Mike Steenhoek is Executive Director of the Soy Transportation Coalition
I have been receiving an increasing number of inquiries from farmers, media, and others related to the Panama Canal. While I absolutely should not be regarded as a notable expert on the topic, I have been to Panama many times and have done considerable research on the history and current operations of the canal. The Soy Transportation Coalition (STC) has held a number of board meetings in Panama over the years – most recently in December of 2023. In 2011, the Soy Transportation Coalition and the Panama Canal Authority (ACP) signed a memorandum of understanding (MOU) – the first occasion in which the ACP signed a MOU with an organization that represents a commodity or product that utilizes the canal. We have maintained a very good relationship with ACP officials since then. In my many interactions with ACP officials over the years, I have always found them to be extremely professional, collaborative, and hospitable to U.S. agriculture.
For U.S. soybean exports via the Panama Canal, 2024 was a very unique year given the severe drought conditions at the canal during our key export window (September through February). In 2023 (a more typical year), we exported 16 million long tons (600 million bushels) of soybeans via the Panama Canal. U.S. soybeans are the leading agricultural customer of the Panama Canal. They are a critical link in the U.S. soybean supply chain.
Given the increased attention about the Panama Canal last year due to the drought conditions, I was invited on a number of occasions to provide presentations on the history and operations of the canal. The title of my presentation was, “Panama Canal: Enough to be Dangerous.” Since the Panama Canal continues to be a topic of discussion, I thought I would provide some quick highlights from my presentation on its history and current operations.
Overview:
- First discussion of building a canal across the isthmus in 1534.
- Panama was a territory of Colombia until 1903.
- Current population of Panama: 4.5 million; 2 million in Panama City (capital city).
- January 14, 1848: James Marshall finds gold flakes at Sutter’s Mill on the American River east of Sacramento. Launches the California Gold Rush and a massive desire to move across the country to California. Ignited new interest in building isthmian canal through Central America.
- At the time, there were three ways to travel to San Francisco:
- Wagon across the country: 2,000 miles from Missouri to San Francisco; 6 months.
- Boat around Cape Horn (southern tip of South America): 18,000 nautical miles; 6 months.
- Boat to Panama → Cross overland → Boat to San Francisco: 10,000 nautical miles; 3 months.
French effort in Panama:
- French effort: 1881-1888 (bankruptcy) 1889 (liquidation).
- Difficult conditions (rain/flooding, humidity, snakes, etc.).
- Failed for two main reasons:
- Stubborn insistence on a sea level canal (mudslides, esp. at Culebra Cut).
- Massive fatality from diseases (especially Malaria & Yellow Fever); 20,000 estimate (severely undercounted).
Hay-Herran Treaty:
- Named after U.S. Secretary of State John Hay and Colombian Foreign Minister Tomas Herran. Proposed treaty would sell ownership of French assets and concession to U.S.
- Signed by Secretary of State Hay and Foreign Minister Herran, but the financial terms of the agreement were rejected by the Colombian Senate. President Theodore Roosevelt was outraged due to a feeling that the Colombian Senate was trying to extort the United States.
- Roosevelt and Hay were notified of the independence movement in Panama.
- Panamanian separatists declared independence from Colombia on November 3rd, 1903.
- U.S. instantly recognized Panamanian independence. The U.S. provided support for the separatists by providing a naval presence in Panama. The Panama Railroad (operated by the U.S.) refused to transport Colombian troops to suppress the rebellion.
Hay Bunau-Varilla Treaty:
- Named after U.S. Secretary of State John Hay and Phillippe Bunau-Varilla. Bunau-Varilla was the French engineer who briefly managed the French construction effort and later assumed control of French assets and concession after liquidation. He was instrumental in convincing U.S. leaders and the public to abandon plans to build a canal through Nicaragua and instead pursue the Panamanian option. Bunau-Varilla assisted the Panamanian separatists in the independence movement. After Panamanian independence, he became a representative of Panama to the U.S., but he entered negotiations with the U.S. for purchase of the canal without formal approval of the new Panamanian government.
- Under the Hay Bunau-Varilla Treaty, the U.S. purchased French assets, concession, and railroad for $40 million; Paid Panama $10 million + $250,000 annual payment.
- Established the Panama Canal Zone. The Panama Canal Zone was a 10 mile wide (5 miles on each side of the canal) X 40 mile long strip of land that was sovereign U.S. territory.
