Shippers’ Questions: What’s Going On With This Canal Thru Nicaragua

 In China, International Shipping, Nicaragua's Grand Canal, Panama Canal

Every week, we post inquiries on Universal Cargo Management’s Facebook and Twitter pages asking what you want to read about in our international shipping blog.

Yesterday–Monday, March 30th–Matthew Matuse responded to our inquiry with questions about Nicaragua’s Grand Canal project.

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Mr. Matuse wants to know what’s going on with this canal going through Nicaragua, whether or not it is going to happen, if it is a good thing for America, and will it put the Panama Canal out of business.

Great questions, Mr. Matuse!

Let’s look at them one at a time.

What’s going on with this canal going through Nicaragua?

This canal going through Nicaragua has been dubbed “Nicaragua’s Grand Canal”.

Dredging has begun on this huge project to create a 173-mile artificial waterway across Nicaragua to connect the Pacific and Atlantic oceans. It is estimated that the project will cost $40 billion and take 5 years to complete.

Work on Nicaragua’s Grand Canal actually began back in December. While the canal could be a huge boon for international shipping, it is a huge source of controversy.

Nicaragua is the second poorest country in the Americas and Nicaragua’s Grand Canal presents opportunity for a huge economic injection for the country. However, the project is still finding much resistance from Nicaraguan people as it also threatens to take land and homes from Nicaraguans who live along the canal’s route and change the way of life for the local people.

It is also no surprise that a project of this size would raise opposition from inside and outside Nicaragua as it will change the country’s landscape and affect the environment.

Smithsonian.com sums up the environmental impact of the canal project as follows:

The new canal and its infrastructure, from roads to pipelines to power plants, will destroy or alter nearly one million acres of rainforest and wetlands. And that doesn’t include Lake Nicaragua, a beloved 3,191-square-mile inland reservoir that provides most Nicaraguans with drinking water. The canal cuts through the lake, and critics say ship traffic will pollute the water with industrial chemicals and introduce destructive invasive plants and animals.

Nearly a million acres of rainforest and wetlands affected! It doesn’t take much imagination to predict how environmentalists are reacting to the Nicaraguan’s Grand Canal.

IPS News Agency reported the following about action from opposition to the canal:

The canal is opposed by environmental organisations and affected communities, some of which have filed a complaint with the Inter-american Commission on Human Rights (IACHR).

In an IACHR hearing on Mar. 16, Mónica López, an activist with the Cocibolca Group, complained that Nicaragua had granted HKND [Hong Kong Nicaragua Canal Development] control over the lake and its surrounding areas, including 16 watersheds and 15 protected areas, where 25 percent of the country’s rainforest is concentrated.

López told Tierramérica that construction of the canal will also lead to “the forced displacement of more than 100,000 people.”

Expect resistence to continue from local, environmental, and even human rights groups through the entire span of the canal’s construction, which brings us to Mr. Matuse’s next question…

Is it going to happen?

In a word, yes.

No one can really see the future and it is possible that Nicaragua’s Grand Canal could fail to defeat its opposition and the incredible construction challenges it will face; however, with the determination and money behind building Nicaragua’s Grand Canal, it is very likely to become a completed reality.

Wang Jing, chairman and CEO of the Hong Kong Nicaraguan Canal Development Group (HKND) is the man behind Nicaragua’s Grand Canal. This Chinese billionaire and investor has unwavering resolve to make the canal a reality.

An interview Mr. Wang granted to Carrie Gracie of BBC gives insight into his character and determination in reply to critics who say that this canal will never be completed:

“Actions speak louder than words,” he said. “We’ll convince everybody with the facts. We’ll convince them by succeeding.

“The biggest pressure comes from having to win recognition from the world. I cannot let this project become an international joke.”

Chinese construction feats like the Three Gorges Dam and huge rail projects that seem to defy natural limitations show that construction projects of seemingly impossible proportions, like a canal across Nicaragua, are indeed possible.

Do not underestimate Mr. Wang’s determination and the ability of the Chinese construction companies he has hired to complete Nicaragua’s Grand Canal.

Is it good for America?

While this is a simple question, there is no simple answer.

Nicaragua’s Grand Canal would allow megaships, which are too big for the Panama Canal even after its expansion is completed, to pass from the Pacific Ocean to the Atlantic Ocean (and vice-versa). This would allow these megaships to travel from China and other Asian countries to U.S. East Coast ports.

The problem is, U.S. East Coast ports cannot handle megaships of this size.

In order for the U.S. to see the benefit of megaships passing through Nicaragua’s canal that cannot pass through Panama’s canal, it would take huge investments in port and port access projects.

It is possible the canal could create limited cost savings for shippers by creating competition with the Panama Canal. But savings in this form are likely to be very limited and small in terms of a positive impact for the U.S. economy. If they are even seen at all, that is.

There are many who see Nicaragua’s Grand Canal as a threat to U.S. and Western powers. While HKND is a private company, it is suspected that the Chinese government is playing a role in funding this project and that the canal could have military use right in “America’s backyard”.

Geopolitical implications of the canal could actually be quite bad for America.

Will it put the Panama Canal out of business?

Again, this is tough to say.

Many think there is not the ship demand for two canals through Central America.

Nicaragua’s Grand Canal will have a big advantage over the Panama Canal in that larger ships, as is the trend of the international shipping industry, will be able to pass through it.

That Smithsonian article above reports:

At 90 feet deep and 1,706 feet across at its widest, the channel will accommodate the newest cargo supertankers, which are longer than the Empire State Building is tall and carry 18,000 shipping containers. The vessels are too big to pass through the Panama Canal (even after a $5 billion expansion is completed) or to dock in any U.S. port.

A second canal will certainly create competition to the Panama Canal that didn’t exist before.

A CNBC article by Silvana Ordoñez pointed out that the tolls at Nicaragua’s Grand Canal would have to be considerably higher than the tolls in the Panama Canal for investors to benefit from the project.

This would give a big advantage to the Panama Canal and remove its threat of being put out of business. However, if those who think the canal is a geopolitical move by China are right, the Panama Canal could be in significant danger.

Here’s how it is explained in the CNBC article:

The canal would need to generate an annual income of about $5 billion, explained [former marketing and development executive of the Panama Canal, Rodolfo] Sabonge. But the Panama Canal, with a transit of 13,482 ships, carrying 327 million tons, generates annual revenue of only about $2 billion, according to 2014 figures.

If Beijing is the project’s real sponsor, then its essentially limitless pockets would mean big problems for Panama.

“If there are geopolitical interests behind the building of the canal, and the investment returns do not matter, and nothing has to be repaid, then the Panama Canal would be severely affected. There is not enough demand for two canals,” Sabonge said.

“But if the Nicaragua canal has to adhere to what any other business has to, from an investment standpoint, I think the canal wouldn’t be much of an impact for the Panama Canal,” he said. “Based on investment requirements, the prices of the Nicaragua canal would be very high, and the Panama Canal would be able to maintain its profits and lower prices.”

Submit Your Own Blog Topics or Questions

Want us to cover a particular aspect of or related topic to international shipping? Put your questions or topic ideas in the comments section below or submit them on our social media pages like Matthew Matuse did with this one.

Thanks again, Mr. Matuse, for your great questions!

 

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Source: China

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