Widening of the Panama Canal in 2015 will help South American economies increase their global exports, but the big ships that will transit the canal will create a demand for deeper harbors and improved infrastructure in the region, according to Moffatt and Nichol’s chief economist Walter Kemmsies.
“The Panama Canal expansion is needed for Latin America to become more globally involved, but it’s not the only need,” Kemmsies told the International Association of Ports and Harbors’ World Ports Conference Tuesday in Los Angeles.
South America’s exports are increasing steadily each year, although the exports tend to be mostly minerals and bulk grains. Countries on both coasts ship through the Panama Canal, depending upon the destination of the shipments. For example, Brazil’s exports to Asia transit the canal, and exports to Europe from countries on the Pacific Coast of South America also transit the canal.
Latin American leaders have plans for industrialization because value-added manufacturing is needed to improve income levels. Wages in the region are becoming more competitive with China as wages in that country continue to escalate each year, Kemmsies noted.
Manufactured products move mostly in containers, and liner companies continue to introduce into their global fleets vessels that are too large to transit the Panama Canal today. However by mid-2015, vessels with capacities up to 13,000 20-foot container units will become the new Panamax ships.
Since mega-ships are the vessels of choice in Asia and Europe, those ports in South America that want to capture a share of those growing trade volumes will have no choice but to deepen their harbors to accommodate big ships, he said.
Some countries, such as Brazil and Argentina, are also behind in development of infrastructure, including roads and rail. China recently had to cut back its soy imports from Brazil because farmers in the interior and west of Brazil struggled to get the product to the seaports, Kemmsies said.
China, India and other nations in Asia and the subcontinent will require more food products, especially soy, in the coming years. However, those nations do not have enough arable land to feed their growing populations. South America, by contrast, has abundant arable land and high yields in the agricultural sector.
Efficient inland transportation, deep harbors and modern ports reduce supply chain costs and make countries more competitive in the global marketplace. South American nations must therefore invest heavily in port and infrastructure development if they want to reach their full potential in global trade, Kemmsies said.