- The Hay Bunau-Varilla Treaty was immediately criticized by many Panamanians – especially the establishment of the Panama Canal Zone.
U.S. construction effort (1904-1914):
- Built utilizing a series of locks. Panama Canal is 48 miles in length.
- Completed two years ahead of schedule and $23 million under budget. Total cost: $375 million (most expensive infrastructure project in history up to that point).
- Medical research established the connection that malaria and yellow fever are transmitted by mosquitos; An extensive, military-style operation was instituted to combat mosquitos (spraying insect breeding areas, draining stagnant water, nets/screens); Panama Canal was just as much an epidemiological triumph as an engineering triumph.
- Inaugural transit: August 15, 1914.
Carter-Torrijos Treaty (September 7, 1977):
- Signed by President Jimmy Carter and Panamanian leader Omar Torrijos; U.S. Senate ratified the treaty by a vote of 68 to 32 (2/3 majority required for passage).
- Original Hay-Bunau-Varilla Treaty widely criticized by many Panamanians since it was signed.
- Increasing protests over the subsequent decades; Significant tension between U.S. and Latin America in the 1960s and 1970s.
- Permits the U.S. military to intervene and defend the Panama Canal against any threat to the canal’s neutrality.
- Initiated a 20-year transition period from the U.S. to Panama.
- Full transfer on December 31st, 1999.
Panama Canal expansion:
- The Panamanian public approved by referendum to proceed with expanding the Panama Canal on October 22nd, 2006. 78% of voters approved the referendum.
- The expansion project resulted in the construction of new and additional sets of locks to allow the larger generation of ocean vessels to transit the canal. The original locks remained the same size since the canal opened in 1914. While still utilized to the present, the original locks were too small for the increasing number of larger ocean vessels. The expansion also involved increased deepening of the shipping channel and an increase in volume capacity of Gatun Lake (the source of fresh water that allows the canal to operate).
- Expansion project was completed in June of 2016.
- The expansion project cost $5.2 billion. Over half of the funds were provided directly by the Panama Canal Authority with $2.3 billion financed via the following international banks (Source: Panama Canal Authority):
- Japan Bank for International Cooperation (JBIC) – $800 million
- European Investment Bank (EIB) – $500 million
- Inter-American Development Bank (IDB) – $400 million
- International Financing Corporation (IFC) – $300 million
- Development Bank of Latin America (CAF) – $300 million
Current operations:
- 36-40 transits per day between the original locks and the expanded locks.
- Annual revenue from the Panama Canal for FY 2024 (October 2023 – September 2024) was $4.99 billion (Source: Panama Canal Authority).
Chinese influence at the Panama Canal:
The Panama Canal is owned and controlled by the Republic of Panama and operated by the Panama Canal Authority (ACP). As mentioned above, the treaty that transferred ownership of the canal from the U.S. to Panama stipulates that the canal be neutral and available for all countries. The U.S. can intervene militarily if that is not upheld.
Two of the main ports in Panama at Balboa (Pacific side) and Cristobal (Atlantic side), are operated by Hutchison Port Holdings, which is based in Hong Kong. Hutchison Port Holdings is one of the largest port operators in the world – operating 53 ports in 24 countries (Source: Hutchison Port Holdings). The typical arrangement for ports around the world is that a particular country, state, county, or municipality will own the port. The port authority (elected by the voters, appointed by a governing authority, etc.) will then provide long term concessions to a company to manage the port operations. Concessions are usually longer in duration since the port operator will often make significant investments (cranes, shipping berths, warehousing, container yards, etc.) in the facility, which require a lengthy period of time to recover those investments.
Hutchison Port Holdings received an original concession to operate the two ports in 1997. This was around the same period as the official transfer of Hong Kong from Great Britain to China on July 1st, 1997. In 2022, Panama renewed another 25 year concession for Hutchison to operate both ports. The ports are located next to the canal.
Under a previous administration, Panama was the first Latin American country to sign onto China’s Belt and Road Initiative. As in numerous countries, there has been considerable and planned investment by Chinese companies in Panamanian infrastructure projects (rail, bridges, transit, etc.). Not all of these projects have come to fruition, but Panama certainly is a country (among many others) that have received actual or planned investment by Chinese interests.
I hope this is helpful in providing a quick summary of the Panama Canal history and operations.