Because of commercial and technological changes, the role a location plays in the global transport system can evolve, deriving higher levels of added value and economic development. Panama and its transoceanic canal are highly reflective of this evolution. From a simple point of transit, Panama is shifting towards a range of higher added value activities related to its growing role in maritime transshipment. This changing role of Panama in the global transport system can be summarized in four main phases:
- Pre-1914. Through the colonial era, Panama was a transit country connecting Pacific and Atlantic trade routes through trails across the isthmus. The function of Panama City as a transit hub can be traced back to the 17th century, when it acted as a trading platform for the Spanish Empire, particularly on the South American west coast. The completion of the Panama Railroad in 1855 provided an additional impetus to the transit function, with the ports of Balboa and Colon established as a terminus on their respective maritime facades.
- 1914-1990s. The growth of global trade (particularly intra-American trade) and the development of steamships provided an impetus for constructing the Panama Canal, which was completed in 1914. This set the stage for Panama to become a tollbooth country, deriving revenue from canal crossings. Within decades, Panama became an important connector within the global maritime transport system and imposed Panamax as a de facto standard in maritime shipping. However, limited investments related to this connectivity took place since Panama remained a location where cargo was passing by. It could be said that Panama was a weak intermediary location since the cargo transiting was not “touched”. Even if the Colon Free Trade Zone was established in 1947, it was not until the 1990s that the zone would experience significant growth. Still, the logistics and manufacturing activities were of low added value. Still, service functions such as flags of convenience and bunkering emerged. Today, Panama remains the world’s leading ship registry country.
- 1990s-2000s. In the 1990s, a series of events favored the transformation of Panama’s conventional role as a transit country, which culminated in 1999 when the Panama Canal Authority took full control of the canal. Prior to 1995, Panamanian container ports (Cristobal and Balboa) handled very limited amounts of containerized cargo, in the range of 100,000 to 150,000 TEUs. Port privatization reforms in 1995 were accompanied by significant investments in port infrastructure and the entry of major global terminal operators (HPH, SSA, and PSA). Containerized traffic handled by the ports grew rapidly, reaching the 3 million TEU threshold in 2006. The setting of post-Panamax ship services and the growth of the Transpacific trade induced a new dynamic in Panama. It quickly became a transshipment hub, helping reconcile long haul and feeder maritime services, both on the Atlantic and Pacific sides of the Canal. About 95% of the container traffic handled by Panamanian ports involved transshipment activities. For instance, before 2001, there was almost no traffic handled by the Port of Balboa on the Pacific coast. By 2012, the port was handling more than 3.2 million TEUs. The Panama Canal Railway was reopened in 2001 to support growing container flows between the Atlantic and Pacific container ports. As such, the intermediary role of Panama was expanded as transshipment involved growing quantities of containers being stored temporarily at the port terminals but also containers being repositioned through the isthmus, which is placing pressure on road and rail infrastructures.
- 2010s-?. As the first decade of the 21st century progressed, a new trend emerged, reinforcing the role of Panama as a global trade platform. The growth in transshipment volumes (8 million TEU handled in 2018), the central position of Panama within the Americas, the growth of the finance sector, and its emerging function as an air transportation hub incited the setting of logistics activities that were not present before. In such a scenario, Panama could become a logistics platform servicing global and regional supply chains by providing added value activities for the region, such as manufacturing, customization, and distribution. This transition is far from being complete, and several challenges will need to be addressed to ensure that Panama is able to develop world-class logistics capabilities. In particular, developing additional port capacity is necessary, particularly on the Pacific side, as well as port-centric logistics zones and a more extensive road system to support these new interactions. Economic development and expanded trade relations throughout Latin America will directly (transshipment and freight distribution) and indirectly (more canal transits) benefit Panama.
Therefore, the development of a logistics platform is more than an infrastructure issue but must be linked with effective governance and human capital development. The expansion of the canal in 2016 represented for Panama a unique opportunity to position the country as a hub interfacing longitudinal and latitudinal trade flows and deriving added value in the process. This may further trigger additional transshipment activities and potentially some diseconomies due to port, road, and rail congestion. The New Panamax ships (about 12,500 TEUs) that can transit through the expanded canal and call Panama’s ports are associated with different service configurations and different forms of freight distribution within the region. What remains to be seen is the scale, nature, and function that the logistics platform will take. The matter is clear that Panama is no longer a location where ships are simply transiting through. It is becoming a hub of the global transport system; its conventional geographical advantage is being expanded by logistics.