Game changer: The Panama Canal Expansion’s Impact on Global Logistics

One hundred years ago the cutting of a narrow land mass between Central and South America would forever change the world’s East-West trade routes. To date, more than one million ships have passed through the Panama Canal. With a new expansion underway, this historic man-made construction is expected to dramatically increase traffic and international trade.

The expansion will bring new development opportunities to Latin America and the Caribbean – provided neighboring countries can improve their logistics infrastructure. Latin American and Caribbean nations are being held back by logistics costs representing 18 to 40 percent of the final product value, making it hard for them to gain a competitive edge on large emerging economies like China, whose costs are only about eight to 10 percent.

What is the IDB doing to help prepare the region for the Canal’s expansion?
The Inter-American Development Bank has been working to prepare the region for the expansion of the canal by modernizing infrastructure, improving freight transport services, enhancing institutional coordination between public agencies and encouraging participation from the private sector. The IDB is also supporting the development of freight transport and logistics observatories and removing obstacles at international borders. This helps exporters be more competitive and productive.

The IDB is also contributing by:

• Financing programs to design public policies and incentives for better freight transport management
• Financing freight and logistics specialized infrastructures (logistics platforms, multimodal transport platforms, ports and airports and freight consolidation centers)
• Developing national logistics policies and plans
• Supporting the advancement of free-trade agreements within and outside the region that eliminate onerous tariff barriers and modernize customs procedures
• Private sector financing for more efficient equipment that lowers operating costs.
• Providing the workforce with specific logistics management knowledge that allows both the public and private sectors to monitor their globalized supply chains
• Paving the path for freight logistics innovation in the region and much-needed freight transport services and specialization
• Leading the development of methodologies, analysis and knowledge products to increase national logistics performanceWith the right infrastructure conditions, freight transport services and an appropriate competitive environment, the IDB believes it's viable for Latin America and the Caribbean to join strategic global supply chains.

The transport sector is of key importance for the socio-economic development of the Latin American and Caribbean Region (LAC). Governments are striving to bridge the gap between transportation demand and supply to facilitate access to health care, education, jobs and markets to all economic and social groups, with a wide geographic coverage, in a safe, environmentally friendly and affordable way. Several countries and cities are taking action to reduce Green House Gas emissions, as shown by the mounting interest in Bus Rapid Transit systems. The challenge now is to replicate and scale up such positive examples.

In 2010, the Bank launched the Regional Environmentally Sustainable Transport Action Plan (REST-AP) to provide guidance to the client countries and to facilitate the mainstreaming of climate change mitigation and adaptation in IDB’s transport operations. Initial activities have focused on building knowledge and capacity through international seminars and workshops, developing studies (on climate instruments in the transport sector, for example), and training IDB staff and clients in sustainable urban passenger and freight transport.

The REST initiative expects to generate a steady stream of loans and technical cooperation grants, helping member countries develop national and local policies on sustainable, low-carbon transport. In 2010 the Bank approved six loans, with a combined value of US$650 million, on public transportation reform, expansion, and improvement, as well as 14 technical cooperation grants.

REST-AP Strategic Priorities:

• Enhance the knowledge base on climate change mitigation and adaptation priorities

• Strengthen institutions and the private and public capacity for climate change action

• Develop guidelines, tools and criteria for mainstreaming climate change mitigation and adaptation in IDB transport operations

• Identify and develop lending and technical assistance potential for sustainable low-carbon transportation

• Scale up investments addressing financial gaps and leveraging private sector investments