NOT QUITE YET

The grand opening the global shipping community has been awaiting for ten years will remain closed for another year. The completion of the $5.3 billion expansion of the Panama Not Quite Yet 11-25-14Canal scheduled for right about now has been delayed until late 2015, with the ribbon cutting in early 2016. Actually that is not too bad, considering the cost of the project and the ten years it took to build it.

But the new canal is long overdue, with the size of newly built ships exceeding that of the locks of the existing canal. Currently, these larger ships moving to the U.S. must call at West Coast ports or move through the Suez Canal to the east coast even though many ports are not deep enough to receive them. Ironically, the delay in the Panama expansion will favor the ports expanding to accommodate the bigger ships. To handle increased traffic the Suez also has launched a $4 billion expansion of their own.

One might assume this added canal capacity and expansion underway at East Coast ports would be enough, but on June 14, Nicaraguan president Daniel Ortega signed a 50-year concession granting to HK Nicaragua Canal Development Investment Company (HKND) the right to explore, and possibly build and operate a canal between the country’s Pacific and Caribbean coasts. The proposed project, as if the canal were not ambitious enough, also would include a pipeline, two ports, two airports, and a cross country railroad. Experts say the canal would cost $40 billion and require the digging of over 125 miles of new waterway. Somewhat puzzling is the fact that HKND is a Chinese company whose owner’s experience is in telecommunications, not canal building.

Building a canal across Nicaragua is not a new idea by any means. As far back as colonial New Spain, the concept has been studied, surveyed, and rejected numerous times. In 1889, Cornelius Vanderbilt and others had begun construction of a canal in Nicaragua, but in 1893, a stock panic halted that construction. Finally in 1902, Congress voted to go back to the on again – off again Panama project started by the French and gave President Theodore Roosevelt $40 million to buy out the French and continue the construction.

So do we really need another canal? There are several good reasons to have a second canal across the Americas. Obviously, the threat of terrorism always hangs over our heads. The loss of the Panama Canal would create an almost unimaginable global shipping crisis. From an operational perspective, in May of this year, Maersk introduced the first of its Triple E ships. As of today they are too large for any port in North America, and will be too large to traverse the enlarged Panama Canal. The Triple E’s are 1312 feet long and 194 feet wide, The new Panama Canal lock will be 1400 feet long, but only 180 feet wide.  (Not to be outdone, China Shipping Container Lines is about to take delivery of a 19,100 TEU vessel that is 1312 feet long and 192.2 feet wide. This will be the largest container ship in the world.)

Certainly, the new canal would be good for Nicaragua. Estimates are that it would double the per capita GDP of the country. But will it really happen? I wouldn’t bet on it. Certainly, canals are easier to build than they were 100 years ago, but destruction of the pristine rivers and lush jungles in Nicaragua would be an environmentalists’ nightmare.  Also, there are 12 active volcanos in Nicaragua some of which erupt on a fairly regular basis. Some experts do not believe even $40 billion is enough for such an ambitious project, and others  even feel this may be some sort of scam by Ortega who is not the most trusted leader in Central America. Finally, there is a concern by many that if the canal were actually built, the Chinese would hold too important a position in global commerce.

And by the way, no one has the foggiest notion where the $40 billion is coming from.

Written By: Clifford F. Lynch