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Monrovia NSU CHALLENGER bulk carrier transits the expanded canal through Cocoli Locks at the Panama Canal on April 19.ARIS MARTINEZ/Reuters

In 2016, the first ship sailed through a new route around the world, an expanded Panama Canal with wider new shipping lanes to accommodate larger ships, and on them more of the containers that have been the building blocks of globalization.

The US$5.2-billion expansion of the canal was not merely a continent-slicing construction project. It was a concrete expression of faith in international trade – and in particular in the movement of goods between China and the United States as a bedrock of the modern economic landscape.

The apartment-block size ships that loom over the waterway today – the expansion allowed for vessels that can carry nearly three times the number of containers – are an incarnation of what may be the most consequential trading relationship the world has ever seen.

But that relationship is fraying, and the canal may be one of the places the growing friction between Washington and Beijing becomes tangible. It’s a prospect that is already a source of concern for the administration of a waterway that accounts for an eighth of Panamanian government revenue.

No other trade route brings more goods through the canal than goods transported from Asia to the eastern U.S.

In recent years, however, the White House has led a big-spending effort to support the return of manufacturing to the U.S. Overseas, meanwhile, geopolitical tensions and pandemic snarls have pushed manufacturers to diversify supply chains away from China.

In 2018, 37 per cent of the containerized goods arriving in the U.S. came from China. Last year, China’s share fell below 30 per cent. In that same time period, Vietnam’s share nearly doubled, while India and Thailand saw significant gains, according to statistics gathered by London-based Clarkson Research Services Ltd.

“In part this reflects growing manufacturing sectors in many emerging Asian countries, but it is likely that efforts to diversify supply chains are also having an impact here,” said Clarksons managing director Stephen Gordon.

Those shifts stand to alter the fabric of global trade. Goods sailing to the U.S. from China tend to take a Pacific route, some crossing through the Panama Canal to the U.S. East Coast, a trend that has strengthened in recent years.

Ships from India and South-East Asia, however, usually sail through the Suez Canal, avoiding Panama altogether.

Global maritime trade is enormously complex, dependent on a vast variety of goods and influenced by a staggeringly diverse array of economic and logistical factors.

But the U.S. is attempting to reverse the decades-long movement of manufacturing to China. Companies have pledged more than US$200-billion to building new manufacturing capacity in the U.S. since last August alone.

“The tectonic plates are shifting with respect to investment in the United States,” U.S. Energy Secretary Jennifer Granholm stated earlier this month.

Indeed, “reshoring is real and it is accelerating,” said MD Sarder, a scholar of logistics and supply chains at Bowling Green State University.

The effect will take time to become visible in imports and exports, he said – and some are skeptical it will have a serious effect on seaborne trade.

“I do not believe that U.S. reshoring will have any major impact on shipping volumes,” said Niels Rasmussen, chief shipping analyst at the Copenhagen-based Baltic and International Maritime Council, one of the world’s largest shippers organizations.

He pointed to the U.S. focus on reviving the manufacture of products like microchips, which are a low-volume shipping product. The U.S. also “does not have the work force to reshore significant import volumes,” he said.

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There is nonetheless evidence that trading patterns are being slowly reconfigured. The Port of Halifax, as one example, had a 50-per-cent increase in trade from India last year.

“We’re seeing those volumes increase there as manufacturing increases,” said Captain Allan Gray, the port’s president.

“Everything we do is about positioning ourselves for that opportunity,” he added. The port, with service to India and Vietnam, cites its lower dwell times compared to U.S. ports and speedier container delivery times to the country’s Midwest.

Still, Halifax remains a small player. Last year, it moved 601,700 20-foot equivalent units of containers. The Port Authority of New York and New Jersey moved more than that in a single month.

Those ports had a banner year in 2022, with a 5.7-per-cent rise in container volumes. The Port Authority attributes roughly 80 per cent of that increase to containers displaced from West Coast ports, which have struggled with labour unrest and backlogs of goods.

That has been good for the Panama Canal, which has seen several years of rapid growth. The canal’s expansion promised to double the volume of goods it carries, from 300 million to 600 million Panama Canal universal measurement system tons. The canal forecasts achieving its capacity by 2025. Last year, it reached 518 million tons.

But the canal expects a decrease this year, to 500 million.

The canal’s administrators have pointed to Russia’s war on Ukraine as the principal reason. Shipments of U.S. liquefied natural gas are no longer sailing from the Gulf Coast through the canal to Asia. Those ships are now being dispatched directly to Europe.

But changing patterns of global trade are a concern, said Ilya Espino de Marotta, the canal’s deputy administrator.

The possibility of longer-term shifts in manufacturing and shipping “to farther south in Asia – that would definitely impact the Panama Canal,” she said in an interview.

The canal’s expansion was designed to allow far larger container ships to transit the Panamanian isthmus, an increase from the Panamax ships that could carry roughly 5,000 containers. Neo Panamax vessels carry up to 14,000.

But it has fallen roughly 30 per cent short of its full capacity for the larger new vessels. Those that have arrived have not always carried full loads. That has an oversized financial impact, since more than half of the canal’s revenue come from minority of vessels that use the new expansion channels.

Climate change has brought further problems, with dry conditions reducing available water and forcing draught restrictions, including this year, that limit vessel capacity.

Ms. Marotta expresses little concern about the future of the canal, which carries everything from soya beans to cruise ship passengers. “There’s a lot of moving parts,” she said, not least the uncertain effect of future carbon restrictions on shipping.

The future of manufacturing may drive some containers elsewhere. But energy shipments could come to rely on the Panama Canal. Even road development in northern Brazil could add to cargoes destined from that country to China – through the canal.

“We’re still a very competitive route,” she said.

The canal has already begun examining options to address water levels, from dredging that would allow additional wet season water storage to the installation of bubble curtains that can shield against saltwater ingress, which could diminish freshwater flushing.

“I’m very optimistic,” Ms. Marotta said.

Others are less so.

“So far none of the projections that were made for expanding the canal were satisfied,” said Sebastian Galiani, a University of Maryland economist who is a fellow of the National Bureau for Economic Research.

He has spent two decades studying the ways the Panama Canal has altered the globe, using tools of economic and geographic analysis to find that, for example, that in its first quarter-century of operations it lifted Canadian manufacturing productivity by 13 per cent and supported a 7.8-per-cent population increase in British Columbia. (Other research suggests the canal’s opening spurred migration of Black Americans to the west of the U.S., which saw a surge in manufacturing.)

“This very big infrastructure investment changed the world,” he said.

Now, though, the Panama Canal itself may be shaped by forces outside its own control.

“The world changes,” Prof. Galiani said, “and things that were useful at some point stop being so.”

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