United States

Department of

Agriculture

Agricultural

Marketing

Service

Transportation

and Marketing

Programs

Marketing and

Transportation

Analysis

January 2000

The Panama Canal in Transition:

Implications for U.S. Agriculture

The Panama Canal in Transition:

Implications for U.S. Agriculture

by Ken A. Eriksen
ii

Abstract

As part of the Panama Canal Treaties of 1977,

the United States turned over to the

Government of the Republic of Panama on

Dec. 31, 1999, its control of the Panama Canal,

which it financed, built, and maintained. U.S.

agricultural shipments are cargoes important to

the canal. In 1998, they made up more than

one-fifth of the canal cargo volume, more than

two-thirds of all agricultural shipments, and

more than half of the U.S. cargo volume transported through the canal. The canal is also

important to U.S. producers of corn and soybeans

in that it gives them an efficient and effective

transport route to foreign markets. Without the

canal, it is estimated that U.S. exports of corn

and soybeans could be 2 percent lower, which

would lower producer revenues by $303.6 million. This report addresses how the Panama

Canal transition to Panamanian control will

affect U.S. agriculture.

Key words: Grain transportation and Panama

Canal

Acknowledgments

The author appreciates and thanks the Panama

Canal Commission staff, Maria de Sanchez,

Sylvia de Marruci, and Dr. Victoriano Moreno

for arranging meetings in the Canal Zone and

the partial transit of the canal. Special thanks

also to Daryl Ricard, general manager with

Barwil Agencies (NA) Inc., who assisted with

contacts and vessel information in New Orleans.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin,

sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should

contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326 W, Whitten Building, 1400 Independence Avenue,

SW, Washington, D.C. 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider and employer.
iii

Contents

Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

List of Figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

List of Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

List of Photographs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Panama’s Politics and Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Panama Canal: Development, Importance, and Post-Treaty Transition. . . . . . . . . . . . . . . . . . . . . . . . 7

Development of the Panama Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Importance of the Panama Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Post-Treaty Transition of the Panama Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Panama Canal Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

World Trade and the Ocean Fleet Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Expanding the Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Environmental Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Port and Rail Privatization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

U.S. Agriculture and the Panama Canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix: Shipping a U.S. Grain Cargo Through the Panama Canal. . . . . . . . . . . . . . . . . . . . . . . . 27

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
iv

List of Figures

Figure 1–North and South America and trade routes through Panama. . . . . . . . . . . . . . . . . . . . . . . . 2

Figure 2–Total U.S. exports, U.S. agricultural exports, and cargo volume transiting the 

Panama Canal, 1989-98 (million metric tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Figure 3–Ocean rate comparison from U.S. Gulf to Japan, via Panama Canal versus 

around the Cape of Good Hope ($ per metric ton, based on a grain shipment of 52,000 

metric tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Figure 4–Estimated U.S. corn and soybean flows (million metric tons) resulting from 

increasing Panama Canal tolls and closing the canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Appendix Figure A–Profile of the Panama Canal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

List of Tables

Table 1–Panama Canal traffic, transits, tolls, cargo, and Panama Canal Universal Measurement

System (PC/UMS) tonnage, fiscal years 1989-98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Table 2–Panama Canal oceangoing transits and cargo (million metric tons) by direction,

fiscal years 1989-98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Table 3–Principal agricultural shipments (million metric tons) via the Panama Canal,

fiscal years 1989-98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 4–Panama Canal cargo volumes (million metric tons) by U.S. origin coast,

total, and agricultural cargoes, fiscal years 1989-98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 5–Historical toll rates (in U.S. dollars) per Panama Canal Universal Measurement 

System net ton (PC/UMS), 1914-present . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Table 6–World trade growth compared to fleet growth, 1998-2002. . . . . . . . . . . . . . . . . . . . . . . . . . 15

Table 7–Estimated U.S. grain inspections (million metric tons) for export transiting the 

Panama Canal, 1989-98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Table 8–Projected U.S. Gulf grain exports (million metric tons) using the 

Panama Canal to 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Table 9–Estimated U.S. corn and soybean flows (million metric tons) resulting from 

increasing Panama Canal tolls and closing the canal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Table 10–Estimated annual reduction in U.S. corn and soybean producer revenues resulting 

from increased tolls ($ per metric ton) or closing the Panama Canal, by State . . . . . . . . . . . . . . . . . 24

Appendix Table A–Timeline of a partial Panama Canal transit of the M/V Aspilos . . . . . . . . . . . . 30
v

List of Photographs

M.V. Aspilos locked in Miraflores first chamber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . front cover

Pilot overseeing M.V. Aspilos transit through Panama Canal locks . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Two-way traffic at Gaillard Cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Widening the Gaillard Cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Ship bow in Panama Canal’s Gatun Lock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

M.V. Aspilos in the Gaillard Cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Transiting into the 21st Century . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Grain loading in ship hold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Analysis of the shipment of U.S. agricultural

commodities and products through the Panama

Canal provides vital information on how the

canal affects U.S. agriculture. It also provides a

framework to assess potential policy changes

resulting from the Panama Canal Treaties of

1977, which transferred control of the Panama

Canal from the United States to the Republic of

Panama on Dec. 31, 1999. This analysis covers

the years 1989-98, provides information on the

canal’s history and future from discussions with

its users and operators, and includes a discussion

on recent research that quantifies the value of the

canal for U.S. agriculture.

A new canal organization superseded the

Panama Canal Commission (PCC), the U.S.

agency that operated the canal when the treaties

were enacted in 1979, 2 years after the treaties

were signed. As a U.S. government agency, the

PCC operated the canal on a nonprofit, breakeven basis. Revenues were generated by ship

transits, and the PCC used them to operate,

maintain, and invest in the canal. The new

organization, the Panama Canal Authority

(PCA), will be an autonomous agency of the

Government of the Republic of Panama and will

operate as a for-profit organization and institute

its own management structure.

Ships transit the canal to move between the

Atlantic and Pacific Oceans. The volume of ship

traffic at the Panama Canal is determined largely

by world economic conditions and global trade

routes between countries and trading regions.

Traffic on the global trade routes during the

mid-1990’s, for instance, expanded considerably,

causing oceangoing transits through the canal

also to increase. Between 1989 and 1998, oceangoing ship transits increased 8 percent to

12,924 transits. The volume of cargo transported

through the canal by those ships increased 27

percent during the same time period to 195.2

million metric tons (mmt). The average volume

of cargo carried by a ship increased about 2,200

metric tons (mt) to 14,863 mt. Revenues generated by those ship transits increased 65 percent

from $327.9 million in 1989 to more than

$543.0 million in 1998. Both the number of ship

transits and cargo carried through the canal are

expected to increase with expansion in world

trade through the first decade of the new millennium (2001-2010).

U.S. agricultural shipments are important cargoes transported through the canal. In 1998, they

made up 21 percent of the canal cargo volume,

69 percent of all agricultural shipments, and 52

percent of the total U.S. waterborne export volume transported through the canal. Shipments

of U.S. grains make up most of the U.S. agricultural volume going through the canal. In 1998,

grain shipments totaled 34.6 mmt. By 2008,

exports of corn, soybeans, and wheat transported

through the canal could total 40 mmt—a 16-

percent increase from 1998. These shipments are

important revenue-generating cargoes for the

canal. One metric ton of corn or soybeans transported through the canal generates $1.50 in revenue for the canal, while the same metric ton of

grain generates less than $1 per mt in revenue for

U.S. producers of corn and soybeans. If changes

in canal management result in increased tolls or

closure of the canal, U.S. grain exports would

decrease no more than 2 percent while canal

revenues most likely would decrease more

significantly. If vessels bypass the Panama Canal

and sail around the Cape of Good Hope, vessel

operators lose 5 percent on the vessels’ average

daily revenue. To compensate for the lost daily

vii

Summary
viii

revenue, the ocean freight rate to transport grain

would likely increase.

The shipping community will need to watch

closely how the new organization, the PCA,

manages and operates the canal. Many in the

industry have indicated that the most important

issues in canal management and operation are

safety, maintenance, tolls, canal services, and

capacity. Highly trained and highly skilled

Panamanians operate the canal. The shipping

industry, though, has raised concerns that the

PCA might cut critical services and training

after 2 or 3 years of operating the canal in an

effort to be profitable. Many in the industry suggest that for now they will monitor the canal

operations and evaluate how the new organization affects its business.

Since opening in 1914, the canal has provided the

world trade and the maritime industry with

800,000 vessel transits. The efficiency of the

canal relies on oceangoing ships carrying the

world’s cargo through the canal. The canal’s

most important cargo, though, is U.S. grain.

Changes in canal policy affect U.S. grain shipments through the canal and, as a result, affect

the canal’s revenues and profitability. Any

changes or adjustments in canal policy will have

to be evaluated for their effects on U.S. agricultural shipments, which make up the largest traffic volume and toll revenues transiting the canal.
The Panama Canal Treaties of 1977, signed by

the governments of the Republic of Panama and

the United States, were fulfilled at noon on Dec.

31, 1999.1 At that time, the United States turned

over to Panama the control of the canal that it

financed, built, and maintained as well as its

military assets—installations, facilities, and land.

(See the sidebar on the U.S. military pullout

from Panama.) In return, the Republic of

Panama took the helm of a highly efficient and

very lucrative transportation arterial. The 21st

century begins a new era for Panama. The world

will be watching, especially how Panama manages and operates the canal.

A new canal organization supersedes the

Panama Canal Commission (PCC), the U.S.

agency operating the canal since the treaties were

enacted in 1979. As a U.S. Government agency,

the PCC operated the canal on a nonprofit,

break-even basis. The PCC used revenues it generated to operate, maintain, and invest in the

canal. The new organization, the Panama Canal

Authority (PCA), is an autonomous agency of

the Government of the Republic of Panama. It

will operate as a for-profit organization and will

institute its own management structure, without

influence from the Panamanian Government.

The President of Panama will appoint 10 members to the board of directors, with the

Panamanian National Assembly approving nine

of those members and appointing the tenth

member. Terms of each member will be staggered to ensure political independence.

The canal, approximately 80.5 kilometers long

(equivalent to approximately 50 miles), shortens

the transit time for vessels carrying cargo and

military armaments between the Atlantic and

Pacific Oceans. Since it opened in 1914, close to

800,000 vessels carrying 6.4 billion metric tons

(mt) of the world’s waterborne commerce have

transited the Isthmus of Panama, traveling

between the Atlantic and Pacific Oceans (figure

1). Ships transiting the canal are lifted 26 meters

from sea level through three lock chambers to

Gatun Lake and then lowered back to sea level

through three more lock chambers (appendix).

