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Overview of logistics in Panama: the sector’s  impact on country competitiveness

by | Aug 5, 2023

The Panamanian economy is dominated by services with a contribution to GDP of approximately 80%. This blog post will examine the importance, characteristics, and benefits of local and international logistics in Panama, which is considered the engine of the nation’s economy.

In addition, there will be a review of key events that have strengthened the sector in recent years. Additionally, we will examine actions, policies, and strategies employed in the Panamanian logistics sector to increase competitiveness.

First, we can easily define logistics activity as getting a product from one place to another in the shortest possible time at the lowest possible cost (efficiently) by air, sea, and land.

Second, we will state why the Panama Canal, the Colon Free Zone (ZLC), the international ports, and the Tocumen Airport are efficient growth engines within Panama’s logistics sector, forming an essential part of the global transportation trade.

These growth engines are part of the national development strategy for logistics in Panama originated in the 1970s with the vision of integrating these activities into the country’s growth.

Therefore, the national banking system was created to provide dynamism to credit and finance the activities of the ZLC and other logistics companies.

Similarly, port concessions were granted to international companies of world prestige in port activity. In addition, the Tocumen International Airport was remodeled and expanded, and through Copa Airline’s strategy, the country is promoted as a transportation hub of the Americas.

As for telecommunications, Panama is connected to seven fiber optic submarine cables that allow expanding connectivity and national and international communication.

As all these activities related to transport, storage, and communications play an essential role in economic growth and human capital development, we will focus this analysis on national and international logistics in Panama from the perspective of competitiveness and how to integrate the logistical dynamism with other sectors.

Main components of logistics in Panama

Canal

The Panama Canal is one of the most critical components of the Panamanian economy. Approximately 14,000 ships transit through it annually, carrying 325 million net tons of cargo, generating about US $2 billion in tolls.

The Canal also generates income through the export of services, which multiplies national economic activity since -by circulating foreign currency- it causes secondary demands for other goods and services. The preceding has an economic and social impact on a series of economic activities directly and indirectly linked to the Canal.

Ports

Logistics in Panama includes a network of ports that provide a wide variety of services to containerized, bulk, liquid, and general cargo and passengers at cruise terminals. There are five international ports in the country, and a sixth one located in Corozal is being planned to meet the demands in the logistics supply chain. Approximately 7 million TEUs are mobilized per year. The port of Balboa is the leading installation of the port complex, followed by Manzanillo International Terminal (MIT)  and Cristóbal. All these ports have some connectivity with ZLC, Canal, Railroad, and logistics parks at short distances making the country a competitive logistics center among the world leaders.

Maritime services such as fuel sales, food sales, repairs, maintenance, and ship registrations, provided to ships that pass through the country, generate approximately $500 million in revenues annually.

In the same sense, 200 cruise ships visit Panama each year, transporting 500,000 tourists who inject foreign currency into the Panamanian economy.

Airports

Logistics in Panama include airports. Tocumen International Airport is the country’s leading facility for air travel and has the most significant and advanced infrastructure in Latin America. It is an important air transportation hub in America from which Copa Airlines operates.

Copa connects 69 frequencies and 35 destinations worldwide, attracting airlines from other continents with direct flights. This highlights the Panamanian airline as one of the most important in the Americas. About 4.3 million passengers use Tocumen in direct transit. The cargo terminal handles more than 116,000 tons of cargo, mostly transshipment.

Tocumen is developing an expansion plan to provide world-class service, increasing frequencies, flights, and destinations. It is working on streamlining immigration, customs, and passenger check processes. Also, Tocumen has a wide range of commercial and hotel infrastructure to meet the needs of an increasing number of passengers.

Railway

Rail transportation plays a crucial role in logistics in Panama. In 1998, the State granted the concession for 50 years to the Panama Canal Railway Company (PCRC) consortium. The PCRC comprises the union of Kansas City Southern and Mi-Jack Products companies that provide train transportation services for passengers and cargo. Shipments between the cities of Panama and Colon are containerized. The central role of the railway is to serve as a transshipment link for container shipments between Atlantic, Pacific, and ZLC ports, moving around 420,000 containers a year.

Free trade zone

In 1948, the Colon Free Zone began its operations as a duty-free zone and continues to be employed as such until now. It is currently the second most important free zone in the world. Approximately US $29 billion annually is mobilized in imports and exports. All this movement is possible due to factors such as the Panama Canal, banks, ports, airports, Panama,  and the short distances between them.

In addition, there are 15 free zones in the country on a smaller scale that offer various tax incentives. They give added value to commercial activity related to logistics in Panama. Since 2011 with Law 32, this modality began with an investment of $200 million to promote the country’s development and generate employment.

Three types of free zones exist: private, state, and mixed. The types of companies that can operate in these special zones include manufacturers, assemblers, processing of finished or semi-finished products, general services, logistics, higher education, scientific research centers, and health services, among others.

Logistics park

The Logistics Activity Zones or logistics parks in Panama include storage, transportation, transfers, and value-added activities such as customer service, inventory management, assembly, and labeling. There are currently 8 of these parks near the Canal in the provinces of Panama and Colón. The logistics parks complement the maritime and air centers. Therefore, US$ 200 million is currently being invested in a logistics park near the Tocumen Airport.

Road infrastructure

The Panama highway system is going through a series of changes to improve traffic in the Capital and the province of Colón. At the same time, the main highways in the interior and the Pan-American highway are being improved.

Another critical project is the expansion of the Pan-American highway from Santiago province of Veraguas to David province of Chiriquí; the objective of this work is to reduce the cost of transporting items that travel from Panama City to the Costa Rican border in Paso Canoas and from the Capital to the agricultural areas of the country.

Central American logistics integration

An ambitious international project seeks to modernize the highway from Mexico to Central America and Panama; its name is the “Pacific Corridor.” This plan is being promoted by the Inter-American Development Bank (IDB) at a cost of $3.5 billion to build a road network with the necessary infrastructure for the Integrated Mesoamerican Corridor (CMI).

Some of these roads are in poor condition and unsafe, which increases travel time and cargo insurance premiums, increasing costs that are eventually passed on to the consumer. This initiative seeks to reduce the distance, travel time, and costs, joining a proposal for a Customs Union in the region.

The importance of logistics in Panama to the country’s economy cannot be overstated. Panama has a strategic geographic location that makes it a crucial hub for global trade and transportation. Its position as the narrowest point in the Americas between the Atlantic and Pacific Oceans has led to the construction of the Panama Canal, which has had a transformative impact on international shipping and commerce.

Logistics plays a vital role in Panama’s economy by connecting global markets, facilitating international trade, and attracting foreign investment. The country’s ongoing commitment to enhancing its logistics capabilities further solidifies its position as a key global supply chain network player.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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