Posted on February 26, 2025
By John D. McCown
In his inaugural address on January 21, 2025, President Trump said, “American ships are being severely overcharged and not treated fairly in any way, shape or form, and that includes the United States Navy. And above all, China is operating the canal. And we didn’t give it to China. We gave it to Panama, and we’re taking it back.”
President Trump has made additional comments regarding Panama similar to the above both before and after his inaugural address. In light of the many news and commentary pieces discussing his remarks, it is useful to understand key facts from a maritime perspective. Knowing those facts allows for better responses to what should be called the threshold questions: Can the United States obtain more benefits from the Panama Canal, how could that be accomplished, and what would be the direct and indirect consequences of doing that?
President Trump’s reference to “American ships” can be seen as applying to three categories of vessel: U.S. Navy ships, U.S.-flag merchant cargo vessels and ships carrying cargo with a U.S. origin or destination. Each category will be addressed in turn.
While the Navy actively used the Panama Canal during World War Two, that was eight decades ago and much has changed since then. Today, aircraft carriers are an even more important component of the U.S. Navy than they were then. The eleven carrier strike groups (CSGs) are a key part of the country’s naval power. However, all U.S. aircraft carriers built since World War Two are too big to go through the Panama Canal. The Nimitz-class and Ford-class carriers that lead the CSGs are unable to use the canal because of the size of their sponsons.
There are five CSGs based in the Atlantic Ocean, with four at Naval Station Norfolk in Virginia and one at Naval Station Mayport in Florida. In the Pacific Ocean, there are six CSGs, with four at Naval Base San Diego at California, one at Naval Station Everett in Washington, and one at CFA Yokosuka in Japan.
With the majority of the CSGs located in the Pacific Ocean, the ability to deploy force in any situation involving Asia is quite different than it was in the past and does not require passage of capital ships through the Panama Canal. The current home base arrangements of CSGs makes the inability of aircraft carriers to transit the canal a moot point, as naval forces are already closer to the areas where they may be needed.. At a speed of 35 knots, an aircraft carrier can cover 840 nautical miles per day, the equivalent of 40.3 miles per hour and a blistering speed for any ship. For instance, when nautical distances are taken into account, the Navy’s carriers based in the Pacific could reach Hong Kong in as little as two days and in no more than eight days. It would take only fourteen days for carriers based in the Atlantic to reach Hong Kong via the Suez Canal, which is large enough to impose no constraints for carriers. Note that the marine distance from Norfolk to Hong Kong via the Suez Canal is only 6.7 percent longer than via the Panama Canal. Points farther west are actually closer using the Suez route.
A tangible indication that the Panama Canal is no longer relevant to the U.S. Navy is that its ships almost never use it. While the latest data shows that the Navy has 297 battle force ships, a diligent search could only find news stories of five canal transits by any American warships over the last eight years. Each of those crossings shared the characteristic of being one-time events related to new ships being delivered to their home ports from Gulf Coast shipyards. For instance, the guided-missile destroyer USS Jack H. Lucas (DDG-125) was built by Huntington Ingalls Industries in Pascagoula, Mississippi and delivered to the Navy. To get to the ship’s assigned home base of San Diego, it transited through the Panama Canal in October 2023.
Whether it is where the ships are now based or in combination with other factors, the absence of any actual ongoing usage of the Panama Canal underscores that it is not considered important in terms of national security by the U.S. Navy.
The second category of American ships is U.S. flagged merchant vessels. This author has long stressed the need for growing our merchant marine, as the 178 ships represented only 0.57 percent of worldwide tonnage. Of those ships, only one-third are deployed in foreign service that would potentially use the canal, and none of the ships in domestic service use the canal. An estimate of 27 of the 14,080 canal crossings in 2023 were U.S. flag merchant vessels. Based on the routes of the few U.S. ships in foreign service, that small number likely overstates the passages by U.S.-flag cargo ships and the true figure is actually even smaller. That is a major change from the past. When this author started in container shipping in 1980, half a dozen weekly transits by U.S.-flag container ships was a common occurrence.
