Nicaragua canal project

Background 

The Panama Canal has provided the primary shipping linking the Atlantic and Pacific Oceans through the Americas since 1914. And in that time, it has also represented US dominance in the region. Even after the canal passed entirely into Panama's control in 1999, the United States has maintained a strong military presence in the region, establishing its continuity as the region's key economic and political player.

All that is about to change - China involvement 

After the region was controlled by America for a long time, Nicaragua and China have come to an agreement allowing the construction of a new inter-oceanic canal in Nicaragua, connecting China with the Caribbean and its Atlantic-American trade partners. This won't just increase the flow of goods between China and the Americas. It will also usher China into the region as a major political force - something that is likely to raise alarm in Washington, which will regard any Nicaragua-China alliance as a destabilizing influence in the hemisphere. 

China's role in the development of this canal is partly about expanding its global trade. But it's also a way for China to push back against Washington's militarized "Pacific Pivot", as well as the US drive to establish a Trans-Pacific Strategic Economic Partnership (commonly shortened to Trans-Pacific Partnership, or TPP) that seeks to contain China's global economic growth. 

Proposed courses for the Nicaragua Canal in 2013 (in red) and course of Panama Canal (in blue). Top branch is Ecocanal. Image is based on File: CIA map of Central America.png and International Business Times.

Rival alliances The TPP is a US-led free trade agreement - a partial draft version of which WikiLeaks recently exposed to the public - that is being devised in secret by 12 Pacific Rim governments and 600 of the world's largest corporations. It seeks to define the rules for investment and trade in the 21st century. 

Unless China is willing to adopt rules that will rewrite its regulatory and investment laws to conform to the standard of this agreement - for example, by curtailing its state-owned investments and opening its state-owned enterprises to Wall Street investment rules - China will remain outside the TPP. 

This is not to say that China needs to submit to this bullying. For example, China has capitalized its own development fund with the BRICS (Brazil, Russia, India, China, and South Africa) association, and organized its own economic partnership with ASEAN member countries in Southeast Asia (many of which are also involved with TPP negotiations) under the auspices of the Regional Economic Comprehensive Partnership (RCEP). 

China's FDI strategies have surpassed analysts' expectations, and last year China became the third largest investor country, behind the United States and Japan. According to a recent press release by the United Nations Conference on Trade and Development, China's tremendous investment in many African countries has driven up FDI in Africa, defying the global trend. In Nigeria alone, China's investment rose from $75 million to $1.2 billion between 2004 and 2010. The United States, while still a much larger investor, has been unable to match the growth of China's investment in resource-rich developing countries. 

Due to its increased shipping of resources and goods, China has emerged as the new center not only for global manufacturing but for investment as well. To put this in perspective, China's container traffic measures over 5,000 transits a year, with hauls exceeding 10,000 gross tonnage per ship. According to a World Bank Data chart, China's container traffic surpasses that of the United States by a ratio of nearly three to one. 

The TPP - with its current 12-nation membership, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam - has a combined GDP of more than $27 trillion, representing over a third of global GDP. 

Yet despite its economic power and its military influence throughout the region, the United States has not been able to conclude this agreement. There has been focused criticism nationally and internationally against the TPP, as it is seen as an undemocratic agreement primarily written by corporations for the benefit of corporations. Additionally, for the TPP to conclude, it still needs congressional approval. The push to "fast-track" Obama's Trade Promotion Authority is likely to meet further resistance from lawmakers. 

China's success in regional and global trade, meanwhile, has given it the economic and fraternal clout to partner with the other ex-colonial - or ex-socialist - emerging economies to provide an alternative model to the neoliberal TPP. It is therefore no coincidence that none of the BRICS countries participates in the TPP. 

What BRICS offers is a new reserve currency that helps stabilize economies in developing markets, thereby providing greater access for development and trade, as well as a less draconian debt structure, compared to Wall Street investments. 