In 1998, cargo transported through the canal

totaled 195.2 million metric tons (mmt), an

increase of 27 percent from 154.1 mmt in 1989

(table 1).

1

Introduction

1 The Panama Canal Treaty and the Treaty of the Permanent

Neutrality and Operation of the Panama Canal.

Pilot overseeing M.V. Aspilos transit through Panama Canal locks
The volume of traffic at the Panama Canal is a

function of economic conditions around the

world and traffic on the global trade routes

between countries and trading regions. Traffic on

the global trade routes during the mid-1990’s, for

instance, expanded considerably, causing oceangoing transits through the canal to increase. As

an example, by comparing 1989-91 and 1995-97,

ship transits increased 10 percent, averaging

1,200 more transits by 1995-97 than during

1989-91. In 1997 and 1998, an economic recession affected Asian countries and other major

users of the canal, causing ship transits to drop

4 percent from a peak of 13,539 in 1996 to fewer

than 13,000 in 1998 (table 1).

Ships using the Panama Canal have increased

in size. The PCC measured each ship to assess a

toll for the ship’s canal transit. The measurement,

the Panama Canal Universal Measurement

System (PC/UMS), is a volumetric measure of a

ship’s cargo-carrying capacity. The larger the

ship, the larger the PC/UMS, and conversely, the

smaller the ship, the smaller the PC/UMS. The

average PC/UMS per transit in 1989 was 15,495,

which increased 11 percent to 17,149 in 1998

(table 1). Ships also are transporting more cargo

through the canal. The average oceangoing ship

carried 12,648 mt through the canal in 1989. In

1998, the average volume transported on ships

transiting through the canal was 14,863 mt, up

18 percent from 1989 (table 1).

U.S. agricultural shipments are cargoes important

to the canal. In 1998, they made up 21 percent of

the canal cargo volume, 69 percent of all agricultural shipments through the canal, and 52 percent of the total U.S. export volume transported

through the canal (figure 2). Shipments of U.S.

grains make up most of the U.S. agricultural

volume going through the canal. Between 1995

and 1998, U.S. grain exports transported through

the canal averaged 33.4 mmt per year. In 1998,

three grains accounted for more than 95 percent

of the U.S. grain transported through the canal,

corn (two-thirds), soybeans (one-quarter) and

wheat (8 percent).

The canal has served global shipping well for

the past 85 years. Its effectiveness as an efficient

shortcut between the Atlantic and Pacific

Oceans, for instance, has given U.S. grain exports

2

Figure 1–North and South America and trade routes through Panama

North Panama

America

South

America

Panama

Canal

Atlantic

Ocean

Pacific

Ocean

Panama City

Colon
3

Figure 2–Total U.S. exports, U.S. agricultural exports, and cargo volume transiting the 

Panama Canal, 1989-98 (million metric tons)

SOURCE: Panama Canal Commission

Table 1–Panama Canal traffic, transits, tolls, cargo, and Panama Canal Universal

Measurement System (PC/UMS) tonnage, fiscal years 1989-98

Cargo PC/UMS1

Tolls (million net tonnage Average Average Average Transits

Year Transits ($1,000) metric tons) (million) toll ($) cargo PC/UMS per day

19892 11,989 327,851 154.1 185.8 27,346 12,648 15,495 33

1990 11,941 353,726 159.6 181.6 29,623 13,154 15,208 33

1991 12,572 372,280 165.3 191.8 29,612 12,941 15,255 34

19923 12,454 365,716 161.8 188.5 29,365 12,789 15,137 34

1993 12,086 398,232 160.2 186.4 32,950 13,048 15,423 33

1994 12,337 416,803 173.3 194.3 33,785 13,823 15,749 34

1995 13,459 460,045 193.4 215.4 34,181 14,139 16,001 37

1996 13,539 483,115 201.2 226.9 35,683 14,629 16,758 37

19974 13,043 491,635 192.8 216.9 37,693 14,550 16,628 36

19985 12,924 543,036 195.2 221.6 42,018 14,863 17,149 35

1 Panama Canal Universal Measurement System—a volumetric measure of a vessel’s cargo-carrying capacity used for assessing

each vessel transit toll

2 Toll per PC/UMS: Laden = $2.01; Ballast = $1.60; and Displacement = $1.12

3 New toll per PC/UMS: Laden = $2.21; Ballast = $1.76; and Displacement = $1.23

4 New toll per PC/UMS: Laden = $2.39; Ballast = $1.90; and Displacement = $1.33

5 New toll per PC/UMS: Laden = $2.57; Ballast = $2.04; and Displacement = $1.43

SOURCE: Panama Canal Commission, Annual Reports

0

50

100

150

200

250

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Panama Canal Volume Total US Exports US Ag Exports

Cargo Shipments (million metric tons)

Year
from the U.S. Gulf a competitive advantage in

Asia. But that competitive advantage could be

affected if that shortcut becomes more costly.

This report describes the canal’s development,

importance, and transition issues of the Panama

Canal to Panamanian control that are most likely

to affect U.S. agriculture. The first issue is management of the canal in the 21st century. Canal

management includes setting and collecting

transit tolls and related fees, and the day-to-day

operations and maintenance of the canal. A second issue is the capability of the canal to handle

increased traffic from the expansion of world

trade.

The first two sections of this report discuss

Panama’s politics and economy and the canal’s

development, importance, and post-treaty

transition. The next section evaluates the importance of the canal for U.S. agriculture. The last

section, the conclusion, includes a discussion of

how the turnover of the Panama Canal is most

likely to affect U.S. agriculture in the 21st

century.

Information and data used in this report came

from several sources and personal interviews.

As part of the canal treaties, the U.S. military no

longer will maintain installations or a troop force

in Panama after Dec. 31, 1999. The military’s

presence in the Panama area dates back to

before the United States constructed the canal,

when it protected U.S. merchant trade lanes.

Even during construction, the military supplied

engineers, labor, and security (McCullough).

The U.S. military’s Southern Command, headquartered in Panama, oversaw components of

the Air Force, Army, Marine Corps, and Navy

stationed there. Its mission was to assist

Panama in defending the canal, command 

U.S. joint operations, promote democracy 

and cooperation throughout the Western

Hemisphere, and support the U.S. drug control

strategy. The Air Force, Army, Marine Corps,

and Navy components occupied 5,420 buildings in an area of 36,000 hectares with functional utilities and infrastructure (roads, airstrips,

and port areas). The permanently assigned

military strength of the Southern Command in

Panama numbered 8,500. In October 1997, the

Southern Command headquarters relocated to

Miami, FL, as part of the military pullout from

Panama (U.S. Department of Defense). By the

end of 1999, all remaining military installations,

facilities, and land reverted to the Republic

of Panama.

U.S. Military Pullout from Panama

4
The treaties of 1977 and changes in Panama’s

political landscape will usher in a new era for the

Panama Canal. Panamanians elected their first

female president, Mireya Moscoso, widow of

former President Arnulfo Arias. She defeated

President Martin Torrijos in 1999. President

Torrijos’ father deposed Moscoso’s husband in

his last year as president and signed the 1977

canal treaties with U.S. President Jimmy Carter.

Moscoso was elected as leader of the Arnulfista

party to continue to promote her late husband’s

populist and nationalist ideas. As president, she

receives the Panama Canal as an autonomous

organization, which the Government of Panama

is not to influence. As a candidate and as

president-elect, she has stated publicly that

her administration would not politicize the

Panama Canal Authority (PCA—the new canal

organization superseding the Panama Canal

Commission) but would encourage an efficient

changeover by introducing national anticorruption and anticronyism measures (Journal of

Commerce, May 1999).

With a population of 2.8 million people, Panama

has a service-oriented economy. In 1997,

Panama’s gross domestic product (1982 prices)

totaled $6.5 billion, with annual government

revenues and expenditures of $2.4 billion and a

national debt of $7.26 billion. The Panama

Canal generated more than a half-billion dollars

in revenue in 1998, equivalent to one-quarter of

total revenues of the Government of Panama

(U.S. Department of State, CIA Fact Book, and

Panama Canal Commission).

In 1994, Panama began to liberalize its trade

policy and privatize state-owned enterprises in

order to attract foreign investment. The largest

ports were privatized in 1997, the Panama Canal

5

Panama’s Politics 

and Economy

Two-way traffic at Gaillard Cut
railroad was sold in 1998, and the electrical company is currently being privatized. Despite the

reform and privatizing efforts by the

Government of Panama, unemployment is at

13.1 percent, and more than one in three persons

lives below the poverty line. Its labor force totals

a little more than 1 million workers. One-third

work in the government sector, and 27 percent

work in the agriculture, hunting, and fishing sector. The Panama Canal employs 9,000 people

(98 percent of the canal work force is

Panamanian). Panama is a nation largely

dependent on imports. For every dollar’s worth

of goods Panama exported in 1997, it imported 5

dollars in goods (U.S. Department of State, CIA

Fact Book, and Panama Canal Commission).

The turnover of the Panama Canal is not the

only challenge for the Republic of Panama.

Attracting business and industry is necessary to

improve employment and opportunities, raise

personal income, and stabilize the national debt.

Compounding high unemployment and low personal income is the pullout of the U.S. military

(See the sidebar on the U.S. military pullout

from Panama.), which employed Panamanians

on its installations and contributed to the local

economy.

The new canal organization will operate in a forprofit manner. It may reduce wages and lay off

employees in an effort to reduce costs. Panama’s

economy might endure localized hardships as a

result of the U.S. military pullout and any

changes in the canal operations. In the long

term, the country will most likely depend upon

the canal as an effective attraction for business

and industrial expansion.

6
Development of the Panama Canal

In 1903, the United States entered into the 

Hay-Bunau-Varilla Treaty with Panama for 

the perpetual use, occupation, and control of a

10-mile-wide piece of land across Panama from

the Atlantic to the Pacific Oceans to construct

and defend a canal. The United States purchased

the rights to construct a canal through Panama

for $40 million from the French Canal Company

(FCC), which had attempted to construct and

finance a sea-level canal, only to fail two decades

after starting construction in 1880. The United

States paid the Republic of Panama $10 million

and an annual annuity of $250,000 to build and

use the land on which the canal was constructed

(McCullough). The annuity gave the United

States the rights to operate the canal in perpetuity. The U.S. government needed 10 years and

$387 million to design and construct the canal,

which opened in 1914. Since 1903, the United

States has invested $3 billion to modernize and

update the canal, but has recovered more than

two-thirds of that investment (Panama Canal

Commission).