It is clear that the final third category of American ships—defined as the ships that actually carry cargo to and from the United States—was impacted by the transition to Panama managing the canal. As 75 percent of the cargo moving through the canal is directly linked to the United States, any toll cost increase passes an additional cost on to the U.S. economy. United States management of the canal ended in 1999 when the average toll was $43,837, an increase of 3.8 percent per year since 1982. Under Panamanian management over the following 24 years, the average toll increased to $237,711 in 2023, an increase of 7.3 percent per year. While it is pure conjecture to estimate what the average toll would have been if the United States continued to control the canal, an extension of the 3.8 percent rate of increase from 1999 to 2023 is one possibility. Based on that proforma assumption, the average toll would have been $107,764, or 55 percent below the $237,711 it actually was in 2023. By extension, at that hypothetical level, U.S. consumers would have benefited by $1.371 billion in 2023.
However, that hypothetical level does not hold up to scrutiny when other facts are taken into account. The expansion of the canal under Panamanian management required recovery of the significant additional capital and operating costs. As ships became larger, tolls increased even when the underlying metrics on which they were based stayed flat. For example, today the average deadweight tonnage of cargo ships worldwide is three times what it was in 1982 and shipowners knew that larger vessels meant larger tolls. The average number of transits since 2015 is 13,799 per year, which is right at the maximum capacity of 38 ships per day. Demand pushing up against supply limits typically pushes pricing up. When all these factors are considered, the 6.2 percent annual growth rate in canal tolls since 1982 does not seem unreasonable. Indeed, if tolls are seen as the rents on a unique infrastructure asset, the increases seem conservative when compared to other real estate appreciation.
An important factor worth underscoring is that tolls are calculated based on a detailed formula for each ship type that begins with a fixed rate and then adds to it based on metrics taking into account capacity and utilization. The formula is the same for all and is unaffected based on the ownership of a vessel or the flag it flies. Anti-discrimination requirements are contained in the Neutrality Treaty that was signed by both Panama and the United States as part of the documents agreed to in 1977.
The current overall canal toll for container ships is around $95 per loaded twenty-foot equivalent unit, or TEU. To put that into perspective, with an average cargo value of $54,493 per TEU, those canal toll costs add an inconsequential 0.17 percent to the cost of delivered goods. Importantly, the expansion of the canal to allow container ships to move three times more TEUs from Asia to East and Gulf Coast ports have resulted in meaningful cost, congestion, and environmental benefits for the United States.
The claim that China controls the Panama Canal does not stand up to a review of the facts. There are five container terminals in Panama—three on the Atlantic side and two on the Pacific side—that have nothing to do with the actual operation of the canal. These are primarily transshipment ports where some of the larger ships going through the canal connect with smaller feeder vessels moving containers to and from Atlantic and Pacific ports in the Americas. Those terminals also handle cargo for Panama and neighboring countries. Two of the container terminals are operated by an affiliate of CK Hutchinson Group (CKH), which has had long-term leases from the Panamanian government for decades.
Hong Kong-based CKH is a multinational corporation with a variety of businesses in 50 countries and over 300,000 employees. Most of its revenue comes from Europe. The four core businesses are container terminals, retail, telecommunications, and infrastructure. The container terminal division is comprised of 293 berths in 53 ports in 24 countries and in 2023 handled 82.1 million TEUs. The two container terminals in Panama represent 1.3 percent of the total berths of a division that itself represents just 8.9 percent of the corporation’s total revenue. CKH is publicly traded on multiple exchanges and has a market value of $19 billion. The government of China has no ownership interest in CKH and billionaire Li Ka-Shang holds 29 percent of the stock. A decade ago, this author became familiar with CKH while managing a large position in its stock while at a hedge fund. It is unreasonable to consider a de minimis segment of a conglomerate that actually has nothing to do with the canal to be a national security risk.
There are several maritime issues related to national security that the United States should address. In addition to the need to grow the U.S.-flag merchant fleet, this author has written about the importance of a national port strategy and the capacity caps approaching at U.S. container terminals. However, the Panama Canal does not fit into the category of maritime issues posing a national security threat.
The actual facts demonstrate that the world’s greatest maritime infrastructure project continues to benefit the United States more than any other country. The actions of the Panamanian government in expanding the canal in 2016 to accommodate container ships with three times more cargo actually enhanced the economic benefits the United States receives. From a maritime perspective, further benefits from “taking back” the Panama Canal are illusory.
John D. McCown is a Non-Resident Senior Fellow at the Center for Maritime Strategy. Mr. McCown has four decades of experience related to the shipping industry. His research, analysis and writings for the Center for Maritime Strategy focus on the intersection of merchant shipping and maritime commerce with national security.