Of course these competing systems are not mutually exclusive - after all, China and the United States have a symbiotic and integrated economic relationship with each other. However, the TPP and the BRICS economies are competing over the trade and investment rules for the 21st century - and the neoliberal model no longer gets the last word. 

Global south benefits The proposed Nicaraguan canal is a tangible symbol of this emerging multipolarity. 

The canal would bypass not only the already congested Panama Canal, but also the strong US military presence patrolling the area. The access provided by Nicaragua's canal would be a welcome and long-sought opportunity for Global South economies - especially for regional economic and political trading blocs like the South American Common Market called Mercosur, and the Bolivarian Alliance for the Americas (ALBA). 

As we see the geographical layer of the TPP, we find that the TPP countries form an integrated wall separating the Mercosur and ALBA economies under Brazil's economic influence from the Asia-Pacific economies under China's regional influence - in effect turning the west coast of South America into a barrier between two of the BRICS charter members. A Nicaraguan canal not only provides the maritime access that streamlines the supply chain between China and Brazil, but it also provides new trade advantages to the Global South. 

This does not necessarily alienate the United States, but it does have the potential impact of reducing US economic and military hegemony in the region. 

In a 2008 hearing before the House Committee on Foreign Affairs on "The New Challenge: China in the Western Hemisphere," US representatives expressed concerns that Latin American countries were beginning to turn away from US investment in favor of China. Latin America expert Daniel Erikson testified that "the pace of trade between China and the region has skyrocketed from $10 billion in 2000 to over $100 billion in 2007." In 2012, China surpassed $200 billion in trade, doubling the 2007 figure, and supplanted the EU as Latin America's second-largest trading partner after the United States. 

The Nicaragua canal would be yet another blow to US influence in the region. Although the United States relinquished its official sovereignty over the Panama Canal in 1999, it continues to have a strong military presence in the region, maintains first rights for the passage of military ships, and cooperates with Panama to patrol and check ships without warrant. At this time, the United States does not have such an agreement with Nicaragua. 

Containment

Both the TPP and the US "Pacific Pivot" have been framed as a kind of "China containment strategy." 

This is not to say that the United States is practicing the same kind of containment strategy it has towards North Korea. For one thing, as long as China's trading partnerships remain productive, any suggestion of containing China would likely be seen as a deluded conceit. 

Perhaps a better description is that the United States is practicing a "containerment" strategy with China - a policy that seeks to assert greater control over China's overseas investment by controlling the shipping lanes that move the bulk of resources and manufactured goods to and from China. If China gets a new route to the Atlantic, this strategy may wither on the vine. 

A China-led Nicaragua Canal challenges Washington's 150-year-old claim of military and economic hegemony in the Western Hemisphere as outlined in the Monroe Doctrine. The rise of the trans-global BRICS economy, coupled with a new inter-oceanic canal that the United States has no jurisdiction over, means that the United States has been, at this moment, out-maneuvered by China. 

Whether Washington attempts to reassert its hemispheric dominance remains to be seen. It will certainly be a challenge, since blowback from the United States' historically brutal policies in Latin America could very well strengthen economic ties among the developing economies represented by China and their BRICS partners. 

Although the completion of a Nicaragua Canal will likely be fraught with difficulties, this China-Nicaragua partnership demonstrates that China will not be container-ed. 

Foreign Policy In Focus contributor Arnie Saiki is the coordinator for Moana Nui Action Alliance, which focuses on Pacific Island political and economic justice issues. 

Comparison

Panama Canal Expansion

Recent History

More than 14,000 ships, carrying roughly 300 million tons of cargo, pass through the Panama Canal every year. Since the late 1960s, the number of annual transits has plateaued near the maximum capacity of 14,000-15,000 ships, while tonnage has tripled from roughly 100 million  tons to over 300 million  tons today. Rising fuel prices and rapidly growing international trade has necessitated ever larger vessels to achieve greater economies of scale. Panamax vessels - so named because they maximize the space in the Canal's locks - are currently the largest ships capable of transiting the Canal with a cargo capacity of 4,500 TEU.² Once the expansion project is completed, the Canal's larger locks and deeper channels will accommodate "Post Panamax" container vessels up to 14,000 TEU.

