Canal Wars

U & D vessel

Published Dec 4, 2016 3:49 PM by Jack O'Connell

(Article originally published in July/Aug 2016 edition.)

With the opening of the new third set of locks, the competition between the Panama and Suez canals just got hotter.

By Jack O’Connell

On a hot and steamy Sunday afternoon in late June the Expanded Panama Canal opened to the cheering of thousands and the eyes of the world as the huge and hastily renamed COSCO Shipping Panama eased her way through the spanking new Cocoli Locks on the Pacific side of the 48-mile-long passage. Formerly the Andronikos, the massive container ship had left Greece two weeks earlier laden with 9,472 containers and entered the canal’s Atlantic-facing Agua Clara Locks earlier in the day.

With the successful completion of her journey through the new and wider third set of locks, she took her rightful place in the history books alongside the SS Ancon, a U.S.-flagged passenger and cargo ship that was the first vessel through the original canal when it opened in 1914.

            Naturally, she was a Chinese ship. COSCO (China Ocean Shipping Company) is one of the canal’s biggest customers. All of the world’s containers are made in China these days, and most of them sail from Chinese ports. A fourth of the traffic and roughly half the revenue of the Panama Canal are container ships.

            Five days later the MOL Benefactor transited the expanded canal and paid a record toll of more than $800,000. The vessel is one of a new class of so-called Neopanamax ships, designed to fit exactly into the canal’s new locks and capable of carrying up to 13,200 TEUs. The new locks are 1,400 feet long and 180 feet wide, compared to 1,000 and 110 feet, respectively, for the original locks. They will more than double the canal’s overall capacity and triple its container volume (the previous limit was 4,400 TEUs). Equally important, the new locks can accommodate the biggest VLGCs and LNG carriers, destined to become a major source of future income.

            While being hailed as the dawn of a new era, the expansion came none too soon. Panama was rapidly losing business to its competitor in Egypt, which had undergone its own expansion a year earlier and was aggressively cutting rates to lure new customers. Something had to be done, and fast. The $5.4 billion project was two years late and plagued by labor and construction snafus, but no matter. It got done. Game on.

“A Man, a Plan, a Canal, Panama!”

It’s the most famous palindrome in the English language. The man, of course, was Viscount Ferdinand de Lesseps, the genius behind the Suez Canal, completed in 1869, and the pride of France. Now the French were determined to carve a canal through the jungles of Panama, and de Lesseps was the man to do it. Ten years after his triumph at Suez, the venture began. It ended 10 years later with the biggest bankruptcy in history up to that time and the loss of thousands and thousands of lives to yellow fever and malaria, but not without laying the groundwork for what would follow.

            Panama was completely different from Suez, which was a sea-level canal carved through the sand. In Panama you had to “go up and over” the mountains to get to the other side, according to David McCullough in his epic work, The Path Between the Seas. Ships had to be lifted some 100 feet or so through a series of locks and then lowered again on the other side. Nothing like it had ever been done before. It was the “moonshot of its era.”

            Enter Teddy Roosevelt and his doctrine of “Gunboat Diplomacy,” and new life was breathed into the idea of a canal across the narrow isthmus. Ten million dollars changed hands, and in 1903 the U.S. had a 99-year lease from the newly created government of Panama to build and operate one. Roosevelt put John Stevens in charge, the man who had built the Great Northern Railway across the Rocky Mountains in the western U.S. He was the one who could do the job. And he did.

            Stevens’ men dug and dredged and dammed the Chagres River to create the largest man-made lake in the world. They used landfill from the digging to build the dam. But the first thing Stevens did was erect sanitary living quarters and working conditions for his men – barracks and streets and towns and mosquito nets and clean water. By 1905 yellow fever had been eradicated. Making Panama safe for workers was priority number one. Building the canal would follow.

            Then Stevens unexpectedly quit and was succeeded by Colonel George Goethals, who finished what Stevens and the French had started. As many as 50,000 men, mostly West Indians, labored under the direction of Goethals and the U.S. Army Corps of Engineers, assisted by 105-ton Bucyrus steam shovels and other technological marvels of the day. The Culabra Cut was a nine-mile gouge through the high ground. Thousands of tons of earth and rock and soil were moved, and millions of cubic yards of sand, gravel and Portland cement used in the construction of the dam and locks. Fifty steel mills in Pittsburgh worked day and night to provide steel for the gates.

