The construction of the Suez and Panama canals had substantial impacts on global trade, mainly over two factors. The first and most obvious concerns the reduction of travel distances between regions of the world. The second relates to the introduction of the steamship during the same time period, which was able to use more direct routes at a faster and consistent speed, compounding the gains from shorter travel distances.
The Suez Canal opened in 1869 and represented, along with the Panama Canal, one of the most significant maritime “shortcuts” ever built. It brought a new era of European influence in Pacific Asia by reducing the journey from Asia to Europe by about 6,000 km by skipping a detour around the Cape of Good Hope. Asia became more commercially accessible, and colonial trade expanded due to increased interactions because of reduced friction of distance. Great Britain, the maritime power of the time, benefited substantially from this improved access.
The strategic importance of the Suez Canal endures, mainly because of the Middle Eastern oil trade and the Pacific Asian commercial trade. The journey from the Persian Gulf to the Northern European range is particularly impacted by the Suez Canal as a 21,000 km journey around Africa, taking 24 days, is reduced to a 12,000 km journey taking 14 days. Therefore, the Suez Canal allows saving between 7 to 10 days of shipping time depending on the ship’s speed. The Panama Canal, completed in 1914, considerably shortened the maritime distances between the American East and West coasts by 13,000 km.
Both the Suez Canal and the Panama Canal reduced maritime shipping distances and costs considerably. For instance, the Suez Canal shortened the distance on a maritime journey from Rotterdam to Mumbai (Bombay during colonial India) by 41% and shortened the distance on a journey from London to Shanghai by 32%. For the Panama Canal, improvements were even more dramatic, with the strategic New York – Los Angeles route reduced by 60%. Major commercial centers could thus be serviced less time, and the ships could be used more effectively (more trips per year).