The Panama Canal
History of the Panama Canal
The Panama Canal widely known as “the most important shortcut ever built”, has had extensive impacts on global trade basically because of the reduction on travel distances (resulting in reduced travel time) and the capacity to serve large vessels back in the 1990s. Nowadays, after about a hundred years from its construction, it keeps being a key part on global trade and is going through the biggest improvement and capital investment since it was originally built to remain at the forefront. This world’s greatest engineering feat was realized 395 years after the project was first proposed. Some relevant key dates include:· 1835: Colombia grants France a concession to build a canal in Panama
· 1880: Construction of The Panama Canal begins and 8 years later the French company declared bankruptcy. More than 20 thousand people died in these 8 years
· 1902: US Senate chose Panama instead of Nicaragua for the canal
· 1904: U.S. starts the construction of the canal
· 1914: The canal was inaugurated
· 1977: The president of the U.S. Jimmy Carter and the Panamanian military leader Omar Torrijos signed the treaty that established that Panama would have total control over the canal from 1999
· 1999: Panama assumes total control over the canal (The Panama Canal in Numbers
The Panama Canal required cost $375 millions and an estimated of 56,307 people to complete the construction. In total the canal is 51 miles long or 80 km through the entire country of Panama. The average transit time is 8 to 10 hours per ship and an average of 40 vessels transit the canal daily. The problem is usually there is a queue of about 20 hours before a vessel enters the canal. It generates $1 to $1.5 billions in income yearly.
Prior to the Panama Canal, ships would have to travel all the way
around South America to get from San Francisco to New York. The addition of the
Panama Canal saves about 7,800 miles or 12,530 km, which represents about 2
weeks of time saving. The figure to the right shows this distance savings.
Expansion Project
As mentioned before, The Panama Canal is currently going through a major change; it is being expanded to be able to serve larger vessels of approximately 2.6 times the current vessel capacity of the canal measured in TEU. The major drivers for this project are that the canal was becoming inadequate for traffic volume and not able to accommodate today’s largest container vessels. Larger US bound ships from Asia have been limited to west coast ports creating congestion at these ports. Also, there was a lack of available land near these ports so companies’ DC’s are far from the ports. This expansion project started on 2007 and Currently, the project is 70% completed.The Panama Canal Authority (ACP) estimated that the project would cost $5.25 billion and was expected to be finished in 7 to 8 years (ACP). The payback period was estimated in 10 years; the internal rate of return at 12%; and $6.2 billion in annual revenue in 2025 (ACP). The National Association for Nature Conservation estimated the environmental impacts and risks associated to the project as minimal
Expansion Timeline
· Oct 2006: Panamanians voted to expand the Panama Canal· Sept 2007: Project started.
· Jul 2009: Peak construction begun by a group of 3 multinational companies and 1 local company; the name of the group is GUPC.
· Jul 2010: GUPC positioned the ACP for more time and money to finish; this was rejected
· Jan 9, 2014: GUPC positioned for $1,64 billion dollars extra; this was also rejected
· Feb 7 to Feb 20, 2014: Project was suspended.
· Feb 20, 2014: Agreement was made between ACP and GUPC, construction proceeded again on Feb 21
· Dec 2015: expected completion date of the Panama Canal (initially it was predicted to be finished in 2014)
The Project (New Locks)
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 super-sized cargo ships.The project will build two new locks, one each on the Atlantic and Pacific sides. Each will have three chambers with water-saving basins. This project includes excavating the new channels to the new locks and widen and deepen existing channels. The project will also raise the maximum operating level of Gatun Lake (Panama) and improve water quality and usage. The locks will use massive culverts that can fill a chamber in as quickly as 10 minutes. Each lock will have its own water basin system that reuses 60 percent of the water required for each transit. New rolling gates will allow for easier servicing. These improvements will double the number of goods that can move through the canal annually, as well as modernize the Canal to handle some of the world’s largest and most sophisticated tankers and vessels.Panamax Vessels
Vessels that are specially designed to travel through the Panama Canal are known as Panamax ships. Panamax ships make up 16 percent of the world's container fleet today but carry 45 percent of the cargo. 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. Panamax ships can ship from 3,400-4,500 TEUs. Post-Panamax ships are those capable of fitting the Canal’s expanded third lane, they're much larger and much more fuel-efficient. New-Panamax ships will be the largest that can pass through the new locks in early 2015. These ships will be able to hold between 12,000 and 13,000 TEUs. Figures 2 below compares Panamax and Post-Panamax Ships. 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 the ports are able to ready for it.Supply Chain Benefits
Volume of Goods
With these new improvements, it is expected that the number of goods that can move through the canal annually will double. Also the modernized Canal will be able to handle some of the world’s largest and most sophisticated tankers and vessels (He).U.S. Port Balance
Next, currently, the US West Cost receives most of the shipments from Asia, while the East Coast receives them from Europe and The Americas. The US imports more from Asia, therefor West Coast ports are busier. After the expansion, the US East and West Costs are predicted to be more balanced in receiving imports. One analyst, Jones Lang LaSalle, believes “25 percent of imports currently coming through the West Coast could shift to East Coast ports as a direct result of the Canal expansion”.Economic and Environmental
