In the light of President Trump’s recent comments, Professor Michael G.H. Bel discusses the significance of the Panama Canal for global freight, and considers how rising costs and proposed alternate routes may affect Australia’s supply chains.
Recent threats by US President Trump to “take back” the Panama Canal have prompted a discussion about the importance of the canal for the global economy and, at least in this part of the world, for Australia.
The Panama Canal was built and owned by the US in the early 1900s before being given to Panama in 1999 under two treaties, signed by US President Jimmy Carter back in 1977. The neutrality of the Panama Canal was guaranteed by treaty (Ittimani, 2025), which of course does not prevent political influence and interference.
Although US President Donald Trump claimed that China was “operating” the canal, in fact China’s involvement relates to a concession granted to the Hong Kong company Hutchinson-Whampao in 1996 to operate the Port of Balboa, on the Pacific side of the canal, and the Port of Cristobal, on the Atlantic side of the canal. In 1999 US State Department officials said that they “have not uncovered any evidence to support a conclusion that the People’s Republic of China will be in a position to control canal operations” (Davidson, 2025). So, while it would appear that the Hutchinson-Whampao involvement in port operations does not pose a direct threat to US interests, it is conceivable that China through this and other commercial operations could become influential on Panama, which does operate the canal. This could resurrect the Monroe Doctrine of 1823, whereby the US sees any interference in the political affairs of the Americas as a hostile act.
The US is responsible for the majority of the cargo passing through the Panama Canal, with China a distant second (Davidson, 2025). The canal is an important gateway for US Gulf and East Coast ports, including the relatively small traffic to and from Oceania (Australia and New Zealand). 40 per cent of US container traffic passes through the Panama Canal. The Panama Canal route is faster for containers between China and the US East Coast than the Suez Canal route by around six days. Added to this, Houthi attacks in the Red Sea have recently rerouted most container traffic from the Suez Canal round the Cape of Good Hope, further increasing the potential advantage of the Panama Canal.
Fees, set by the Panama Canal Authority, have soared in recent years as a result of droughts, which have depleted Lake Gatun and connected reservoirs, thereby reduced the capacity of the canal (Ittimani, 2025). With climate change, droughts can be expected to be more severe and frequent. The original Panamax locks lose more water than the newer Neo-Panamax locks, due to a water recovery system which can reclaim 60% of the water used by the locks. There would need to be significant investment for the original Panamax locks to be given the water recapturing ability of the Neo-Panamax locks, which could be financed by the higher fees that the Panama Canal can now command due to its reduced capacity.
In 2024 Maersk informed its clients that ships with containers to and from Oceania will no longer traverse the Panama Canal (La Rocca, 2024). Instead, a rail connection would be used to move containers about 80 km between the Port of Balboa on the Pacific side of the canal to and from the Port of Manzanillo on the Atlantic side of the canal. While the rail transit time may be comparable to the Panama Canal transit time, the process of loading and unloading containers will add delays and costs.
A good alternative to the Panama Canal for North America is the US “land bridge”, whereby containers offloaded at Los Angeles or Long Beach, or possibly Oakland, are taken by rail on double stacked wagons to destinations across the country and on the East Coast. Not only would this substitute for the canal but would also be welcome business for US railroad companies. More generally, getting containers off the road network and on to the rail network is good for the environment, particularly where the trains are electric, and improve road safety while also reducing wear and tear on the road network. For this reason, both Sydney and Melbourne are currently trying to shift more container traffic to and from their container ports on to the rail network.
A great strength of maritime transport is that there are almost always alternative routes, and this is true for the Panama Canal. However, it is also true that any forced rerouting of cargo will also increase the cost of freight transport. The rerouting of container shipping round the Cape of Good Hope to avoid potential Houthi attacks in the Red Sea has led to a marked and widespread increase in freight rates. So, while the Panama Canal may not be of strategic importance to Australia, any loss of canal capacity, which is more likely to be due to climate change than political interference, will ripple through supply chains and push up costs in Australia (Bartos, 2023).
Source: The University of Sydney