To construct the canal, the United States had to

overcome engineering, sanitation, and organizational challenges. Engineering the canal required

extensive digging through the Continental

Divide, building the largest dam at the time,

installing enormous canal locks and gates, and

obtaining adequate water storage for the system

to function. Disease had been a major problem

for the FCC during its construction attempt.

The United States implemented sanitation and

insect-control programs around the Canal Zone

to reduce deaths related to disease. An estimated

7

Panama Canal: Development,

Importance, and Post-Treaty Transition

Widening the Gaillard Cut
25,000 people died of disease and accidents during the entire construction period

(McCullough). An extensive organization was

also required to design the canal, allocate funds

for construction, coordinate labor, and attend to

visitors (Panama Canal Commission).

The Panama Canal opened to oceangoing vessels

on Aug. 15, 1914. Its benefit to world trade was

as a shortcut between the Atlantic and Pacific

Oceans. For the United States, the canal meant a

quicker trip by water between New York and San

Francisco. Before the canal, there were only three

feasible routes: sailing around Cape Horn, a 67-

day, 12,000-mile journey; sailing to Panama’s

narrowest point between the Atlantic and Pacific

Oceans (the present location of the canal), where

passengers and cargo were unloaded and transported over the isthmus and the Continental

Divide to the other ocean, then reloaded on

another ship to complete the journey; or a

transcontinental journey across North America.

Since 1914, the United States has operated the

canal, managed the land extending 5 miles on

either side of it (the Canal Zone), and set tolls

for transiting vessels through the Panama Canal

Company—the U.S. organization that operated

the canal at that time. During the early years, the

Panamanians complained they did not receive a

fair share of revenues generated by the canal, and

they resented the United States’ operation of the

canal. In 1936, the two nations amended their

1903 treaty to increase the annual annuity paid

to Panama to $430,000, and the United States

gave up its right to intervene in Panama and

maintain public order. In 1955, another amendment increased the annual annuity to $1.93 million, limited the U.S. involvement in Panama’s

internal affairs, established a single pay scale for

Americans and Panamanians employed by the

Panama Canal Company, and made Spanish an

official language along with English within the

Canal Zone. In 1955, the Panama Canal

Company turned over to the Republic of

Panama the Panama City railroad yards and

other properties, valued at $22 million.

Seventeen years later, in 1972, the annuity was

adjusted again to $2.1 million, and then again in

1973 to $2.33 million (Panama Canal

Commission).

Panama had long resented the U.S. control of 

the Canal Zone and by 1974, the two countries

agreed to negotiate the eventual turnover of 

the canal to Panama. Three years later, the U.S.

Government and the Republic of Panama signed

two treaties to jointly operate, manage, and defend

the canal over a 20-year period and guarantee

the neutrality of the canal after the turnover.

The treaties were enacted on Oct. 1, 1979. At

that time, the Panama Canal Commission

(PCC), a U.S. Government agency, was formed

to replace the Panama Canal Company, to operate and manage canal activities. Revenues that

were generated by tolls and transit services supported the operation, labor and maintenance

expenses, and capital investment programs. The

revenue also provided Panama a $10 million

fixed, annual payment, a $10 million inflationadjusted payment for public services that

Panama provided, an annual percentage of toll

revenues, and a payment of up to $10 million if

revenues exceeded PCC expenditures in a given

year (U.S. Department of State). During the

transition period, the PCC replaced American

staff, ship pilots, and members of the board of

directors with Panamanians trained to operate

and manage the canal after the turnover.

8

Ship bow in Panama Canal’s Gatun Lock
The canal organization that succeeded the PCC

on Dec. 31, 1999, the Panama Canal Authority

(PCA), operates autonomously as a for-profit

business. As such, the PCA will be able to

streamline, restructure, or expand certain aspects

of canal tolls, operations, and services. Many

critics have expressed concern that as a for-profit

venture, the PCA could raise revenues too high

through increased tolls, eliminate certain important services, lay off employees, and lower wages,

while allowing Panamanian politics to influence

contract and labor negotiations.

Importance of the Panama Canal

The canal’s purpose is to allow vessels of various

types and sizes to move between the Atlantic

and Pacific Oceans. Bulk ships carry homogeneous commodities, containerships transport

unitized containers loaded with numerous commodities and products, and tankers carry bulk

liquid products. Military vessels, such as battleships and submarines, use the canal during

deployment. Passenger ships carry vacationing

tourists, and mariners take their yachts, sailboats,

and other personal water craft through the canal.

By allowing vessels to transit between the

Atlantic and Pacific Oceans, the Panama Canal

saves time and money for the transport of waterborne goods. For cargo shipped from the U.S.

Atlantic or Gulf Coast (U.S. East Coast) to destinations in Asia, for instance, the canal saves

about 10 days’ sailing time, savings which are

integral to route selection by shipowners and

operators. The canal is a preferred alternative for

shipowners if the average daily revenue of a vessel’s transit through the canal is more than an

extra 10-day routing. For example, assume that a

65,000 deadweight tonne (dwt) dry bulk vessel

transports 52,000 mt of grain from the Gulf of

Mexico to Japan via the Panama Canal at a

freight rate of $18.75 per mt. Clarkson Research

Studies of London, England, estimates the vessel’s average daily revenue to be $7,336.2 An

extra 10-day sailing reduces the average daily

revenue of the vessel by 5 percent to $6,975 per

day. A Panama Canal transit generates $361.50

9

2 Clarkson Research Studies estimates average daily revenue by

subtracting shipping costs (port costs, bunkers, and canal

charges) from total revenue (the freight rate, dollars per

metric ton times cargo tons) then dividing the difference by

voyage days:

{[($18.75 × 52,000) – ($181,530.50 + $242,633.50 +

$85,000)] ÷ 63.5} = $7,336.00

Data were obtained from Clarkson Research Studies and the

Clarkson Research Studies “Shipping Intelligence Weekly,”

Issue No. 381, Aug.13,1999, to estimate average daily revenue.

M.V. Aspilos in the Gaillard Cut
more revenue per day for a vessel than the extra

10-day sailing schedule. Although the vessel

avoids paying the canal toll by sailing around the

Cape of Good Hope, it requires 15 percent more

bunkers and revenue distributed over an additional 10 days. Clarkson Research Studies estimate the canal charge to be $85,000. If the goal

of the vessel operator were to generate $7,336 in

daily revenue by sailing around the Cape of

Good Hope, the required shipping rate would

have to increase about 3 percent to $19.26 per mt

from $18.75 per mt (figure 3). The shipping rate

is the shipper’s cost to have the grain transported

to Japan.

Over the past decade, more than 138,000 ships

have transited the canal. In 1998, ship transits

were up 8 percent from 1989 while cargo volume

was up 27 percent. The average ship carried 19

percent more cargo in 1998 than in 1989. Vessel

transits were most frequent in 1995 and 1996, at

nearly 13,500 each year (table 1).

Ships transit the canal en route to the Pacific

Ocean from the Atlantic or to the Atlantic from

the Pacific. Since 1989, ships going to the Pacific

Ocean from the Atlantic averaged 52 percent of

all oceangoing transits. In 1998, Pacific-bound

transits totaled 6,511—also more than half of all

transits in that year alone (table 2). The higher

number of Pacific-bound transits reflects the

importance of the canal for particular world

trade routes. The principal trade routes using the

canal, with percentages of total average transits,

are U.S. East Coast (includes U.S. Atlantic

Coast, Great Lakes, and Gulf Coast) to the Far

East (44 percent); Europe to the West Coasts of

the U.S. and Canada (9 percent); and U.S. East

Coast to West Coast South America (9 percent).

The volume of Pacific-bound cargo also is more

than the Atlantic-bound cargo. In 1998, more

than 112 mmt of cargo moved through the canal

to the Pacific Ocean, 57 percent of all cargo

taken through the canal (table 2).

The principal commodities transported through

the canal, as a percentage of total average cargo

volume, include grains (23 percent); petroleum

and products (14 percent); and containerized

cargo (13 percent) (Panama Canal Commission).

Shipments of agricultural commodities and

products accounted for 30 percent (58.8 mmt) of

total cargo volume transiting the canal in 1998,

with grain and oilseed shipments totaling 36.1

mmt or 61 percent of all agricultural shipments.

Grain shipments through the canal peaked at

44.2 mmt in 1995 and have averaged 35.3 mmt

over the 10-year period between 1989 and 1998.

Corn, soybeans, and sorghum have accounted for

nearly 90 percent of all grain shipments through

the canal. During 1989-98, corn shipments made

up 30 percent of all agricultural shipments.

Before 1995, grain shipments averaged 32.4 mmt

and, since 1995, have averaged 39.6 mmt—a 22-

percent increase in size. Though shipments

declined in 1997 with the recession of the Asian

economies, shipments in 1997 and 1998 were still

higher annually than any year from 1989 through

1994 (table 3).

10

Figure 3–Ocean rate comparison from 

U.S. Gulf to Japan, via Panama Canal

versus around the Cape of Good Hope 

($ per metric ton, based on a grain

shipment of 52,000 metric tons)

SOURCE: Rates estimated using data obtained from Clarkson

Research Studies, “Shipping Intelligence Weekly,” Aug. 13, 1999

Panama Canal Cape of Good Hope

Ocean Freight Rate ($ per metric ton)

Shipment Routing

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20
Most agricultural shipments move through the

canal from the Atlantic Ocean to the Pacific

Ocean. Between 1989 and 1998, 70 percent of

the agricultural shipments through the canal

moved from the Atlantic to the Pacific Ocean

(table 3). In 1998, shipments of corn and soybeans made up 67 percent of total agricultural

shipments destined for the Pacific (table 3).

U.S. agricultural commodities and products

shipped through the canal between 1989 and

1998 accounted for 68 percent of all agricultural

shipments and 21 percent of all canal cargo

volumes. In 1998, U.S. agricultural shipments

totaled 40.5 mmt, a 23-percent increase from

1989. Agricultural cargo originating from the

U.S. East Coast (U.S. Atlantic Coast, Great

Lakes, and Gulf Coast) and transiting the canal

to the Pacific constitutes 95 percent of all U.S.

agricultural shipments, which have increased

steadily since 1989 and peaked in 1995 and 1996

(table 4).

