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The Importance of Canals for International Trade

The Panama Canal is one of the most well-known artificial canals in the world. Due to its construction in the narrowest region of the American continent, approximately 14,000 ships cross each year between the Pacific and Atlantic oceans. The opening of the canal in 1914 permanently reshaped the global supply chains.

How did this come to be?

Around 90% of world trade is transported by sea. This means that around 753 million TEU containers were handled by ships, which run on a tight schedule to deliver goods. That’s why companies and countries look for geographical shortcuts, like canals, that allow ships to reduce transportation times by weeks.

Over the last 150 years, canals have become enormous projects that serve for political and economic functions of the countries that finance them. Egypt’s Suez Canal was a project promoted by European governments to connect politically and economically the Old Continent with India and East Africa. As time passed, the canal changed from a geostrategic point, becoming the main bridge of trade between manufacturing countries in Asia and European markets.

Similarly, the Panama Canal underwent major reconstruction that concluded in 2015, which allowed for an important increase in its transferring capacities and the strengthening of business of American countries with those in other continents. Marianela Dengo, Analyst of the Panama Canal Authority, said: “The expansion of the canal is creating new business opportunities that weren’t even possible. The level of this scale economy did not exist before.” The load capacity of ships that can cross the canal has increased from 5,000 to 13,000 containers, allowing Panama to keep its place as a key point for global trade.

Not only do canals help to link oceans, but they also work as connections between continental regions. For two thousand years, the Grand Canal of China, with an extension of 1,794 kilometers, has been an important means of transportation within the country, since it crosses through regions far away from the coast. Nowadays, the canal allows for the transport of approximately 130 million tons of goods and raw materials between its production zones and the Yangtze River.

Without a doubt, the importance of canals as strategic points for international trade will keep growing over time. Many governments are keen to develop these infrastructure projects in order to increase the speed of their supply chains and promote economic growth. An example is Nicaragua, that for several years has contemplated building a canal in its territory with the help of China, in order to compete with Panama’s Canal.

Transporting goods on these routes can be a difficult task without the proper support and expertise from a company with foreign trade experience. Woodward Logistics has an experienced group of experts that can help your company overcome its logistics and sea transportation challenges. Visit our official website to learn more about our services and solutions.