The Panama Canal is poised to complete a major expansion this year, a project that will modernize a key piece of trade infrastructure. Recently, Yale School of Management students had the opportunity to talk with the expansion’s chief architect about how it will impact global maritime trade.
The students in Professor Paul Bracken’s The Global Corporation course explored the canal’s expansion during a video conference with Ilya Marotta, executive vice president and project engineer at the Panama Canal Authority, on February 15. Marotta spoke from her office in Panama City.
The Panama Canal revolutionized maritime trade when it opened in 1914, allowing ships to pass between the Atlantic and Pacific oceans without traveling an extra 8,000 miles around the southern tip of South America. But freighter ships have grown considerably since 1914, and Panama is now completing a $5.2 billion expansion project to widen the canal.
As part of the class’s study of the expansion, Bracken ran a seminar game; students divided into teams representing groups of stakeholders that are impacted by the canal expansion. Teams included Cuba, Russia, U.S. East and West Coast ports, the Suez Canal, the Maersk Shipping Line, Chinese exporters in Shanghai, and private equity firms seeking to take advantage of new opportunities stemming from the expansion.
The expansion is a necessary step, Marotta said, if the canal is to remain competitive as a shipping route. But what are the larger implications for world trade patterns, global economies, and international business? During a lively question-and-answer session, students peppered Marotta with questions.
Will the Chinese export markets be impacted? How will Cuba’s reemergence as a U.S. trade partner affect the canal?
China will, no doubt, continue its robust exports, and Cuba—with its own deep-water ports—doesn’t need the canal, Marotta said.
Michael Helfenberger ’16, part of the East Coast U.S. Ports group, asked whether the canal will once again be too narrow if ships continue to grow in the future.
“Ninety-eight percent of the world fleet will fit now,” in the expanded canal, Marotta said. “By 2025, maybe 94% will still fit.” She stressed that the Panama Canal collaborates with the many ports it serves. “We don’t work in isolation,” she said. “We share information on logistical issues.”
Marema Diop ’17, representing the Private Equity group, wondered if a proposed railway linking Brazil and Peru would pose new competition to the enlarged canal, cutting into its profits.
Shipping by rail, Marotta responded, is far more costly. “Water routes are the most economic,” she said. “Moving goods by railroad is much more expensive and time consuming.”
The biggest challenge to maximizing the port’s potential for the world and for Panama is Panama itself, Marotta said.
“Can we align our government policies to make Panama and the canal work seamlessly with ports and with trade?” she said. “Can national ports be adapted to move it all along?… Engineering is engineering. The people part is much more difficult to deal with and align.”