The size of a ship transiting the canal is limited

by the size of each lock chamber. Vessels must

measure less than 32.3 meters (m) at the beam

(width), 294.1 m in length for containerships and

289.6 m in length for other commercial vessels,

and 12 m in draft.3 The largest ship capable of

transiting the canal is called a “Panamax.”4 Ships

too large to transit the canal are called “postPanamax.” Transits of Panamax vessels are

increasing, representing one-fifth of all transits

in 1983 and one-quarter of all transits in 1988

(Bastian). By the mid-1990s, one out of every

three ships was a Panamax transit (Panama

Canal Commission). The average size of a ship

in the world oceangoing fleet is increasing and

more ships are being built as post-Panamax

vessels. During the 1980’s, about 92 percent of

the world cargo fleet could use the Panama

Canal, but by 2000, it was expected that only 82

percent would be able to use it (Panama Canal

Commission staff ).

Panamax-size ships make a more effective

transit through the canal by carrying more

cargo, but they diminish the efficiency of the

canal because they are limited, by canal policy,

to daylight transits, require extra pilots and line

handlers, take longer to traverse a set of locks,

and are restricted to single passage through the

narrowest portions of the canal in the Gaillard

Cut. In fact, the lockage of a laden Panamax

vessel requires 40 percent more time than a

vessel with a beam under 30 m because the

narrowest passageways through the Gaillard

Cut prevent the largest vessels from safely

passing one another (Bastian).

11

Table 2–Panama Canal oceangoing transits and cargo (million metric tons) by direction,

fiscal years 1989-98

Atlantic to Pacific Pacific to Atlantic Total

Year Transits Cargo Transits Cargo Transits Cargo

1989 6,311 89.7 5,678 64.4 11,989 154.1

1990 6,274 92.4 5,667 67.2 11,941 159.6

1991 6,557 101.1 6,015 64.3 12,572 165.4

1992 6,374 98.4 6,080 63.4 12,454 161.8

1993 6,212 98.8 5,874 61.5 12,086 160.3

1994 6,352 104.2 5,985 69.0 12,337 173.2

1995 6,933 122.8 6,526 70.6 13,459 193.4

1996 6,902 126.2 6,634 75.0 13,536 201.2

1997 6,692 117.4 6,351 75.4 13,043 192.8

1998 6,511 112.0 6,413 83.2 12,924 195.2

Average 6,512 106.3 6,122 69.4 12,634 175.7

SOURCE: Panama Canal Commission, Annual Reports

3 Vessel draft is the portion of the vessel submerged below the

water line.

4 PCC classifies ships with beams of more than 30.5 meters as

Panamax.
12

Table 3–Principal agricultural shipments (million metric tons) via the Panama Canal,

fiscal years 1989-98

Commodities 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total Shipments

Barley 0.2 0.3 0.7 0.2 0.6 0.3 0.6 0.6 0.5 0.3

Corn 10.7 14.2 15.3 14.6 16.3 16.2 24.3 24.7 18.4 18.6

Oats 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.1 0.1 0.1

Rice 0.5 0.7 0.6 0.7 0.7 0.6 0.7 0.8 0.8 1.1

Sorghum 2.0 2.1 1.8 2.0 2.1 1.6 1.9 1.5 1.6 1.9

Soybeans 5.3 6.3 6.4 7.3 8.0 7.3 8.6 8.8 10.5 10.2

Wheat 11.2 6.9 8.1 7.7 5.9 7.8 7.7 6.0 3.3 3.6

Oilseeds 0.2 0.2 0.1 0.3 0.3 0.3 0.5 0.4 0.4 0.3

Other 0.0 21.0 22.0 22.1 20.8 22.1 25.0 24.9 25.1 22.7

Total 30.1 51.7 55.0 55.0 54.7 56.1 69.2 67.7 60.5 58.8

Atlantic to Pacific

Barley 0.0 0.0 0.1 0.1 .070 0.0 0.3 0.2 0.3 0.2

Corn 10.6 14.2 15.2 14.6 16.3 16.2 24.2 24.5 17.8 18.2

Oats 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.1 0.1

Rice 0.2 0.2 0.2 0.1 0.1 0.2 0.3 0.3 0.2 0.7

Sorghum 2.0 2.1 1.8 2.0 2.0 1.6 1.9 1.5 1.6 1.9

Soybeans 5.3 6.2 6.4 7.3 8.0 7.2 8.6 8.7 10.5 10.2

Wheat 10.1 5.5 5.9 5.5 3.8 4.4 5.8 4.3 1.8 1.8

Oilseeds 0.0 0.1 0.1 0.2 0.2 0.1 0.2 0.2 0.3 0.2

Other 6.0 5.8 7.4 8.3 7.3 8.5 10.3 10.4 10.5 9.0

Total 34.1 34.1 37.1 38.2 37.7 38.2 51.7 50.1 43.0 42.2

Pacific to Atlantic

Barley 0.2 0.3 0.6 0.1 0.6 0.2 0.2 0.3 0.2 0.2

Corn 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.2 0.6 0.4

Oats 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Rice 0.4 0.4 0.4 0.6 0.6 0.4 0.4 0.5 0.5 0.3

Sorghum 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Soybeans 0.1 0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.1

Wheat 1.2 1.4 2.2 2.2 2.1 3.4 1.9 1.7 1.5 1.8

Oilseeds 0.1 0.1 0.0 0.1 0.1 0.2 0.2 0.2 0.1 0.0

Other 14.5 15.3 14.6 13.8 13.5 13.6 14.7 14.5 14.6 13.7

Total 16.4 17.6 17.9 16.8 16.9 17.9 17.6 17.5 17.5 16.6

SOURCE: Panama Canal Commission

Table 4–Panama Canal cargo volumes (million metric tons) by U.S. origin coast, total, and

agricultural cargoes, fiscal years 1989-98

Origin 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Total ECUS1 64.0 64.5 72.0 69.5 69.5 70.2 84.8 84.5 74.8 70.9

Ag ECUS 31.2 31.3 33.9 35.0 35.6 35.3 48.5 47.3 39.8 39.6

Total WCUS 7.2 8.0 8.9 9.6 7.3 8.6 6.9 7.2 6.5 7.2

Ag WCUS 1.8 2.2 2.8 2.6 1.8 2.8 1.2 1.2 0.8 0.9

Total US 71.2 72.5 80.9 79.1 76.8 78.8 91.7 91.7 81.3 78.1

Ag US 33.0 33.5 36.7 37.6 37.4 38.1 49.7 48.4 40.6 40.5

Note: ECUS is East Coast U.S. and includes U.S. Gulf and Atlantic Coasts, Ag ECUS is agricultural shipments from the ECUS,

WCUS is West Coast U.S., and Ag WCUS is agricultural shipments from the WCUS.

SOURCE: Panama Canal Commission
Post-Treaty Transition of the

Panama Canal

The canal is an important transportation artery

for oceangoing vessels and world trade, and the

ability of the PCA to meet the demand for canal

services will influence trade patterns and growth.

This section looks at the PCA, its capacity

expansion efforts, its environmental resources,

port and railroad privatization, and world trade

and ocean fleet projections.

Panama Canal Authority

The Panama Legislative Assembly established

the Panama Canal Authority to manage, maintain, use, and conserve water resources of the

canal watershed, and to modernize the canal as

a safe and profitable enterprise to serve the

Republic of Panama for the economic development of the country. The objective of the PCA

“is that the canal always remain open to the

peaceful and uninterrupted transit of vessels

from all nations of the world, without discrimination...” (Panama Legislative Assembly Law

No. 19, June 11, 1997). A board of 10 directors

will manage the PCA. The President of

Panama appoints one as the chair of the board

of directors with the rank of Minister of State

for Canal Affairs, but the Legislative Assembly

freely appoints or removes a director. The

president appoints the remaining nine directors, with consent of the Cabinet Council and

ratification by an absolute majority of the

Legislative Assembly. Each director serves a

9-year term—three are appointed every 3 years

(Panama Legislative Assembly Law No. 19,

June 11, 1997).

The PCA board of directors appoints, removes,

and establishes the salary and benefits of the

administrator, deputy administrator, and the

inspector general. The board also determines the

vessel admeasurement system and sets tolls,

rates, and fees for use of the canal, subject to

final approval of the Cabinet Council. The directors prepare and approve an annual budget for

consideration by the Cabinet Council and the

Legislative Assembly. They also establish canal

labor relations and procedures for selection and

promotion, as well as wage scale and benefits,

and they determine applicable contracting, supply acquisition, and rendering of appropriate

services. The PCA may expand its operations by

engaging in any commercial or industrial activities or services complementing the profitability

of the canal (Panama Legislative Assembly Law

No. 19, June 11, 1997).

13

Transiting into the 21st Century
Actively planning for its management and operation of the canal after Dec. 31, 1999, the PCA

announced in March 1999 that toll rates would

not change during the first year of its operation

of the canal. The PCA surmised that the PCC

had increased tolls sufficiently in previous years

to generate adequate revenue for canal operations. Since the canal opened in 1914, the tolls

have been increased eight times, from 90 cents

per PC/UMS to $2.57 per PC/UMS, a 186-

percent increase (table 5). They have increased

five times since 1989, from $2.01 per PC/UMS

to $2.57 per PC/UMS in 1998, a 28-percent

increase. Revenues in 1989 totaled about $328

million from 11,989 transits. A decade later, revenues increased 66 percent to $543 million, with

12,924 oceangoing transits (table 1).

Labor and staffing of the canal will be different

under the PCA. PCC employees had expressed

concern that the PCA might cut wages and positions to reduce costs and improve the profitability of the canal. In January 1999, the PCA

announced plans to lay off ship pilots and reduce

from two pilots to one the number required to

assist a wide-beam vessel transit. The pilots’

organization appealed to the PCA and to the

international maritime community, claiming that

such a reduction would compromise safety. Two

ship captains confirmed the pilots’ position by

saying that without enough pilots on a ship, the

vessel, its crew, cargo, and other vessels are in

more danger (personal contact with ship captains). Laying off experienced pilots also could

reduce the quality of the canal training program

if new pilots cannot obtain adequate training

with the experienced pilots. Extra pilots on the

largest vessels increase safety and minimize incidents (wrecks and collisions with other vessels or

canal structures) for vessels moving through the

canal.

The PCA, in many ways, has proven itself capable of managing the canal even before it took

over the management of the canal. More than 98

percent of the employees, including the administrator, are Panamanian. These individuals most

likely will continue to work the canal.

Consequently, the turnover of the canal should

be uneventful, with ships transiting in 2000 as

ships did in 1999. Although several individuals

in the maritime community, ship captains, PCC

staff and pilots, ship agents, and others, have

expressed concern that Panamanian politics

might affect canal management and operations,

these individuals believe that 2-3 years beyond

the turnover might reveal how well the PCA will

operate the canal over time.

