The impacts of the panama canal expansion on world cotton Trade

The U.S. cotton industry is highly dependent on foreign markets. It is important for the U.S. industry to remain competitive with foreign suppliers such as Brazil, India and Uzbekistan. One of the major factors that will affect the efficiency, distribution and competitiveness of U.S. cotton will be the expansion of the Panama Canal. With sea freight the fastest growing mode of transportation, the number and size of vessels that are able to pass through the Canal will increase after the expansion is completed in 2014. In summary, taking into account the cost structure, transit time, and the Panama Canal tolls, when compared to the intermodal option, the expansion is expected to reduce maritime costs for shipments from the East Coast ports (e.g. Savannah port) to East Asia (China) by about $140/TEU, a 28 percent reduction of the current total cost of $490/TEU. A spatial, intertemporal equilibrium model of the international cotton sector was utilized to evaluate the effects of the expansion on the world cotton industry, with more emphasis given to the U.S. cotton industry. By assuming that the canal expansion will be completed in 2014, three scenarios assuming different reductions in ocean freight rates from the U.S. Gulf and Atlantic ports to Asian and Pacific importing countries are analyzed. In general, all scenarios suggested that cotton exports to Gulf and Atlantic ports would increase considerably with the port of Savannah leading the way. On the other hand, the Long Beach – Los Angeles ports would decrease its participation in total U.S. cotton exports significantly. Overall, the percentage of U.S. cotton exports via the Panama Canal relative to the total U.S. cotton exports would increase. Furthermore, total U.S. cotton exports were expected to increase due to the expansion. However, in relative terms, the maximum amount which the U.S. total exports would increase is equivalent to a 2.2 percent increase. As for the other competing countries, for all analyzed scenarios, these losses in exports, prices, and revenues are very modest in relative terms.