Reassessing Prospects for the Proposed Nicaragua Canal

As construction to enlarge the Panama Canal approaches completion in anticipation of a mid-2016 opening, ongoing discussions surround the proposed canal across Nicaragua. 

While environmentalists object to the construction of the canal, the idea of a pair of parallel canals linking the Caribbean Sea to the Pacific Ocean raises interesting questions about the viability of two canals located in close proximity to each other. The main question is whether enough traffic would sail through the Nicaragua Canal to cover its construction cost and long-term operating costs in view of possible competition from the proposed canal across the Isthmus of Kra in Malaysia.

The Kra Canal proposes to reduce sailing distance between European ports and far eastern Asian ports such as Hong Kong, Shanghai, Tokyo and Busan. Major Asian transshipment ports such as Colombo and Singapore are geographically closer to Europe and east coast North American sailing via the Suez Canal, than via the proposed Nicaragua Canal. The sailing route via the Panama Canal does offer an alternative route to sailing through Malacca Strait and Gulf of Aden where pirates operate, also bypassing Middle Eastern political turmoil that could affect shipping through the Suez Canal.

New generation Panamax container ships could carry the volume of container traffic moving between the west coast of North America and east coast of South America, also between the west coast of South America and east coast of North America. The same ships may also, and easily, carry the volume of container traffic sailing between Europe and the west coasts of North and South America. The construction of a canal across Nicaragua to transit mega-container ships enhances the business case to construct a super port with maritime to maritime transshipment capability at or near the Port of New Orleans.

A super port at or near New Orleans could transfer containers on to inland vessels that sail the Mississippi, Ohio and Missouri Rivers to destination ports such as Memphis, Louisville, Cincinnati, Pittsburgh, St Louis and even Chicago, Toledo, Cleveland and Detroit. A study by Sea Point of New Orleans revealed that maritime transport sailing via the Panama Canal could carry large numbers of containers between a west coast American port (Long Beach) and a river port (Memphis) at substantial savings measures in transportation cost per container over the railway system. That study actually supports the Nicaragua Canal proposal.

At the present time, supersize container ships that are too large to transit the Panama Canal arrive at west coast ports such as Long Beach and transfer containers to trains headed to large cities along the American east coast. After the mid-2016 opening of the enlarged Panama Canal, larger container ships will sail from Asia Pacific ports to the Ports of New Orleans, Newark and Savannah. There will likely be a decline in the number of trains that carry container from west coast ports to major cities located along the American east coast.  

A combination of small ships, barges and railway trains will likely interline with larger container ships at New Orleans to carry containers to inland waterway ports and several cities located in the central region. The smaller ships of 1,000 to 2,000 TEU would likely carry containers to several smaller east coast ports, while railway trains would interline with new Panamax container ships at the ports of Newark and Savannah. A weekly total of some 800,000 TEU’s could pass through the enlarged Panama Canal, destined for American ports and cities. That volume invites discussion about larger ships serving an American Atlantic port.

A daily average of 70,000 to 100,000 TEU’s arriving at the combination of American Gulf coast and Atlantic coast ports forms the basis of the case for an Atlantic transshipment super port capable of berthing mega container ships. 

Investors will need to evaluate two possible options: A super port located near Canada’s Cabot Strait to serve mega-size container ships that sail via the enlarged Suez Canal (and Kra Canal) or the combination of developing both the Nicaragua Canal for mega container ships as well as a super port to berth such ships at or near New Orleans.