The container segment, despite hitting five-year lows in total volume during fiscal 2010, remains the most important segment for the Canal at 35% of 2010's total volume. Container volume remained depressed in fiscal 2010 due to still sluggish global trade. The Canal's second most important segment is dry bulk at 24% of 2010's total tonnage. Dry bulk was the fastest growing segment in 2010. Combined, these two segments represented roughly 59% of the Canal's total 2010 volume.

Source: Panama Canal 2010 Annual Report

According to a 2008 study, 70% of the Canal's $100 billion in containerized cargo is destined for, or coming from, U.S. ports.³ Containerized cargo from Asia to the U.S. East Coast is the Canal's primary service route, representing roughly 40% of the Canal's 2010 total tonnage.⁴

Panamax class vessels represented 49.5% of the Canal's total oceangoing transits in 2010. In 2000, 85% of the world's container fleet was composed of Panamax-sized ships and below. However, by 2010, this number had shrunk to 60% and is expected to continue shrinking as the shipping industry transitions to larger, Post Panamax vessels.

Implications

The Canal's primary competitors for its flagship containerized cargo route, Asia to the U.S. East Coast, are the U.S. intermodal rail system and the Suez Canal. Using the U.S. rail system, goods are shipped from Asia to West Coast ports (primarily LA/Long Beach, Seattle/Tacoma, and Oakland), loaded onto rail cars, and shipped to their destination city. According to a study by the United States Department of Agriculture, this route accounts for 75% of total Asian imports and takes an average of 18.3 days to reach the East Coast (12.3 days from Asia to the U.S. West Coast and six days from the West to the East Coast on rail).⁵ The Asia-Panama Canal-U.S. East Coast route takes approximately 21.6 days and accounts for 19% of Asian imports. While cargo may take several days longer to reach the East Coast using this route, shipping costs are generally less. The Asia-Suez Canal-U.S. East Coast route takes approximately 21.1 days and accounts for 6% of Asian imports. The Suez Canal route is primarily used by South East Asian nations such as Vietnam, Thailand, and the Philippines, to ship goods to the U.S. East Coast.

The Canal's expansion will reduce shipping costs by decreasing congestion and allowing larger volumes of goods to transit the Canal. During 2010, the average Canal Waters Time (CWT) – total time spent waiting and transiting the Canal – was 21.1 hours (9.4 hours transiting and 11.7 hours waiting), which was an improvement from 23.1 hours in 2009.⁶ Vessels with reservations averaged a CWT of 13.3 hours, and non-booked vessels averaged 24.7 hours. However, several years ago before the recession hit, waiting times were sometimes as long as 10 days for vessels without transit reservations.⁷ In addition to decreased wait times, the capability to handle much larger vessels and achieve greater economies of scale is expected to further reduce shipping costs.

The potential cost savings for shippers will expand the Canal's area of influence. For containerized cargo in the U.S., the Canal's area of influence - the area where it becomes more cost effective to ship goods using the Canal rather than another route - will likely expand from the coastal states to areas as far inland as Chicago. East Coast railroads have been investing in their intermodal networks in anticipation of increased traffic that may come at the expense of the more crowded West Coast ports and railroads. For example, Norfolk Southern⁸ recently completed its Heartland Corridor project, which dramatically increased its capacity for intermodal traffic and reduced transit times between Norfolk, Virginia and Chicago.