            It was the equivalent of building one Suez Canal every three years, and it got done in 11 years.

From Guns to Gas

Like the Interstate Highway System 40 years later, the Panama Canal’s original purpose was military. It was all about sea power and control of the oceans and linking the East and West Coasts of the U.S. and protecting the homeland. That quickly changed as merchant ships were the first to use the canal and trade grew rapidly. Soon the canal became a guarantor of safe passage and the protector of trade lanes and free trade in general. For a fee, ships from any nation could cross the isthmus, saving thousands of miles and opening up new markets in the process.

            The second ship through the Expanded Canal was a gas carrier. NYK Line’s Lycaste Peace was carrying more than 80,000 cubic meters of liquefied petroleum gas (LPG) and was bound for Japan from Houston. She was the first of a new class of ships for which the canal was previously inaccessible, and she was soon followed by a second VLGC, Avance Gas’s Passat. Prior to the opening of the expanded canal these vessels had to go around Cape Horn and were at a disadvantage in competing with Middle East gas originating in Qatar and Kuwait and Saudi Arabia.  

            The U.S. already exports nearly a million barrels a day of LPG and other natural gas liquids, all of it originating in the U.S. Gulf and most of it headed for Japan, South Korea and China. The gas is a byproduct of the shale revolution. By 2020 the U.S. is projected to become the world’s biggest exporter of LPG, and the biggest beneficiary will be – you guessed it – the Panama Canal.

            Following right behind is LNG. The first LNG shipment through the expanded canal is scheduled for late July, and there will be more to follow. Lots more. Japan is currently transitioning from nuclear power to gas, among other favorable developments, and U.S. LNG enjoys a significant price advantage over, say, Australian LNG, and competes favorably with shipments from the Middle East. As more and more gas liquefaction facilities come to life along the U.S. Gulf Coast, LNG exports through the Panama Canal will skyrocket.

            Another winner for the new canal will be container traffic from Asia to the U.S. East Coast. This is probably the most hotly contested route for the two canals, and the Suez had been making inroads. The expanded canal will change all that, enabling the larger Neopanamax ships to transit the expanded locks and reducing voyage times from Asia to the USEC by 16 days. Compared to the Suez Canal, it’s five days shorter.  

Finding the Right Algorithm

Choosing between the two can be tricky. On most routes there is no competition and the choice is easy. On others, not so easy. Fuel costs have to be factored in (given today’s cheap bunkers, it can be more economical to go around the two capes than to transit the canals, especially on backhauls). Voyage lengths and type of cargo and tolls and operating costs and financial costs have to be factored in. Tolls differ and are hard to compare. The Suez goes by volume and size of vessel. Panama throws in value of cargo as well.

            It takes an algorithm.

            When I get in my car in the morning, my iPhone somehow knows where I want to go and tells me how long it will take to get there and whether traffic is light, normal, heavy or abnormally heavy. How does it do this? By tracking my movements via GPS over a period of time and using predictive analytics to come up with an algorithm that says where I’m going. It’s not always right because human nature is fickle. Sometimes I run an errand before going to the office. And sometimes I don’t come directly home but stop for a drink or a workout on the way. But my iPhone usually knows.

            Same thing when choosing between the two canals. You need a sophisticated algorithm to tell you which route is more economical, and that’s the one you take.

Winners & Losers

According to regular MarEx contributor and respected maritime consultant Basil Karatzas, who attended the dedication ceremonies for the opening of the expanded canal, the big winners will be China and the U.S. shale industry – China because it brings new markets closer and U.S. shale because of the anticipated surge in gas shipments.

For Gerhard Kurz, who serves on the Panama Canal Advisory Board and also attended the opening ceremony, another winner will be Panama itself and specifically Panama City, whose skyline is dotted with new skyscrapers and dozens of new ones going up. The canal and the development that has come with it are major contributors to the Panamanian economy, and Kurz marvels at how it has transformed Panama from an agrarian economy to a commercial powerhouse. And Panama City is the jewel in the crown. – MarEx 













Lock & lake



48 miles

120 miles


60 feet

78 feet


13,200 TEUs









8-10 hours

11 hours


$2.6 billion

$5.2 billion






The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.