The canal is predicted to increase economic activity, supply chain flexibility and resiliency, intermodal capabilities, and companies green scorecards. Supply chain flexibility will increase because with the canal expansion, bigger ships will have access to the east coast. Companies green scorecards will increase because big ships have a smaller CO2 footprint per load. The expansion will also decrease instances of bottlenecks, transit time, cost of shipments to the east cost, and GHG emissions on the planet. Previously, chips had to wait around 20 hours to transit the canal; the new locks will speed up this process and reduce the entrance bottlenecks. Shipping a container on a large ship to the east cost is cheaper than shipping it to the west cost and then moving the container via rail or truck.Less Empty Container Movement
Another possible benefit to the canal expansion would be that triangular trade would help recuse shipping costs by increasing backhaul opportunities. Currently, many ships move from Asia to the West Coast full but back far from full. After the expansion, it is predicted that triangular trade between the US, South America, and Asia could help reduce not full backhaul shipments. Consumer goods would travel from Asia to the East Cost, then containers could be refilled with higher end goods and pharmaceuticals from North America to South America. Lastly, South American countries including Columbia , Venezuela, and Brazil would fill the vessels with coal and iron to send back to Asia.Expansion Impact
In order to accommodate for larger ships, the ports will have to go under major renovations and spend hundreds of millions of dollars. For example, The Port of New York will spend $1.3 billion to raise the Bayonne Bridge 64 feet to enable clearance of the Post-Panamax ships. Almost any port can expect to spend hundreds of millions in environmental impact studies, new cranes, infrastructure changes, and dredging.Another impact the canal expansion will have is on inland infrastructure. These investments can include bigger freight yards, improved connections to railheads, support for double decker rail car clearances, etc. These will also be very costly.
Large companies will need to rebalance their Supply Chain. Companies will build new warehouses based in part on the investments of major railroads to improve their intermodal capabilities. Companies themselves do not reposition company owned warehouses quickly or easily so these projects have already started.
There are four East Coast ports will be ready to handle Post-Panamax ships by 2015: Baltimore, Miami, New York and Norfolk and 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.
The Nicaragua Canal
Background of Nicaragua Canal
Construction of such a canal along the route using the San Juan River was proposed in the early colonial era. The United States abandoned plans to build such a canal in the early 20th century after it purchased the French interests in the Panama Canal.World shipping has been steadily increasing so the idea to build the Nicaragua Canal was revisited more than 160 years later because it may be an economically viable project. In June 2013, Nicaragua's National Assembly approved a bill to grant a 50-year concession to the Hong Kong Nicaragua Canal Development Investment Company to build the canal. (BBC) The concession can be extended for another 50 years once the canal is operational.
Financials
Nicaragua and China have come to an agreement allowing the
construction of a new inter-oceanic canal. Wang Jing, a 40-year-old Chinese telecommunications
billionaire have come to an agreement with Nicaragua’s president to fund
building the canal. Nicaraguan President, Daniel Ortega, signed a 50-year
concession on June 14 that grants Wang’s HKND rights to develop a
$40 billion project that includes a canal, an oil pipeline, two deep water
ports, an interoceanic railroad, and two airports.
Proposed Routes
Several possible routes were proposed for a canal in Nicaragua, all making use of Lake Nicaragua. The following four routes have been discussed to carry traffic from the Atlantic Ocean to Brito by way of Lake Nicaragua, which is at an elevation of 32 m (105 ft) above sea level:· Routes 1 and 2 start from Cayman Rock
· Route 3 goes from the town of Bluefields on the Caribbean Sea (Isla del Venado) via Rio Escondido
· Route 4 and 5 starts at Punta Gorda
· Route 6 (the Ecocanal route) goes from the town of San Juan de Nicaragua via the San Juan River
Route 6 would have the least environmental impact. It would require deepening the San Juan River and adding new locks. However, despite the lesser environmental impact and the lower cost compared to the other routes, HKND has stated it will not use this route because it would create tensions with Nicaragua’s bordering Country, Costa Rica. HKND Group has hired Environmental Resources Management, one of the world’s leading sustainability consultancies, to independently assess the environmental and social impact of various routes under consideration. In July 2013, Route 3 was chosen for the canal.
Building Reason
Currently, 85% to 95% of the world-trade goods are by sea. However, the world's two most important canals, the Panama Canal and the Suez Canal, face a common problem, namely the canal stenosis. The creation of the Nigaragua Canal would fix this, allowing the biggest ships to travel from the pacific to Atlantic Oceans.
Nicaragua is currently one of the poorest countries in Central America and its main export is agricultural. The addition of the Canal would help eradicate economic troubles in Nicaragua. The Nicaragua government thinks running a canal is a profitable business that will bring huge economic vitality. For example, it can create nearly 200,000 jobs, the GDP will increase, and making this poor country will become one of the richest countries in Central America.