It's not yet clear exactly how or which East Coast ports will benefit from increased container traffic. Currently there appears to be only three U.S. East Coast ports that will be capable of accepting the larger, Post Panamax container ships in 2014: New York, Norfolk, and Miami. These ports will almost certainly benefit from increased container traffic. However, it would be inefficient and costly for the Post Panamax vessels to stop at multiple ports (i.e., Asia to Miami, Norfolk, and New York). Thus, it seems likely that shipping lines will develop some sort of hub and spoke shipping system to serve smaller ports. For example, Post Panamax ships from Asia would unload at an East Coast hub where the cargo is then divided and loaded onto smaller ships serving regional spurs to the Gulf of Mexico, Southeast, and Northeast. Currently, three ports make sense as hubs: Miami (the closest deepwater U.S. port to the Canal), Freeport Harbour in the Bahamas, and Kingston, Jamaica. All three ports are undergoing, or have recently undergone, expansions in preparation for 2014.

Outside of containers, dry bulk shipments through the Canal should also increase with the Canal's new ability to handle vessels with deeper draft requirements. Grain from the U.S. Midwest represents much of the Canal's current dry bulk traffic. U.S. coal shipments through the Canal are expected to increase as well. Asian coal demand is growing rapidly while local supplies are constrained. The Canal may become one possible solution to Asia's coal needs, especially if proposed U.S. West Coast ports fail to materialize. Colombian coal headed to Asia, Chile, and Mexico will become more competitive as well. Venezuelan iron ore shipments may also benefit. The expansion will also allow larger liquid bulk vessels to transit the Canal. This could prove advantageous to Ecuador if their crude oil shipments to the U.S. become more competitive. Venezuela may develop a deeper trade relationship with China if the cost of exporting their crude to Asia becomes more competitive.

The Panama Canal, already recognized as a wonder of the modern world, is doubling in size. The project is massive enough to recalibrate key variables in the international shipping equation and change the playing field for global trade. Its impact on economic growth within the Americas will be felt for the next decade or two. Clearly, there will be both winners and losers. Long-term investors should take actions to minimize risks and take advantage of opportunities by considering the total potential impact of such changes in 2014 and beyond.

(http://www.saturna.com/sextantnewsletter/20111003.shtml)

Introduction of Panama Canal Expansion

The Panama Canal expansion project (Third Set of Locks Project) is to enlarge the capacity of the Panama Canal by creating a new lane of traffic. Panama has spent over 5 billion US dollars to widen and dredge the Panama Canal to support a new class of supersized cargo ships. After that, it will allow more and larger ships to transit in the canal. The expanded Canal will open in 2015.

The project will:

• Build two new locks, one each on the Atlantic and Pacific sides. Each will have three chambers with water-saving basins.
• Excavate new channels to the new locks.
• Widen and deepen existing channels.
• Raise the maximum operating level of Gatun Lake.

1.Deepening and widening of the Atlantic entrance channel.

2.New approach channel for the Atlantic Post-Panamax locks.

3.Atlantic Post-Panamax locks with 3 water saving basins per lock chamber.

4.Raise the maximum Gatun lake operating water level.

5.Widening and deepening of the navigational channel of the Gatun lake and the Culebra Cut.

6.New approach channel for the Pacific Post-Panamax locks.

7.Pacific Post-Panamax locks with 3 water saving basins per lock chamber.

8.Deepening and widening of the Pacific entrance channel.

http://www.oil-electric.com/2011/08/panama-canal-expansion.html

Logistics Impacts From Widening The Panama Canal

The North America to Asia trade lanes have mainly relied on the Ports of Los Angeles and Long Beach.  Then intermodal shipments via rail and truck have brought a high proportion of this cargo to the Midwest and East Coast.  But now, a higher proportion of freight can start to flow to East Coast and Gulf ports.   In fact, this is already happening:  Colliers International reported that “for the first time since World War II, the East Coast surpassed the West in container traffic growth.  Eastern ports saw traffic grow by 5.5 percent in Q1 2012 over the same quarter in 2011, as compared with 3.0 percent in the Western ports.”  And that trend is expected to accelerate once the widened canal is open.

