the Mediterranean Sea with the Red Sea. This significant creation allowed vessels to bypass the lengthy southern tip of Africa, opening new avenues for global commerce and contributing to the geopolitical landscape of the Middle East.

Panama Canal

Led by Ferdinand de Lesseps, the builder of the Suez Canal in Egypt, France began work on the Panama Canal in 1880 to ship goods between the Atlantic and Pacific coasts, but soon went bankrupt due to engineering problems and high worker mortality rate from malaria, yellow fever, and other tropical diseases.

The United States took over in 1904, completing the canal in 1914 with a 10-mile-wide corridor connecting the Atlantic and Pacific Oceans, playing a crucial role in the geopolitical context of that era, including the relationship with Great Britain. 

In December of 1999, the United States transferred control of the Panama Canal to Panama. This transfer was part of the Torrijos-Carter Treaties, signed in 1977, which outlined the process for handing over the canal and dismantling the U.S. military presence in the Canal Zone. The treaties were named after the U.S. President Jimmy Carter and the Panamanian leader Omar Torrijos.

Expansion Projects

Panama Canal Expansion

The Panama Canal expansion, initiated in 2007 and completed in 2016, marked a transformative period. The addition of a third set of locks significantly increased the canal’s capacity, allowing it to accommodate vessels with capacities of up to 13,000 TEUs – more than twice its original capacity. 

To date, the Panama Canal stretches over 40 miles (65 kilometers), and the average time for a vessel to pass through the canal 25 hours. Under normal operating conditions, the canal sees a daily average of 36 to 38 vessels. However, this number has experienced a decline due to the impact of significant drought conditions.

Suez Canal Expansion

Recognizing the competitive landscape, the Suez Canal Authority announced an ambitious expansion plan in 2014. The deepening of the canal and the creation of a new 45-mile parallel lane enabled two-way traffic, reducing transit times and wait times for vessels. 

To date, the Suez Canal is approximately 120 miles (193 kilometers) long, with an average transit time of 12 to 16 hours. Serving as a crucial artificial waterway, it allows ships to bypass the lengthy and hazardous trip around the southern tip of Africa. On average, the canal handles around 50-60 transits per day, however this number can be influenced by factors such as global trade patterns, economic conditions and geopolitical events. 

Current Issues and Impact on Global Shipping

Despite their strategic importance, both canals face challenges that impact global shipping. 

Panama Canal Drought: A Waterway’s Struggle

In recent years, Panama Canal shipping has faced a significant challenge due to a persistent drought in the region. Insufficient rainfall has led to lower sea levels in the canal and low water levels in Gatun Lake, a crucial water source for the canal. This has significant ramifications for global shipping, as the canal’s ability to accommodate vessels, especially those with deeper drafts, is compromised. 

The canal’s maximum daily capacity, according to Fortune, reduced to 24 ships a day due to the drought, well below the pre-drought capacity of about 38 ships. To address the immediate challenges, the canal will release water from Lake Alajuela, a secondary reservoir, during the dry season. However, this serves as a short-term solution. 

In the long term, the canal authority is considering significant infrastructure projects, including damming up the Indio River and drilling a tunnel through a mountain to pipe fresh water into Lake Gatún, the canal’s main reservoir.

Suez Canal: Navigating Geopolitical Challenges 

Recent missile attacks and attempted hijackings in the Red Sea, a vital route to the Suez Canal, have led to ships rerouting around Africa’s southern tip, significantly increasing costs and voyage durations. The attacks prompted the rerouting of hundreds of vessels, adding 7 to 20 days to their voyages around Africa’s Cape of Good Hope. Rates for Asia-to-North America’s East and West Coasts have also surged, with logistics executives anticipating cargo diversions to avoid Red Sea-related issues. 

The Red Sea crisis coincides with drought issues in the Panama Canal. FreightWaves reports that cargo from Asia bound for East and Gulf Coast ports had initially been switched from Panama to the Suez Canal but is now undergoing further rerouting around the Cape of Good Hope.

The Future of the Canals

Suez Canal

Due to water levels continuing to dwindle, the Canal Authority has been forced to restrict reservations. As we approach the rainy seasons, typically spanning from May through December, there is hope that water levels will rise, alleviating some of the current constraints. However, the situation highlights the urgent need for alternative strategies to manage reservations and ensure the Canal’s operational efficiency amidst environmental conditions.

Panama Canal

The future of the Suez Canal and the Red Sea remains uncertain. The threat of Houthi militant attacks has prompted a diversion of maritime traffic away from the Red Sea, favoring the longer southern Africa route around the Cape of Good Hope. As networks adjust to these new routing patterns, the consensus among many carriers is a hesitance to resume Suez Canal transits until the risks of militant attacks are fully mitigated.

Navigating Canal Challenges with Ascent

In navigating the challenges faced by the Panama and Suez Canals, businesses find themselves at the forefront of innovation and adaptation. As these vital waterways encounter issues ranging from droughts to geopolitical disruptions, the need for strategic solutions becomes increasingly apparent. 

At Ascent, we understand the ever-changing dynamics of global trade and are equipped to tackle the logistical challenges arising from the complexities of the canals. Our comprehensive ocean freight services provide a dependable option for businesses seeking efficient and flexible shipping solutions. Additionally, we offer air freight services as a viable alternative to circumvent the difficulties associated with these canals and other supply chain disruptions. Our logistics experts provide flexible solutions that meet the diverse needs of our customers.

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