World Trade and the Ocean Fleet Projections

World trade volume through 2002 is expected to

increase 3-4 percent annually, while the world

fleet of oceangoing vessels is forecast to increase

1-2 percent annually (USDOT- MARAD/

USCG). Trade carried by bulk ships is expected

to increase 3-4 percent, while the dry bulk fleet is

expected to expand by 1-2 percent (USDOT14

Table 5–Historical toll rates (in U.S. dollars) per Panama Canal Universal Measurement

System net ton (PC/UMS), 1914-present

Average 

Percentage

Date Laden Ballast Displacement Increase

Before July 8, 1974 0.90 0.72 0.50 --

July 8, 1974 1.08 0.86 0.60 19.7

November 18, 1976 1.29 1.03 0.72 19.5

October 1, 1979 1.67 1.33 0.93 29.3

March 12, 1983 1.83 1.46 1.02 9.8

October 1, 1989 2.01 1.60 1.12 9.8

October 1, 1992 2.21 1.76 1.23 9.9

January 1, 1997 2.39 1.90 1.33 8.2

January 1, 1998 2.57 2.04 1.43 7.5

SOURCE: Panama Canal Commission
MARAD/USCG). Both the containership fleet

and containerized cargo will likely increase 8-10

percent annually to 2002, as shown in table 6

(USDOT-MARAD/USCG). The PCC expects

its traffic to grow at the same rate as the growth

in world trade by each vessel type (discussion

with Panama Canal staff ).

Most vessels now built for the world’s container

fleet are too large for the canal. These larger vessels are built to carry more containers and make

fewer port calls. In practical terms, larger ships

mean the operating costs of a vessel can be distributed across more containers. These larger

ships, however, require ports with deeper drafts

and more shoreside services, and are in port

longer to unload and load-back containers. As

such, these ships are scheduled to call on fewer

ports and use alternative inland modes to transport containers to final position, rather than

transit through the Panama Canal (see the sidebar on U.S. alternatives to the Panama Canal).

Expanding the Canal

To keep up with the growth in the world

seaborne trade and the larger ships being built,

the PCC has embarked upon a capital investment program to expand capacity for expected

increases in vessel traffic. The efficiency of canal

operation is measured two ways: ship transits per

day and the average canal water time5 (CWT) of

a vessel. The maximum allowable capacity of the

canal is 37 to 42 ship transits per day (Panama

Canal Commission). Daily ship transits indicate

the effectiveness of ship lockage and vessel speed

through the canal waters. The benchmark is a

24-hour CWT (Panama Canal Commission).

A lower CWT gains efficiency, while an increase

is a loss in efficiency.

The CWT can fluctuate with increased traffic

volumes, larger ships transiting the canal, and

mechanical delays operating the locks. But as

transit traffic increases, the CWT will most

likely continue to increase—pressuring the PCA

to expand the canal while maintaining its present

system. In order to finance future canal expansion, the PCA may increase tolls or obtain

financing through capital loans. In the past, the

PCC financed capital improvement projects

through toll-generated revenues.

The transit capacity of the canal, under normal

operating conditions, is a function of vessel sizes,

lock outages, and direction of transits. Panamax

vessels increase CWT because they are limited

to daylight transits and one-way passage through

the Gaillard Cut and take longer to traverse a set

of locks. During daylight hours, the number of

ship transits ranges from 10 to 15 per day,

depending upon ship sizes. Daylight transits

make up less than half of the canal’s maximum

daily capacity. Lock outages and interruptions in

the canal also increase CWT (Panama Canal

Commission staff ).

The average size of a vessel in the world fleet

and those transiting the canal has increased—

with wider beams (the vessel’s width), longer

lengths, and deeper drafts. For example, 25 percent of the world fleet is currently Panamax in

size, while by 2010, more than one-third of the

vessels are expected to be Panamax (Panama

Canal Commission staff ).

15

Table 6–World trade growth compared to

fleet growth, 1998-2002

Trade Fleet

Growth Growth

Vessel/Trade (percent) (percent)

Dry Bulk 3-4 1-2

Tanker 2-3 1-2

Product 4-5 3-4

Crude 1-2 0-1

General Cargo 6-7 2-3

Container 8-10 8-10

Average 3-4 1-2

SOURCE: USDOT-MARAD/USCG

5 Canal water time (CWT) is a time measurement of a vessel

from the moment it is ready to transit the canal until it exits

canal waters. The canal waters include those areas beyond the

canal locks on the Atlantic and Pacific Oceans and include

the breakwater or anchorage areas. Once a vessel enters the

first set of locks on either side of the canal, the transit time

averages 9 hours. The time waiting to enter the first set of

locks increases the CWT.
16

Waterborne cargo exported from or imported to

the United States does not require an all-water

route to reach a final market position. The

United States has an intermodal system that

expands the routing selection for cargo

shipped. For instance, larger ships that transport containers to the United States call on two

or three ports for unloading and loading containers. The larger ships carrying containers

from an Asian country to the U.S. East Coast

would be too large for the Panama Canal. The

ships would call on a U.S. West Coast port,

where the containers are unloaded and then

transferred onto rail cars for an intermodal

delivery across the United States to final markets. This service, called the “land-bridge,”

eliminates an all-water delivery of a container

and avoids use of the Panama Canal.

Containers land-bridged across the United

States from the U.S. West Coast to New York,

for instance, save about 7 days and $600 to

$2,600, depending on the cargo mix, instead of

using the Panama Canal (“Lloyd’s Shipping

Economist,” September 1998).

The land-bridge method has served U.S. trade

efficiently, but its effectiveness as an alternative

to the canal is constrained by increased

demand for domestic inland transportation and

limited rail capacity. Demands for rail service

fluctuate with the economy of the United States

and the world. The ability of railroads to offer a

beneficial service requires nearly flawless performance from moving trains. In late 1997, for

instance, the Union Pacific Railroad experienced significant rail service problems merging

with the Southern Pacific, while making the two

systems compatible. The incompatibilities of

the two railroads nearly closed the western rail

network. As a result, grain trains and intermodal rail service moved slowly, severely hampering rail service (Norton and Brennan). That

incident, coupled with a large volume of containerized imports at the time, slowed down

West Coast port operations. In response, containership companies that had moved cargo

from west to east across the United States

used smaller vessels and used the canal as a

workable alternative to move cargo.

U.S. grain exporters also have several transportation options. Most grain produced in the

United States and destined for export moves

by barge to elevators in the U.S. Gulf (Eriksen,

Norton, and Bertels, March 1999). Elevators in

the Pacific Northwest (PNW) on the Columbia

River and on Puget Sound, on the St. Lawrence

Seaway, or the Atlantic Coast also have grain

exporting facilities. Exports of corn through the

PNW, for example, first move by rail to PNW

elevators before being loaded onto a bulk vessel. The vessel then transports that grain to its

ultimate market destination, mostly Far Eastern

markets, and avoids the Panama Canal. Grain

grown in the Western Corn Belt and then

exported most commonly is shipped through

PNW elevators, while grain produced in the

Midwest, within economical trucking distances

of navigational waterways, moves by barge to

Gulf elevators. Any problems on the U.S. inland

river system will cause domestic shipments of

grain exports to shift to the PNW or, conversely,

with problems with rail service for grain shipments to the PNW, that grain will move toward

the river for delivery, to provide an efficient

alternative to other competitive routes.

U.S. Alternatives to the Panama Canal
By 2005, a major capital improvement program

to increase capacity, costing nearly $1 billion,

should be completed, and the sustainable operating capacity will increase 20 percent. The program includes widening the Gaillard Cut,

augmenting the tugboat fleet, adding locomotives, modernizing the vessel traffic management

system, converting the miter gates and rising

stem valves to hydraulics, and automating the

machinery controls. Each of these improvements

is described in the Panama Canal capital

improvement program sidebar.

Environmental Resources

As traffic at the canal reaches capacity and transit time increases, ship operators and owners will

consider alternate maritime routes. To keep the

canal competitive with other routes, the PCC

has conducted several studies to expand the

canal’s capacity beyond just widening the

Gaillard Cut. Once the widening is complete,

Panamax vessels will be able to pass each other

throughout the canal waters, although ships of

any size and type still will have to wait through

the longer lockage times of Panamax vessels. The

PCC will have to consider lock expansion or the

construction of new locks in the future.

The challenge of increasing lock sizes or constructing another set of locks is having an adequate water supply to assist ships through the

canal. Each ship transit uses 53 million gallons

of fresh water from the canal watershed; i.e.,

Gatun Lake. Rain water keeps the watershed

full. However, in 1998, El Nino brought a

drought to Panama, lowering Gatun Lake’s

water levels. As a result, the PCC restricted the

draft of vessels transiting the canal to 11 m. The

restriction limited the amount of cargo loaded

on Panamax ships and cut the daily revenues of

those ships. Consequently, heavily laden vessels

bypassed the canal and steamed around the Cape

of Good Hope.6 Sailing around the Cape of

Good Hope added 10 days and extra bunkers to

complete the trip, but the vessels transported full

shipments of cargo (Eriksen, May 1999).

The PCC eased the draft restrictions as much as

possible by implementing water-saving techniques. The canal has an adequate water supply

in its watershed to service current traffic levels.

Adding locks or expanding current locks, however, will require additional water sources to

maintain safe water levels throughout the canal.

Three plans have been proposed to expand the

canal’s capacity to accommodate vessels up to

150,000 dwt, and each plan requires significant

water volumes. One project would add a third set

of locks at each lock site. Another project proposes making a sea-level canal through Panama,

and the third project would involve constructing

high-rise locks for the larger vessels (personal

communication with PCC staff ).

To expand canal capacity could take up to two

decades and several billion dollars. The PCC

continues to study world trade patterns and

trends to determine the likely growth patterns

and best expansion plan for the canal (personal

communication with PCC staff ).

17

6 The Cape of Good Hope is the southern tip of Africa, where

the Atlantic and Indian oceans meet.
18

Gaillard Cut. It took more than 20 years to dig,

blast, and remove a mountain of rock and soil

to make a “ditch” across the Continental

Divide, known as the Gaillard Cut, the narrowest passage in the Canal Zone. The original

width of the cut was 91 m and later was

increased to 152 m. The planned program

increases the width to 192 m in the straight

sections and to 223 m at the curves. This project, estimated to cost $218.7 million, will be

completed by 2002.

Widening the Gaillard Cut, which is nearly 12.6

kilometers (km) long, will permit the safe twoway passage of wide-beam vessels. In May

1999, the PCC began testing two-way passage

of wide-beam ships and, in June 1999, doublepassage began through the cut. The dry excavation of the cut (above water) is 90 percent

complete, while the below-water rock blasting

is 85 percent complete and the dredging (below

water) is 53 percent complete.

