The Panama Canal and the Caribbean

By David Jessop
By David Jessop

In June of this year], significantly larger ships will be able to pass via an enlarged Panama Canal between the Pacific Ocean and the Caribbean Sea.

Together with other infrastructural developments this is leading some Caribbean governments to hope that with the support of investors from outside the region, Panama’s development as a hub for the hemisphere could significantly improve the region’s economic prospects.

Although this idea needs to be treated with a degree of caution, not least because many Caribbean nations remain heavily indebted and at risk from any significant increase in energy and food prices, the canal’s widening does suggest new opportunity for the region when taken together with other developments and the broadening interest being shown by large international investors.

In particular, there is a growing body of opinion that when the enlarged Panama Canal opens, and the size of vessel able to pass across the isthmus will more than double, this could bring economic growth to nations at the western end of the region.

At present, the canal is limited to ships carrying 3,500 TEUs (twenty foot containers equivalent units) but after expansion it will be able to convey post-Panamax vessels with a greater draught carrying up to 12,000 TEUs. This is expected to result in cargo volumes increasing by an average of three percent per year, the canal handling 510m tons of cargo per annum by 2025 compared with 313m tons 2007, and earnings for Panama projected to reach more than US$6 billion annually.

Because of the Caribbean’s location at the intersection of east-west and north-south shipping routes, it is anticipated that one outcome will be for the region’s deepwater ports to become significant transhipment and logistics centres and hubs for international commerce.

The thinking is that huge post-Panamax vessels will tranship their cargoes from China, Japan and the Pacific Rim in the Caribbean from where they will go on to smaller U.S. East Coast ports near major population centres or railheads. The same is expected to hold true for shipments destined for the South Atlantic ports of Latin America and for eastbound cargoes originating in North America, Europe or Latin America.

The suggestion is that the Caribbean will became a major international transhipment centre, provide technical services to shipping and might spawn new export related assembly and service industries in locations such as an upgraded and deepened port in Kingston, Jamaica, Caucedo in the Dominican Republic, Freeport in the Bahamas or the new port in the special economic development zone at Mariel being developed in Cuba.

In Cuba, the Brazilian corporation Odebrecht is, with Cuban partners, investing some US$900m in creating a major new port, transhipment and logistics centre and associated special economic development zone at Mariel, just outside Havana on 400 sq. km of land. The project, the biggest of its kind in Cuba, involves the second‐largest port operators in the world – Singapore’s PSA International – developing a new container terminal to attract post‐panamax shipping.

Panama has also made clear it intends becoming the hub for Caribbean and Latin American air services.

Until recently, the biggest disincentive to the creation of a deeper relationship between Latin America and the Caribbean has been the absence of any significant scheduled air services.

However, what is now happening is the privately owned and profitable Panamanian airline COPA is rapidly developing air services into the Caribbean through its hub at Tocumen International Airport in Panama City.

This provides, for most, a visa-free alternative to Miami, enabling rapid transfers to virtually everywhere in Latin America as well as to Caribbean destinations including Jamaica, the Bahamas, Haiti, Aruba, Trinidad, the Dominican Republic, Cuba, Puerto Rico, and St Maarten with Barbados and elsewhere to be added shortly.

Whether Panama’s growing regional economic significance – its president wants it to become the Singapore of the Americas – has the capability to redefine and transform the fortunes of the Caribbean, as some believe, remains to be seen. However, there are early signs that the Canal and positive economic developments in countries such as Colombia are refocusing investor attention on the Caribbean Basin.

This is likely to increase as the possibility of significant oil and gas finds in Guyana, Suriname, French Guiana, Belize, Cuba, Barbados, the Bahamas and in deep water offshore become apparent and if large infrastructural proposals for Guyana and Suriname materialize.

So much so that it is just possible that within a decade, if the region can reposition itself to take advantage of these developments, its economic fortunes could be much improved.


David Jessop is director of the Caribbean Council.