Panama Canal Expansion’s Game Changer Impacts On The Cotton Trade Via U.S. East Coast-Asia East Coast

In2014, the Panama Canal authority is expected to complete an expansion that would double the capacity of the Panama Canal.The expansion of the canal to accommodate larger cargo ships will enable vessels carrying large amounts of cargo to travel from Asia to the Caribbean and eastern North and South America exclusively by water.. Improvements to the canal would be a game changer having the potential to change global freight flows by shifting a significant percentage of trade from asian markets to the east and Gulf Coasts and affect transportation and economic networks an increase in freight flows to the east and Gulf Coasts presents an economic development opportunity for job creation and economic growth related to logistics, intermodal transportation and value-added businesses, all of which would also support businesses located in the region exporting their goods.The cotton model used to accomplish research objectives is a spatial, inter-temporal equilibrium model of the international cotton industry. This model is a quadratic programming model that generates interregional trade flows and prices. The objective function specifies the maximization of producer and consumer surplus minus cotton handling, storage, and transportation costs (Samuelson1952; Takayama and Judge1971). The model includes considerable detail on regional excess supplies and demands as well as transportation, storage, and cotton handling costs in both the U.S and Brazil. Other cotton trading countries are considered as either an excess supply or an excess demand region.In Panama, the efficient management of the Canal designed with an operational profile consistent with international maritime trade demand exceeding operating limitations as well as its original design bridge the gap between producer and consumer countries among the major markets of Asia and the United States.The renewal of bilateral agreements between the channel and several U.S. ports as Maryland, Baltimore and Houston, indicate their confidence in the project to expand the canal, with a view to promoting greater trade flows through the road "every water " between Asia and the United States, along with the preparation of a national plan determined to turn Panama into the logistics hub of the region.International shipping, logistics, production, trade and port services have undergone dramatic changes in recent years. In part to the profound change in global maritime activities and the demands of globalization in trade and global production paradigm shift services and Panama Canal operations and the need to produce a change in its operational capacity, which begins to perceive with the construction of the third set of locks as part of the magnitude and complexity of the expansion of the Canal in its challenges to the future.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 in2014. 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, a28percent reduction of the current total cost of＄490/TEU. A spatial inter-temporal 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 in2014, 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 a2.2percent increase. As for the other competing countries, for all analyzed scenarios, these losses in exports, prices, and revenues are very modest in relative terms.