The Voice of Disagreement
Critics are saying that the Nicaragua President is using the canal project to transfer the sight of domestic contradiction and improve support. Some critics feel the canal creation is not a good idea because currently, Nicaragua has more than 40% citizens in poverty, high unemployment rates, and fiscal emptiness. Also, the authorities are unable to pay the 6% required expense for the project; this could lead to the government borrowing too much.Next, the San Juan River could not be used for the canal because it is close to Costa Rica and could start controversies. Therefor a different route was chosen that environmentalists worry about because it goes 170 miles through Nicaragua. Environmentalists are worries that the canal will inevitably lead to massive deforestation, and endanger coastal reefs and other Marine systems, causing an ecological disaster. Opponents also pointed out that the government is difficult to raise the international consortium of financial support, because "no one wants to invest 100% of their money, eventually can only receive a 49% controlling stake".
References
ACP. Proposal for the Expansion of the Panama Canal. Third Set of Locks Project. Publication. N.p., 24 Apr. 2006. Web. 17 Feb. 2014. <http://www.pancanal.com/eng/plan/documentos/propuesta/acp-expansion-proposal>.Agencias Internacionales. "Cronología De Canal De Panamá." Cronología De Canal De Panamá. N.p., 13 Dec. 1999. Web. 17 Feb. 2014. <http://portal.critica.com.pa/archivo/121399/nacional.html>.
"Ampliación Del Canal De Panamá." Wikipedia. N.p., n.d. Web. 17 Feb. 2014. <http://es.wikipedia.org/wiki/Ampliaci%C3%B3n_del_Canal_de_Panam%C3%A1>.
"Asia Times Online :: Global Economy." Asia Times Online :: Global Economy. 01 Mar. 2014 <http://www.atimes.com/atimes/Global_Economy/GECON-01-221113.html>.
Banker, Steve. "Logistics Impacts From Widening The Panama Canal." Forbes. 06 Sept. 2013. Forbes Magazine. 01 Mar. 2014 <http://www.forbes.com/sites/stevebanker/2013/09/06/logistics-impacts-from-widening-the-panama-canal/>.
"Nicaragua canal plan not a joke - Chinese businessman". BBC News. Retrieved 2013-06-26.< http://www.bbc.com/news/world-latin-america-23058301>
"Contract To Raise Bayonne Bridge Awarded." Working Harbor Committee. N.p., n.d. Web. 02 Mar. 2014.<http://workingharbor.wordpress.com/2013/04/27/ contract-to-raise-bayonne-bridge-awarded/>.
"Cronología Del Conflicto En La Ampliación Del Canal De Panamá." RTVE.es. N.p., n.d. Web. 17 Feb. 2014. <http://www.rtve.es/noticias/20140220/cronologia-del-conflicto-ampliacion-del-canal-panama/883202.shtml>.
Double-Wide: Who's Set to Benefit From the Expanded Panama Canal? Aug 17, 2012 <http://www.minyanville.com/business-news/markets/articles/natural-gas-port-canal-Panama-Canal/8/17/2012/id/43178>.
HE PANAMA CANAL EXPANSION: AN UPDATE FOR URBAN PLANNERS, JULY 27, 2013 <http://yptransportation.org/2013/07/27/the-panama-canal-expansion-an-update-for-urban-planners/>.
JOSÉ DE CÓRDOBA (13 June 2013). "Nicaragua Revives Its Canal Dream". The Wall Street Journal U.S. edition. Retrieved 2013-06-28< http://online.wsj.com/news/articles/SB10001424127887323734304578543432234604100?mod=WSJ_hpp_MIDDLENexttoWhatsNewsTop&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424127887323734304578543432234604100.html%3Fmod%3DWSJ_hpp_MIDDLENexttoWhatsNewsTop>
Modernization of the Panama Canal <http://www.washingtonpost.com/wp-srv/special/world/modernization-of-panama-canal/>.
"Nicaragua Canal." Wikipedia. 03 Feb. 2014. Wikimedia Foundation. 02 Mar. 2014 <http://en.wikipedia.org/wiki/Nicaragua_Canal>.
“Nicaragua Canal”. 03 Mar. 2014 Baidu Baike, <http://baike.baidu.com/link?url=v37yuS6se7x5J9t9oL4osvsiq_k3UZC0LUHSxpC7dwAy1e0252JXRIts6jZsDYx42HZpJxPigZnhoJ-cbqWc_a#ref_[1]_2092513>
Panama Canal expansion project. From Wikipedia <http://en.wikipedia.org/wiki/Panama_Canal_expansion_project>.
"The Panama Canal Expansion Will Be a Supply Chain Game Changer ." - Inbound Logistics. 01 Mar. 2014 <http://www.inboundlogistics.com/cms/article/the-panama-canal-expansion-will-be-a-supply-chain-game-changer/>.
"To Understand a Supply Chain, You Need to Model It With Supply Chain Design Tools." Logistics Viewpoints A Blog for Logistics Supply Chain and 3PL Executives RSS. 02 Mar. 2014 <http://logisticsviewpoints.com/2012/11/12/to-understand-a-supply-chain-you-need-to-model-it-with-supply-chain-design-tools/>.
