My opinion about Nicaragua’s canal project

As quoted in the New York Times: “It’s not going to happen, that was my first reaction.”

Why not? Where to begin? Quoting myself, again: “Even if they did get the $40 billion, the increases in traffic are increasingly speculative.”

Short version: Nicaragua will be competing with the expanded Panama Canal, climate change (opening the Northwest Passage), and the fact that Panama has built its new locks to make expanding again relatively easy. Even if you believe that the Nicaragua Canal is feasible, it makes little sense to go up against that sort of competition.

Let me explain with some pictures. Behind me you can see the new Panama Canal channel under construction. The photo is looking north.

This is a view from the other direction. The berm will be knocked down and the entire area opened to water. Note the width. It is wide. Much wider than you need for one new set of locks.

The below picture looks north at the new locks under construction from what will be the approach channel. To the right of the concrete construction will be the water-saving basins. To the left is a lot of empty space.

The reason for the empty space is allow for a fourth set of even-larger locks to be constructed as a mirror image of the third. (For completeness, the below picture shows what the view looked like in the opposite direction from the above picture. Where I am standing will be underwater next year.)

Moreover, Panama decided not to build the third locks bigger. They could have. But the Canal Authority decided that building something that could handle most Suezmax ships would be good enough. In addition, most U.S. ports need work to handle the new size (called NPX or post-Panamax) ... and many analysts think that cargo ships have already gone past their optimal size.

And while we do not yet have the plans for the new canal, we do have the plans that a Nicaraguan commission published in 2006. Those plans called for locks with dimensions of (in feet) 1,529 × 210 ×112. That is deeper but not that much larger than the new Panama locks, which come in at 1,400 × 180 × 60.

The builders of a Nicaraguan Canal therefore would be taking three bets: first, that the increased size would attract a lot more traffic; second, that the Panamanians would not match them with a fourth set of larger locks; and third, that if either of the previous bets went wrong there would still be enough traffic for both canals.

Given all that, I would not invest $40 billion in such a venture.

I have other reasons to doubt the project, but they are political. The above captures my skepticism about the business case. Thoughts?

Comments

[Richard Gadsden]

What do the capacity constraints on the Panama Canal look like in the medium-long term? Constraints in terms of ship-journeys, not ship-size limits, that is.

If building ever-bigger ships is hitting the limit, and they're anticipating a situation where number of ships through Panama is a major constraint, then that's a business case for a new canal.

[Noel Maurer]

Good question. Right now, the Panama Canal is not yet at capacity. The expansion is all about capturing new markets.

Forecasts are a mug's game, but the Canal Authority executives say that they don't expect to need to build another expansion for at least two decades.

Now, this ignores the fact that the Canal Authority quite deliberately allows a chunk of demand increases to feed through into prices. (They are running a business, not providing a public service.) So a Nicaragua Canal could cannibalize some of that business via price competition.

I have found the MOU and legislation for the new Nicaragua Canal, but no business plans or engineering documents. Would you like a link to the 2006 study? It's comprehensive, but in Spanish.