Locks Machinery Conversion and Controls

System. The mechanical systems at each set of

the locks date from 1914, and these aging components require significant maintenance. The

PCC began modernizing them by converting

the systems to hydraulics and programmable

controllers in 1998. The total cost of the

improvements, expected to be completed by

2003, will exceed $22 million.

Panama Canal Locomotives. Integral to moving

ships through each set of locks are the canal

locomotives, which are located on both sides

of a lock lane and run on tracks. They assist by

towing, braking, and keeping the vessels

secure while in the lock structures. Cables from

each locomotive attach to a vessel to tow it. Up

to eight locomotives might be used to tow a

vessel, four on each side.

The current canal locomotive fleet totals 82

units, and many of them were built before 1965.

By 2002, the PCC plans to increase its locomotive fleet to 108 units, at a cost of $93.7 million.

The new, faster units will have larger traction

motors.

Communication, Traffic, and Navigation

System. The PCC is implementing an advanced

traffic control system to manage vessel traffic

through the canal. This system will allow canal

operators to see ships as they move by using a

satellite global positioning system (GPS). The

system, which costs more than $22 million,

was put into use in July 1999. Another newly

implemented computer system will have realtime, up-to-date information, also using GPS

for canal operations and for pilots aboard vessels, using one central computer. It will track

vessel location and speed, available for display

to allow operators to make more informed decisions. For example, the vessel display will allow

ship pilots to see the location of other vessels

in the canal waters and allow them to coordinate safer and more efficient vessel transits.

Panama Canal Tugboat Improvement Project.

Tugboats assist vessels through the canal and

are available for emergency response. The current fleet supports the present level of daily

canal traffic, but increases in vessel traffic will

require additional tugs. The PCC is updating its

fleet of 20 tugboats to handle the increases in

vessel traffic. By 2002, the fleet will increase by

four new tugboats at a cost of $33.3 million.

Panama Canal Capital Improvement Program
Port and Rail Privatization

Panama’s plan to modernize and increase capacity is not limited to the canal. It also is expanding and modernizing its ports and railroad

system (see the Panama ports and rail sidebar).

Projects at Panama’s ports allow the largest containerships to use Panama as a vital transshipment point for the world container trades. The

ports are located near the entrances of the

Panama Canal, at Balboa on the Pacific and at

Colon on the Atlantic. A rail line runs nearly

parallel to the canal between the ports and is

scheduled for reconstruction as a trans-isthmian

double-stack container service. This rail service

could minimize the need for vessels to transit the

canal and, in effect, increase canal capacity for

other ship transits.

A transshipment service would allow container

lines that transit the Panama Canal to offer

flexible worldwide shipping alternatives. For

instance, vessels using the canal often wait

several hours in canal waters before their transit.

Ship companies are using the ports located near

the canal entrances to discharge containers,

which are transshipped onto other vessels for

other foreign destinations. This service permits

a vessel to efficiently use its time waiting for a

transit and allows the shipping line to expand its

service options for its customers. Most vessels

that currently transship containers in Panama

also transit the canal. Containerships built today

are too large to transit the Panama Canal and

generally use round-the-world services to avoid

Panama altogether or use Panama for transshipment services. Once the rail line is in service,

the largest containerships could call on Panama

for transshipping containers across the isthmus,

using the double-stack rail service as an alternative to the canal and the U.S. land-bridge system.

Panama’s ports and rail will provide a transisthmian service, giving Panama an advantage 

in the container trade business while enhancing

the canal’s capacity.

19
20

Ports. The Panama Ports Company (PPC) purchased operating concessions for the ports of

Balboa and Cristobal, while the Manzanillo

International Terminal, Panama S.A. (MIT), and

the Colon Container Terminal, S.A. (CCT) purchased concessions at the port of Colon. Each

concession is a joint venture between a

Panamanian business and a foreign affiliate.

The PPC is a subsidiary of China’s Hutchison

Port Holding, and MIT is operated by

Stevedoring Services of America (SSA)

Panama, Inc., affiliated with the Seattle-based

SSA and the Motta and Heilbron families of

Panama. The CCT is affiliated with Evergreen

International S.A., Panama, and Taiwan’s

Evergreen Group. Each concession allows the

respective port operator to invest in terminal

rehabilitation and expansion.

The terminal construction and modernization

program at PPC’s Balboa facility includes 12

“super post- Panamax” quay cranes, capable

of servicing the largest containerships being

built, 1,500 m of deep-water quay, 50 hectares

of container storage, and 28 rubber-tired gantry

cranes. This program will allow the PPC to handle more than 1.5 million 20-foot-equivalent

containers (TEU’s) annually. The modernization

program also includes facilities for break- bulk

cargo. The PPC’s Cristobal terminal’s updating

will include two Panamax quay cranes (capable

of servicing Panamax vessels), new rubber-tired

gantry cranes, and a new harbor crane. Annual

container capacity at PPC’s Cristobal terminal

might exceed 300,000 TEU’s (Troetsch).

The initial modernization and construction

phases at port facilities operated by MIT and

CCT at Colon were completed in 1998, but after

2000, both terminal operators will expand their

terminals again (Urriola Tam, McGivern, and

Romero). MIT provides terminal services to 19

shipping lines and handles more than 1 million

TEU’s.

Panama Canal Railway Company (PCRC). A

76.6 km railroad crosses the Panamanian isthmus, connecting the Atlantic and Pacific

Oceans. The PCRC will begin rehabilitation and

reconstruction of the 143-year-old rail line during 2000. It will complement the canal and provide an efficient container transshipment

service between the oceans. The PCRC anticipates moving 75,000 containers in its first full

year of service and expanding to 400,000 containers per year with 20 trains daily.

The PCRC formed in 1998 as a joint venture

between the Kansas City Southern Railway of

Kansas City, MO, and Mi-Jack Products, Inc. of

Hazelcrest, IL. The Government of Panama

awarded the joint venture an exclusive 25-year

concession to operate the railway. The PCRC

will invest about $80 million to rehabilitate the

railway, construct terminals, and purchase terminal equipment (http://www.kcsi.com/

pcrc.html, Panama Canal Commission, and

personal communication with PCC staff).

Panama Ports and Rail
U.S. agricultural products are traded competitively throughout the world. Most U.S. agricultural exports have consisted of grain and

oilseeds, exported from several U.S. port regions,

including the U.S. Gulf (Gulf ), the Pacific

Northwest (PNW), Atlantic Coast, or the St.

Lawrence Seaway. Grain exported from those

locations can move there by barge, rail, or truck

from inland grain production areas. U.S. grain

and oilseed production totaled 401 mmt in 1997-

98, with 24 percent (97 mmt) of it exported

(USDA-NASS). Most of those exports were

shipped from elevators in the Gulf (65 percent)

or in the PNW (23 percent) (USDA-FGIS/

GIPSA). Corn, soybeans, and wheat make up

most grain exports. Corn and soybeans are

exported predominantly from the Gulf, while

wheat is exported mainly from the Gulf and

PNW. Once at the elevators, the grain is loaded

onto bulk oceangoing vessels for transport

worldwide. The predominant markets for U.S.

grain are countries throughout Asia, with Japan

receiving one-fifth of all U.S. grain exports.

The Panama Canal allows U.S. agricultural commodities to be traded competitively throughout

the world. It offers significant advantages for

U.S. corn and soybean exporters, especially in

delivering grain and oilseeds to Asia. For example, in 1998, 51 percent of all grain inspected for

export from the Gulf went through the Panama

Canal, more than 33 mmt (table 7) (USDAFGIS/GIPSA). Corn and soybeans from the

United States make up more than four-fifths of

the world’s grain shipped through the Panama

Canal. In 1998, about 66 percent of the corn

inspected for export from the Gulf went through

the canal, and of those shipments, 50 percent

went to Japan. Two-thirds of Japan’s U.S. corn

imports move through the Panama Canal.

Agricultural exports through 2008 are forecast to

increase by 39 percent to 138 mmt from 99 mmt

in 1998 (USDA-WAOB). If that forecast holds,

and assuming grain exports through the canal

from the Gulf remain constant, grain transported

through the Panama Canal will total approximately 40 mmt, a 16-percent increase from 1998

(table 8).

Future expansion in U.S. grain exports from the

Gulf with delivery through the Panama Canal

will also depend on the management and operation decisions of the PCA, which has a mandate

to operate the canal as a profitable venture. If the

PCA raises more revenue through increased

tolls, U.S. agricultural shipments will be most

affected (personal communication with PCC

21

U.S. Agriculture and the 

Panama Canal

Grain loading in ship hold
staff ). USDA’s Agricultural Marketing Service

conducted a study with Texas A&M University’s

Department of Agricultural Economics to evaluate the effect of increased Panama Canal tolls on

U.S. grain exports. The report concludes that

increased tolls would reduce grain exports via the

Gulf, increase exports via PNW ports, reduce

quantities transiting the canal, and increase shipments around the Cape of Good Hope to East

Asia. Total U.S. corn and soybean exports,

though, would decline no less than 2 percent if

the canal were closed.

The study, “The Panama Canal and Its Effect 

on the Competitiveness of the United States in

International Grain/Oilseed Markets,” estimated

how canal management and canal performance

affect corn and soybean exports. It developed

two scenarios to quantify the effects. The first

scenario evaluated incremental increases in the

toll rate, and the second scenario evaluated the

effects of closing the canal. The results were

obtained using a spatial equilibrium model.

Under the first scenario, toll rates were raised

incrementally from a base $1.50 per mt up to

$5.50 per mt. In the base model, total U.S. corn

and soybean exports were estimated at 68.8 mmt

with about 72 percent of the volume routed

through Gulf elevators, 16 percent through

PNW elevators, and the remaining 12 percent

through other port ranges. Fifty-four percent of

the corn and soybean exports routed through the

Gulf went through the Panama Canal, as shown

in table 9 and figure 4.

If toll rates were increased by $1 to $2.50 per mt

under this scenario, total U.S. corn and soybean

exports would be decreased 0.6 percent to 68.4

mmt. Exports through the Gulf decreased 2

percent to 48.3 mmt, while shipments through

the PNW increased 6 percent to 11.7 mmt.

Shipments through the Panama Canal decreased

8 percent to 24.2 mmt. If tolls were increased

$4 to $5.50 per mt, total U.S. corn and soybean

exports would decrease 1 percent to 68.0 mmt.

