The Nicaragua Canal project is a little crazy. I’ve been canoodling around with some numbers and I just can’t make it work.
The project is estimated to cost $50 billion. According to HKND, the Red Canal will have an average bottom width of 280 meters. (Page 5.) That is only enough for one-way traffic. (Page 8.) Given the amount of time that it will take ships to pass through the two three-chambered locks, that means about 14 transits per day. (Page 72.) That is reasonable. 14 transits per day means 103 minutes for a ship to transit one set of locks. (Only one ship can through the locks at once, but there can be a ship in both the Brito and Camilo locks at the same time.) The new Panama Canal lock chambers are designed to take about ten minutes to fill or empty; call it an hour then for each transit, plus 40 minutes to enter and leave.
OK, then. In 2020, HKND expects 3,576 transits, rising to 4,138 by 2030. (Also page 72.) That’s about a third of the roughly 12,000 recorded by the Panama Canal. So it is certainly a plausible number.
In 2012, the Panama Canal collected approximately $160,000 in tolls per transit, or $5.67 per ton. (Eight dollars for container ships, around five for reefers, and roughly four for tankers and dry bulk.) The new Nicaragua Canal is intended to handle ships of up to 18,000 TEU; ships on the current Panama Canal is limited to around 5,000. (The expansion will take that up to 13,000.)
If you ever wondered what a Panamax container ship looked like going through the Miraflores locks, well there’s one right behind me in the picture up there. That’s a ship, not a warehouse. Yes, the current locks are a tight fit.
Now imagine one three times the size.
So let’s calculate a ridiculous upper bound for the Nicaragua Canal. Assume that all the container vessels are at the maximum size for the new passageway. At the current rates charged by the Panama Canal, that’s $1.4 million per container transit. Then assume that all other vessels (save tankers) are equivalently oversized. That gets you about $500,000 per dry bulk transit and $1.1 million for vehicle carriers. We’ll further assume that all the “other” vessels in the HKND report are vehicle carriers. For crude oil, imagine that everything is a ULCC with almost 7× the capacity of a Panamax tanker. Ditto the LNG ships. Refined products, on the other hand, are currently shipped in Panamax-sized vessels, so even in this silly projection we’ll leave them the same.
And opex? Well, huh. I’ll take current Panama Canal costs and divide ‘em by the ratio of projected Nicaragua Canal traffic to current Panama Canal traffic. That does not, of course, make sense, but it is a lower bound. (And one that comes to $75,000 for each of the Nicaragua Canal’s projected 3700 permanent employees; a ridiculous number by any standard.)
What do we get? A real internal rate of return through 2030 of negative 1.8%. If you take it out to 2040, then you can eke out 4.1%. A steely investor willing to bet against global war, the Singularity, and the chance that climate change will open the Northwest Passage could get 5.6% through 2050.
If this thing gets built, it will not be to generate profits for shareholders. Rather, it will be because the Chinese government sees some sort of security benefit. But other than, I dunno, access to the natural gas that the United States is not going to export in large amounts I could not tell you what that might be.