Potential Impacts of Interoceanic Passages and Canals

Potential Impacts of Interoceanic Passages and Canals

The setting or expansion of interoceanic passages and canals can have three types of interdependent impacts.

  • Operational impacts. Relate to the characteristics of the passage in terms of capacity, reliability, and transit time, all of which are linked to its usage costs. The first and most salient impact involves reducing the aggregate shipping distance, commonly the main rationale behind canal construction. Because of their technical characteristics, passages such as Panama and Suez define ship classes and operational conditions for the global maritime transport system. Technical improvements (e.g. widening, dredging) usually result in lower unit costs for maritime shipping, particularly since better economies of scale can be achieved. However, these lower costs must be pondered by the toll structure in place for the passage.
  • Substitution impacts. Relate to the impacts on existing trade flows, particularly due to the comparative operational improvements and lower transport costs along maritime routes. Cargo that is used to transit through specific routes (such as landbridges) can be diverted to take advantage of the improved cost structure of the passage. This also results in changes in the configuration of maritime shipping networks with a greater convergence level of these routes. The location of transshipment hubs along these routes may also change.
  • Induced impacts. Relate to the impacts on new economic and commercial opportunities. Improved operations and lower transport costs commonly result in expanded or new trade relations among regions experiencing the most significant cost reductions. This expanded trade results in higher utilization levels of the passage, inciting the setting of transshipment hubs nearby as well as logistics zones, providing added value to more complex and diversified trade.

Commercial actors indirectly react to operational changes in interoceanic passages. Since these impacts affect only one element in all the considerations behind a commercial transaction (e.g. transport costs, sourcing strategies, resource costs, labor costs), it is difficult to extract the specific contribution of an improvement for maritime shipping and the logistics chains they service. Actors such as importers, exporters, manufacturers, and retailers make decisions based on a complex and multivariate set of factors. Maritime shipping companies accommodate the derived demand generated by these decisions.

In the short term, the most powerful factor is usually the derived demand for economic activities on transportation. However, the induced impacts are starting to play a more significant role in the long term since they have retroactively impacted the derived demand. For instance, a maritime shipping company offering higher capacity and lower transport costs will likely trigger induced impacts. Only significant operational changes (lower costs and/or shorter routes) will have relatively immediate impacts. Marginal improvements usually pan themselves out over longer time periods and are difficult to notice.