Gulf shipments decreased 11 percent to 43.7

mmt, and shipments through the canal decreased

86 percent to 3.7 mmt. Eighty-nine percent of

the Gulf ’s (4.9 mmt) lost volume moved through

PNW elevators, which increased volume at

PNW elevators 44 percent to 15.9 mmt. Fiftyseven percent of the lost canal volume (22.6

mmt) then moved around the Cape of Good

Hope (table 9 and figure 4).

22

Table 7–Estimated U.S. grain inspections (million metric tons) for export transiting the

Panama Canal, 1989-98

Grain 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Corn 10.8 13.6 13.3 15.3 15.5 17.4 26.0 23.2 16.7 21.8

Soybeans 5.1 5.2 6.2 6.8 7.4 6.0 7.6 9.8 9.5 8.9

Wheat 9.8 5.3 6.7 4.9 4.8 3.2 5.7 3.7 1.7 2.7

Other 2.0 2.1 1.4 1.4 1.6 1.7 1.9 1.7 1.9 1.2

Total 27.7 26.2 27.6 28.4 29.3 28.4 41.2 38.4 29.8 34.6

SOURCE: USDA-FGIS/GIPSA

Table 8–Projected U.S. Gulf grain exports

(million metric tons) using the Panama

Canal to 2008

Year Corn Soybeans Wheat Total

1997 16.7 7.3 1.7 25.7

1998 23.4 7.7 2.8 33.9

1999 17.5 7.5 4.7 29.7

2000 19.0 7.7 5.0 31.7

2001 19.7 7.9 5.0 32.6

2002 20.2 7.7 5.2 33.1

2003 21.3 7.7 5.3 34.3

2004 21.9 7.9 5.4 35.2

2005 22.7 7.9 5.5 36.1

2006 23.4 8.2 5.6 37.2

2007 23.9 8.4 5.8 38.1

2008 24.6 8.7 6.0 39.3

Note: Projections were determined by applying the average

volume of grain inspections for export from the Gulf (1989-98)

and average volume of inspections estimated to transit the

Panama Canal to the World Agricultural Outlook Board baseline

projections, 1997 to 2008.
23

Figure 4–Estimated U.S. corn and soybean flows (million metric tons) resulting from

increasing Panama Canal tolls and closing the canal

Table 9–Estimated U.S. corn and soybean flows (million metric tons) resulting from

increasing Panama Canal tolls and closing the canal

$2.50/ton $3.50/ton $4.50/ton $5.50/ton 

Routing of Base toll ($1 % toll ($2 % toll ($3 % toll ($4 % Canal % 

U.S. Exports Quantities increase) change increase) change increase) change increase) change close change

Gulf 49.2 48.3 (1.8) 46.2 (6.1) 43.3 (12.0) 43.7 (11.2) 41.4 (15.9)

PNW 11.0 11.7 6.4 13.8 25.5 16.3 48.2 15.9 44.5 17.8 61.8

Other 8.6 8.5 (1.2) 8.3 (3.5) 8.2 (4.7) 8.3 (3.5) 8.6 0.0

Total 68.8 68.4 (0.6) 68.3 (0.7) 67.9 (1.3) 68.0 (1.2) 67.7 (1.6)

Panama 

Canal 26.3 24.2 (8.0) 17.0 (35.4) 7.3 (72.2) 3.7 (85.9) 0.0 (100.0)

Cape of 

Good Hope 0.0 0.0 1.7 ∞ 8.9 ∞ 12.9 ∞ 12.5 ∞

SOURCE: Fuller, Stephen W., Luis Fellin, and Ken Eriksen. “The Panama Canal and Its Effect on the Competitiveness of the United

States in International Grain/Oilseed Markets.” College Station, TX: Texas Agricultural Market Research Center Report, Department

of Agricultural Economics, Texas A&M University. TAMRC International Market Report No. IM 1-99, June 1999

SOURCE: Fuller, Stephen W., Luis Fellin, and Ken Eriksen. “The Panama Canal and Its Effect on the Competitiveness of the United

States in International Grain/Oilseed Markets.” College Station, TX: Texas Agricultural Market Research Center Report, Department

of Agricultural Economics, Texas A&M University. TAMRC International Market Report No. IM 1-99, June 1999

Gulf PNW

Corn and soybean flows (million metric tons)

Panama Canal toll increases ($ per mt)

Other Panama Canal Cape of Good Hope

0

10

20

30

40

50

1.50 (base) 2.50 3.50 4.50 5.50 Closed
If the canal were closed, total U.S. corn and soybean exports would be decreased less than 2 percent, but the distribution of the shipments was

altered significantly. Shipments via the Gulf

decreased 16 percent while shipments via the

PNW increased 62 percent. Thirty percent of

the exports via the Gulf were shipped around the

Cape of Good Hope (table 9 and figure 4).

Changes in tolls or canal operations affect not

only shipments, but also producer revenues.

Increasing the toll $1 per mt to $2.50 per mt

decreased corn and soybean producer revenues

$95.6 million per year while increasing the toll

$4 per mt to $5.50 per mt decreased revenues

by $247.6 million. Under a canal-closed scenario, producer revenues decreased $303.6 million per year (table 10). The decrease in revenue

from closing the canal represents 99 cents per

mt, or 3 cents per bushel of the corn and soybeans produced in the United States in 1997-98

(USDA-NASS). Changes in the toll or shutting

down the canal most affected corn and soybean

producer revenues in Illinois. A $1 toll increase

decreased Illinois producer revenues $23.1 million per year, while a $4 increase reduced revenues $63.8 million, and closing the canal

reduced revenues $76.0 million (table 10).

U.S. grain and oilseed shipments are important

revenue-generating cargoes transported through

the Panama Canal. Increases in tolls or closing

of the canal would affect U.S. grain exports by

no more than 2 percent while canal revenues

would decrease significantly. The distribution of

U.S. grain and oilseed exports shifted toward

Europe and Africa from the Gulf, with shipments to Asia transported from the PNW and

around the Cape of Good Hope. Total producer

revenues from corn and soybeans decreased less

than $1 per mt, or less than 3 cents a bushel

produced.

24

Table 10–Estimated annual reduction in U.S. corn and soybean producer revenues

resulting from increased tolls ($ per metric ton) or closing the Panama Canal, by State

($1 increase) ($2 increase) ($3 increase) ($4 increase)

State $2.50/ton toll $3.50/ton toll $4.50/ton toll $5.50/ton toll Canal close

Decrease in producer revenues ($ millions)

Arkansas 2.7 3.9 4.3 4.8 8.3

Iowa 14.5 19.8 26.1 26.6 33.5

Illinois 23.1 45.3 63.6 63.8 76.0

Indiana 12.2 25.3 35.5 35.6 42.3

Michigan 2.1 5.2 7.7 7.9 8.4

Minnesota 9.9 20.3 27.6 28.2 31.9

Ohio 6.3 14.9 20.9 21.9 26.7

Other States 24.8 41.2 56.2 58.8 76.5

Total 95.6 175.9 241.9 247.6 303.6

SOURCE: Fuller, Stephen W., Luis Fellin, and Ken Eriksen. “The Panama Canal and Its Effect on the Competitiveness of the United

States in International Grain/Oilseed Markets.” College Station, TX: Texas Agricultural Market Research Center Report, Department

of Agricultural Economics, Texas A&M University. TAMRC International Market Report No. IM 1-99, June 1999
Many vessel owners, operators, shippers, and

users of the Panama Canal have indicated that

the transfer of the canal to Panamanian control

could lead to a reduction in service and safety

and higher tolls, although most anticipate that

the PCA’s first 2-3 years should be smooth.

The PCA inherits an integrated staff of

Panamanians and Americans that is well-trained

and that has managed and operated the canal

efficiently and effectively for several years. The

canal itself has served world trade adequately for

85 years with 800,000 vessel transits. Yet, the

shipping community has many questions about

the long-run credibility of the PCA, which

affects their shipping operations. For instance,

questions the maritime community asks include:

Will the PCA maximize revenues and profits

through toll increases? Will the PCA discontinue or cut important canal services? How will

the PCA finance future capital investment programs to expand the capacity of the canal and

increase its operations for larger vessels? With no

U.S. military presence in Panama, who will protect the canal and ensure the Canal Zone

remains neutral? How will Panamanian politics

influence canal operations? The shipping community also wonders whether bureaucracy will

impede vessel transits and canal safety, maintenance, and investment. Most of these questions,

though, do not have immediate answers. The

PCA has answered at least one of them by indicating that tolls will not be raised in its first year

of operating and controlling the canal. For the

moment, the shipping community has adopted a

wait-and-see approach. The PCA may take 5-10

years to identify and incorporate an operating

philosophy to make the canal profitable.

Shipments of U.S. grain and oilseed exports

move through the canal to destinations throughout the world. The canal relies on those shipments for about 21 percent of its cargo volume. If

the canal were to become inoperable or toll rates

were increased substantially, U.S. agricultural

exports would not have to use the canal to get to

international markets. Alternative markets would

open up for those shipments; otherwise, grain

and oilseeds would be exported from other U.S.

export positions or around the Cape of Good

Hope. Transporting grain around the Cape of

Good Hope increases the transport cost to shippers 3 percent. The value of the canal to U.S.

corn and soybean producers is less than $1 per

mt, less than 3 cents a bushel. Yet, a metric ton

of grain transiting the canal generates $1.50 for

the canal.

The canal relies on oceangoing traffic transits

carrying the world’s cargo. Its most important

cargo, though, is U.S. grain. Policies affecting

U.S. grain shipments via the canal affect its revenues and profitability.

25

Conclusion

Information on how grain and oilseeds are transported into the world market through the

Panama Canal is discussed in this appendix. The

discussion is specific to grain shipments originating from the U.S. Gulf to Japan, the largest

importer of U.S. grain.

The world trade in grain and oilseed commodities is highly competitive and relies on an effective and efficient transport system to move those

commodities to a final market position. Factors

that influence the export of grain and oilseeds

include commodity price, quality and availability,

and transport costs. Exporters in the United

States offer sufficient quantities of high-quality

grain at a competitive world price. The U.S.

transport system allows grain; e.g. corn, to be

sold from two predominant export positions:

export elevators located in the U.S. Gulf and the

Pacific Northwest (PNW). Nearly two-thirds of

all export grain is shipped from the Gulf and

another one-fifth from the PNW.