It will allow for lower cost shipments to the East Coast, allow large retailers and manufacturers to start to reconfigure their network of factories and distribution centers so that more inventory can be stored closer to East Coast population centers, will help them with their Green scorecards (big ships have a smaller CO2 footprint per load), and provides their supply chains more flexibility and resiliency (the big West Coast ports and the Intermodal facility in Chicago can become congested choke points).

As large companies seek to rebalance their supply chain network, where they can position new warehouses will depend in part on theinvestments of major railroads to improve their intermodal capabilities. And of course, companies themselves do not reposition company owned warehouses quickly or easily.

Many ports will not get the funding they need to become Pananmax ready. The Boston Globe wrote an editorial favoring expansion of the Port of Boston, but admitted the ROI of these investments was far from an “easy sell.”

West Coast port economics are also improving – Four East Coast ports will be ready to handle Post Panamax ships by 2015: Baltimore, Miami, New York and Norfolk.  But four West Coast parts are already ready:  Los Angeles, Long Beach, Oakland and Seattle. While Post Panamax ports will improve the costs of shipping to the East Coast, they also improve West Coast economics. The lead time versus cost tradeoff will not disappear; Longer lead times equates to holding more inventory, and higher inventory carrying costs, to maintain the same service levels.

But perhaps the key tipping point will be whether the widened Panama Canal will lead to better backhaul opportunities for ocean carriers.  Because of the trade gap with Asia, too many ships move from Asia full and then back across the Pacific far from full. Too many empty shipping containers end up in North America. If the flows were more even, ocean shipping would cost less.

Just as a widened Canal improves the economics of shipping to the East Coast from Asia, it will improve the economics of shipping from eastern Latin America to Asia.  This raises the prospect of a new form of triangular trade – consumer goods from Asia to the East Coast, higher end consumer goods and pharmaceuticals from North America to South America, and coal and iron ore from Columbia, Venezuela, and Brazil to China. Such trade flows would allow for Ocean carriers to charge less for shipment to East Coast ports.

Nevertheless, the best guess is that growth of ocean cargo to the East Coast from Asia will exceed that to the West Coast, but not be dramatically larger in any given year.  Still, over the course of a few decades, cargo flows could look dramatically different.

Vessel evolutionary 

Vessels that are specially designed to travel through the Panama Canal are known as Panamax ships. Their dimensions are maxed out using specific and often inefficient designs to fit the Canal’s two original channels, which can accommodate ships no larger than 965 feet long and 106 feet wide. Post-Panamax ships are those capable of fitting the Canal’s expanded third lane, they're much larger and much more fuel efficient. One of the largest costs in shipping bulk goods between the Americas and Asia is fuel. Up to 16% greater fuel efficiency is just the beginning of the benefits post-Panamax ships could potentially bring to the United States. It’s estimated that three-fourths of the new cargo traveling through the expanded canal will arrive on the East Coast, which would be a potential boon for US trade if only the United States were better prepared.

http://www.minyanville.com/business-news/markets/articles/natural-gas-port-canal-Panama-Canal/8/17/2012/id/43178
http://people.hofstra.edu/geotrans/eng/ch3en/conc3en/containerships.html

Hanjin Shipping

Hanjin Shipping is Korea's largest and one of the world’s top ten container carriers that operates some 60 liner and tramper services around the globe transporting over 100 million tons of cargo annually. Its fleet consists of some 200 containerships, bulk and LNG carriers.
Hanjin Shipping, an operating company of Hanjin Shipping Holdings has its own subsidiaries dedicated to ocean transportation, terminal operation, ship management, ship repair and 3PL serving various customers around the world.
With 6,000 employees in 60 different countries and 230 branch offices, Hanjin Shipping is building its global logistics network, which is also supported by the company’s 13 dedicated terminals at the world’s major hub ports and 6 inland logistics bases.

