News / Nicaragua Canal route is unveiled – a $50bn threat to expanded Panama

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The Nicaragua government yesterday unveiled the route of its proposed canal to link the Pacific and Atlantic, saying construction could begin this December.

According to a Reuters report from the country’s capital, Managua, the 278km link would begin at the Brito River which connects the Pacific to Lake Nicaragua, Central America’s largest fresh water reserve, which vessels would then transit and then head to the Caribbean Sea port of Bluefields via the Tule and Punta Gordas rivers, requiring around 120 miles of canal to be cut in the sparsely populated south-east of the country.

The 50-year concession to build and operate the canal was awarded to Hong Kong Nicaragua Development (HKND) Investment Co last year, and although officially the cost of the project was slated at $40bn, it appears to have already risen to $50bn.

Despite international ridicule at the scale and ambition of the project, Nicaraguan president Daniel Ortega and HKND chief executive Wang Jing issued a joint message to the Nicaraguan people at the beginning of the year confirming the project start date of December, although environmental and social impact studies still remain to be completed which could result in the course of the canal being altered.

Reuters quoted canal committee member Telemaco Talavera, rector of Nicaragua’s Agrarian University, as saying that the project would be completed by 2019 and open to shipping in 2020 – a comparatively tight timetable, given that Panama’s far smaller project to expand its canal began in 2007 and isn’t expected to be completed until early 2016.

Indeed, the competition the Nicaraguan canal could present to Panama is one of the most intriguing aspects of this story. While far longer than the 77km Panama Canal, vessels transiting Nicaragua would shave around 500km on a typical Asia-east coast North America (ECNA) journey.

Furthermore, developments in ship size are already outpacing Panama’s enlargement. Its new set of locks will only allow vessels of up to 13,000teu size to pass, in contrast, carriers’ increasing liking for even larger containerships led HKND to argue that around 17% of the global fleet will be unable to pass through the reopened Panama Canal.

The proposed dimensions of Nicaragua Canal are 230-520 metres wide and 28 metres deep.

At last month’s at TOC Container Supply Chain event in London, analysts were talking about the next generation – 24,000teu vessels – whose appearance would effectively push Panama back to where it is now.

Panama’s limitations have already pushed carriers to route Asia-ECNA strings through Suez. Analysis by Drewry Maritime Research last October showed that delays in the Panama expansion project – caused by a contractual dispute between the government and construction consortium – accelerated the amount of traffic going to the east coast of North America via Suez.

Between 2010 and 2012, Suez’s share of Asia-ECNA traffic was stable at around 30% – by October 2013, it had jumped to 42%.

“This was achieved by ocean carriers increasing the average size of vessel passing through Suez from 6,911teu to 7,756teu over the past 12 months, as well as the transfer of Maersk’s TP7 schedule from Panama to Suez, whilst vessels deployed in the services using the Panama Canal have remained restricted to less than 5,000teu capacity,” Drewry said.

Its report added that delays in Panama had also encouraged strings via Suez to load further up in Asia.

“A further worry to the Panama Canal Authority will be that the lack of cargo growth to ECNA comes at a time when vessels passing through Suez have been loading at more Asian ports. Whereas up to now, Suez vessels have mainly been restricted to south-east Asian ports due to the shorter distance compared with that to the Panama Canal, they now regularly load in north-east Asian ports as well.”

If carriers have already achieved economies of scale by using Suez, what then are the chances that the Nicaragua project will actually get built? $50bn is an awful lot of money, and Mr Wang – who has no track record of developing large-scale infrastructure projects – has been insistent that it is not being funded by the Chinese government, although Beijing clearly has a lot to gain strategically from the opening up of a new route to the Atlantic, allowing its largest tankers access to oil production sources such as Venezuela.

However, there is said to be some 400 engineers already working in Nicaragua on the project. State-owned China Railway Construction Corporation is a strategic partner, while the highly respected Hong Kong-based container shipping analyst Charles de Trenck is a member of the HKND executive board.