Corn production is concentrated in 10

Midwestern States (Illinois, Indiana, Iowa,

Kansas, Minnesota, Missouri, Nebraska, Ohio,

South Dakota, and Wisconsin). Except for

Nebraska, Kansas, and South Dakota, each State

borders the navigable Illinois, Mississippi, and

Ohio Rivers. Corn sold to the export market

from these States moves predominantly to the

rivers and is loaded onto barges. The grain then

moves down the rivers to the lower portion of

the Mississippi River to export elevators in the

New Orleans area. The corn is unloaded and

stored until it is loaded onto an oceangoing vessel, which transports the grain to its final

destination.

U.S. grain exports to Asian markets move predominantly through Gulf ports. In 1998, 65 percent of the grain destined for Asian markets

moved through the Gulf. For example, Japan

imported 38 percent of U.S. corn exports in

1998, and 76 percent of that corn was shipped

from the Gulf. Grain shipped to Japan (or any

Asian market) from the Gulf is shipped through

the Panama Canal. Forty-three percent of all

grain exported from the Gulf ships through the

Panama Canal to Asia, Mexico, and South

American countries.

A shipment of grain from New Orleans to

Japan moves on vessels capable of transiting the

Panama Canal. The vessel has to fit through

each of the six lock chambers of the canal, which

limits vessels to 32 m at the beam (width) and

290 m in length. The maximum draft of 12 m

through the Panama Canal also restricts the

volume of grain that can be loaded onto a vessel

to less than 60,000 mt because 2,000 mt of grain

equals one-third of a meter in draft. For a

60,000-mt shipment, the grain adds 9 meters to

the ship’s draft. The remaining 3 meters of draft

allow for the ballast of the vessel, its ship stores,

and bunkers.

Once the vessel is loaded in New Orleans, a ship

agent coordinates the tug assist, pilot, linesman,

final sale transactions, and cargo paperwork

before the ship moves down the Mississippi

River toward the Gulf of Mexico (Ricard). At

that time, the captain of the vessel will contact

the Panama Canal Commission (PCC) Vessel

Traffic Control Center (TCC) and a Panama

ship agent with an estimated time of arrival.

Once a ship is under full steam, about 13 knots

in the Gulf of Mexico, it needs about 4 days to

travel the 2,324 km distance to Panama Canal

27

Appendix

Shipping a U.S. Grain Cargo 

Through the Panama Canal
28

waters. The captain will maintain daily contact

with a ship agent in Panama. The ship agent in

Panama represents and attends to the financial

aspects of the vessel transiting the canal, coordinates required logistics, and resolves any problems the vessel may encounter throughout the

transit. The ship agent also keeps the TCC

apprised of the vessel’s arrival at Panama Canal

waters (Wilson and Sorenson).

The Panama Canal, 80.5 km long and connecting the Atlantic and Pacific Oceans, extends

northwest to southeast. Three sets of locks raise

and lower vessels 26 m above sea level over the

Continental Divide. The Atlantic entrance is

53.9 km north and 43.5 km west of the Pacific

entrance (appendix figure A).

A ship carrying grain from the U.S. Gulf enters

the Panama Canal waters of Limon Bay from

the breakwater at Cristobal. From there, the

vessel steams 10.4 km under tug assist to the

Gatun Locks, the first set of locks. Three “steps”

at Gatun Locks, individual chambers into which

ships are maneuvered, raise the vessel 26 m to

Gatun Lake. Each chamber is 34 m wide and

305 m long. This first set of locks is about

2 km long.

Vessels are scheduled to transit the canal in one

of two manners: first-come, first-to-transit or

through a transit reservation system. Panamax

vessels, the largest vessels capable of transiting

the canal, were restricted until recently to daylight transits. They may enter the first lock at

about 6 a.m. to begin the 9- to 12-hour transit.

Once in Panama Canal waters, the vessel will

await a transit time assigned by the transit

scheduler at the TCC or if the ship has a reservation, the captain will wait until the reservation

time can be honored (Panama Canal

Commission staff ). Reservations can be made in

advance for 26 cents per Panama Canal

Universal Measurement System,1 which is in

addition to the $2.57 PC/UMS assessed for a

loaded vessel transiting the canal. If a vessel fails

to meet its reserved time, it loses the paid fee and

transits the canal in a first-come, first-to-transit

schedule. Upon arrival in Panama Canal waters,

if a vessel is not scheduled to transit that day, it

will drop anchor and wait for its scheduled transit time. Otherwise, the vessel will sail toward

the first lock.

Appendix Figure A–Profile of the Panama Canal System

SOURCE: Panama Canal Commission

1 Panama Canal Universal Measurement System—a volumetric

measure of a vessel’s cargo—carrying capacity used for

assessing each vessel’s transit toll.

Gatun Locks

Pedro Miguel

Locks

Miraflores

Locks

Miraflores

Lake Pacific

Ocean

Panama City

Balboa

Gatun Lake

Madden Lake

Cristobal

Colon City

Atlantic

Ocean
The vessel can begin its transit only after the

bank receives payment for transit. Before the

transit, a launch boat will deliver Panamanian

inspectors, Panama Canal ship pilots, and other

service providers to the ship. The Panamanian

inspectors check the vessel manifest and its

cargo, and they conduct admeasurements to

assess the PC/UMS (if it is the vessel’s first

Panama Canal transit). The Panama pilots take

control of the vessel during its transit through

Panama Canal waters. The chief pilot will

instruct the ship’s captain as to the speed and

direction of the vessel. The chief pilot also will

tell the tug operators, line-handlers, and locomotive engineers what assistance they need to provide, while the pilot remains in contact with the

Panama Canal TCC and each lock tower.

The captain then relays the pilot’s instructions to

his crew members, who perform the proper

maneuver. As the vessel approaches the first set

of locks, another launch boat delivers linehandlers to the ship. The line-handlers board the

vessel and prepare to receive the cables, attached

to each locomotive, that pull the vessel through

each lock chamber. A Panamax vessel requires 20

line-handlers, 12 locomotives (six at the bow and

six at the stern, three to port and three to starboard), and one tug pushing from the stern to

assist the vessel through each lock. One pilot will

remain on the bridge at all times, moving

between the wheel room and to either wing

bridge to call out instructions, “full ahead,” “rudder 10 degrees,” “ahead one-third,” “midships,”

etc. The other pilot will move about the vessel

from bow to stern, port to starboard, keeping

watch on the ship’s progress throughout the

canal transit.

At the first lock, Gatun Lock, the chief pilot will

have the captain’s crew maneuver the vessel to

the approach wall, where the line-handlers

attach the cables of the locomotives to the vessel.

The pilot continues calling out maneuvers to the

captain, and the vessel continues forward with

assistance from the tug at the stern. When the

vessel reaches the first chamber of the lock, linehandlers will attach the cables of the remaining

locomotives to the vessel and draw them tight to

stabilize the vessel for entry into the chamber.

Together with the locomotives and tugs and

under its own power, the vessel moves into the

first chamber, where miter gates close behind the

vessel’s stern to lock it into the chamber. Water

from the second chamber flows into the first

chamber and lifts the vessel to the water level of

the second chamber. Once the vessel has stopped

rising, the miter gates at the vessel’s bow open,

and the vessel moves forward into the second

chamber with assistance from the locomotives

and under its own power. The process repeats for

the second chamber. In the last chamber, the vessel is lifted to the level of Gatun Lake. In each

chamber lockage, raising a vessel requires about

15 minutes, and each lock transit will last from

45 minutes to more than an hour. Transit time,

however, will vary with daily vessel traffic. Once

the miter gates of the last chamber open and the

vessel has cleared the gates, the cables from each

locomotive are released, and the vessel steams

through the tropical waters of Gatun Lake under

its own power 37.8 km from the Gatun locks to

the Gaillard Cut. The water in Gatun Lake

pushes ships through the lock chambers, using

201 million liters of water for each ship transit.

The Gaillard Cut traverses 12.6 km through the

Continental Divide of Panama at the highest

point of the isthmus. Before construction of the

canal, the cut was more than 123 m above sea

level and 91 m wide. One portion was widened

to 152 m during the 1930’s and 1940’s, and the

remaining portions were completed by 1971.

Currently, the cut is being widened to 192 m in

the straight sections and 223 m at the curves to

allow double passage of Panamax vessels.

Panamax ships are limited to single passage

through the canal until the widening project is

complete. The PCC conducted tests in May

1999 to determine the safety of a double passage

of Panamax vessels and measure vessel performance. In June 1999, double passage of Panamax

vessels began. The widening of the cut will be

finished by 2002 and will increase transit capacity by about 20 percent.

29
Once past the Gaillard Cut, the vessels

encounter the first of two locks that will lower

the vessel to the level of the Pacific Ocean.

The first lock, Pedro Miguel, has one chamber,

11

⁄3 km long, which will lower the vessel 9 m.

From Pedro Miguel, the vessel sails into Lake

Miraflores and proceeds about 2 km to the

Miraflores Locks, whose two chambers lower the

vessel to sea level. From the Miraflores Locks,

the vessel moves toward the Pacific Ocean under

the Bridge of the Americas, where the pilot

returns the vessel to the captain and boards the

launch boat.

A complete transit takes 9-12 hours after entering the first set of locks, although a vessel may

anchor in the canal waters, waiting to transit the

canal, from a few hours to a few days. The author

details a timeline of a partial transit in appendix

table A.

30

Appendix Table A–Timeline of a partial Panama Canal transit of the M/V Aspilos1

Canal Location Time

Balboa 1435

Enter Gaillard Cut (speed: 9-11 mph) 1445

Exit Gaillard Cut 1545

Line-handlers embark vessel 1550

Approach wall of Pedro Miguel 1620

In Pedro Miguel’s chamber and miter gates closed 1640

Miter gates open 1655

Final locomotive disengaged 1715

Approach wall of the Miraflores 1750

In Miralflores first chamber and miter gates closed 1800

Miter gates open to Miraflores second chamber 1815

In Miraflores second chamber and miter gates closed 1825

Miter gates open and M/V Aspilos leaves second chamber 1840

Final locomotive disengaged 1845

Line-handlers disembark 1850

Pass under Bridge of the Americas 1900

Pilot disembarks, vessel steams into Pacific Ocean to Guyamas, Mexico 1910

Partial transit time for M/V Aspilos, from Gaillard Cut to disembarkation 5 hours 45 minutes

1 The M/V Aspilos, built in 1982, is a dry bulk vessel (It transports grain, ore, and logs.), operated by Greek owners and officers with a

Philippine crew under the Panamanian flag. The M/V Aspilos has five holds and five cranes and hauled 37,000 mt of white corn

from New Orleans, LA (Continental Grain elevator), to Guyamas, Mexico. The weather was overcast, with high clouds, a slight

breeze, the temperature in the high 90’s, and high humidity.
31

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