Aiming for flawless service for our customers, Hanjin Shipping is pursuing change and innovation at all times. Our efforts to provide advanced service show in our eco-friendly, state-of-the-art vessels, world-class logistics IT system and automated terminals.

In addition, Hanjin Shipping is trying to fulfill its duties as a corporate citizen by adopting eco-friendly container, developing CO2 emission calculator and establishing management system based on ethics and transparency of global standards

With the belief in ourselves as a transporter of industry and culture, we at Hanjin Shipping will always stand by the values our customers believe in to become the world’s best total logistics company respected by the global community.

Overview of America’s Freight Railroads

Delivering The Goods Across the Country and to the World

Today, the U.S. freight rail network is widely considered one of the most dynamic freight systems in the world. The $60 billion industry consists of 140,000 rail miles operated by seven Class I railroads (railroads with operating revenues of $433.2 million or more, 21 regional railroads, and 510 local railroads. Not only does the 140,000 mile system move more freight than any other freight rail system worldwide but it also provides 221,000 jobs across the country and numerous public benefits including reductions in road congestion, highway fatalities, fuel consumption and greenhouse gasses, logistics costs, and public infrastructure maintenance costs.

The U.S. freight railroads are private organizations that are responsible for their own maintenance and improvement projects. Compared with other major industries, they invest one of the highest percentages of revenues to maintain and add capacity to their system. The majority of this investment is for upkeep to ensure a state of good repair while 15 to 20 percent of capital expenditures, on average, are used to enhance capacity.   

More than 560 freight railroads operate in the United States. The seven “Class I” railroads account for 69 percent of freight rail mileage, 90 percent of employees, and 94 percent of revenue. Class I railroads typically operate in many different states over thousands of miles of track. Non-Class I railroads — also known as short line and regional railroads — range in size from tiny operations handling a few carloads a month to multi-state operators not far from Class I size. Together, America’s freight railroads form an integrated, nearly 140,000-mile system that provides the world’s safest, most productive, and lowest-cost freight service. From the food on our tables to the cars we drive to the shoes on our children’s feet, freight railroads carry the things America depends on: 

1. The rail share of ton-miles is about 40 percent, more than any other transportation mode. 

2. Coal historically has generated much more electricity than any other fuel source, and more than 70 percent of coal is delivered to power plants by rail. 

3. Railroads also carry enormous amounts of corn, wheat, soybeans, and other grains; fertilizers, plastic resins, and a vast array of other chemicals; cement, sand, and crushed stone to build our highways; lumber and drywall to build our homes; autos and auto parts; animal feed, canned goods, corn syrup, flour, frozen chickens, sugar, beer, and countless other food products; steel and other metal products; crude oil, asphalt, liquefied gases, and many other petroleum products; newsprint, paperboard, and other paper products; iron ore for steelmaking; and much more. 

4. Intermodal (shipping containers and truck trailers moving on railroad flatcars) has been the fastest growing rail traffic segment over the past 25 years. Most intermodal traffic is consumer goods. In fact, just about everything you find on a retailer’s shelves may have traveled on an intermodal train. More than 50 percent of rail intermodal consists of imports or exports, reflecting the vital role railroads play in international trade.board, and other paper products; iron ore for steelmaking; and much more. 

Source: Association of American Railroads

Performance 

After Stagger Act passed in 1980, the productivity and volume grow up rapidly because railroad companies can decide service types and route selections. Most of shipments are coal, chemical products, and agricultural products (about 70%). Between 1987 and 2009, output-per-hour worked more than doubled in line-haul railroading but grew only 23 percent in long-distance, general-freight trucking. Line-haul railroads do not include switching and terminal operations or short-distance (or local) railroads. Long-distance, general-freight trucking establishments exclude local trucking and truck operators that require specialized equipment, such as flatbeds, tankers, or refrigerated trailers.

http://www.fra.dot.gov/Page/P0362
https://www.aar.org/keyissues/Documents/BackgroundPapers/Overview-US-Freight-RRs.pdf