The Nicaragua Canal

Artcle written by Luc Verley MIIMS

Competition for the Panama Canal is coming from the Latin American country of Nicaragua, but the project funding is actually coming from China.

The Inter-Oceanic Nicaragua Canal is an ambitious mega-project to create a waterway through Nicaragua to connect the Atlantic Ocean with the Pacific Ocean, just like the Panama Canal.

The Hong Kong Nicaragua Canal Development Group (HKND-group) a Chinese investment company has received from the Nicaragua government a 50 year concession for building and operating the canal. This concession can be extended with another period of 50 years. During this concession period HKND will compensate Nicaragua with 10 million USD annually during the first 10 years and in the following years Nicaragua will receive a percentage of the canal revenues. At the end of concession period HKND will return the canal and its entire infrastructure to Nicaragua. The investment required to build this canal is estimated at 40 billion USD (an equivalent to twice the country’s GDP) and construction of the canal would take 6 to 10 years according to HKND-group. It is estimated to create 40,000 jobs for construction workers. HKND will lead a consortium that might include international partners and will operate its business fairly, impartially and openly.

The idea of constructing a navigation channel through Nicaragua is not new. In the 19th century the American industrialist Cornelius Vanderbilt planned to build a waterway across the country, the project however was not materialized due to political turmoil. Eventually the US completed the Panama canal in 1914 after taking over the French attempt that was started in 1881.

The Panama canal expansion project started in 2007 and involved the construction of a third set of locks to be completed in 2015 (however, the project is currently faced with some major delays due to major budget issues).
The final route that the Nicaragua canal will take is not yet finalised. Feasibility studies have indicated different option across the country, however most likely the canal would be connected to Lake Nicaragua in the West of the country. The ambitious project would mean digging a more than 200 kilometre waterway through Nicaragua. The Nicaragua canal will have a length of 286 kilometres compared to the Panama canal with a length of 82 kilometres (Suez canal is 195 kilometres long).

Size-wise the existing Panama canal allow ships with a length of 294.13 metres, a beam of 32.31 metres and a maximum draft of 12.04 metres, the air draft is limited to 57.91 metres. This ship size is called a Panamax vessel (equivalent to a 5000 TEU container vessel). After the expansion of the Panama canal with the third set of locks, the new allowance for ships will be 366 metres in length, 49 metres beam and 15.2 metres draft, the air draft remains 57.91 metres. This ship size will be called the New-Panamax (equivalent to a 12000 TEU container vessel). The Nicaragua channel would give access to much bigger ships than the Panama canal, however a Nicaragua-max size is not yet known. For sure the largest container vessels, the so-called Super-post-panamax vessels (13000 to 18000 TEU) would be able to navigate the waterway.

The main drive for the investment in a second canal connecting the Atlantic with the Pacific Ocean is a result of the continued growth in container shipping for the transport of manufactured goods from China. This continued expansion of container traffic between Asia and the US has resulted in shipping companies investing in bigger container vessels up to 18000 TEU.

Traditionally, the trade between Asia and the US East coast takes place by vessels travelling from Asia westwards through the Malacca Straits and the Suez canal. However possible alternative routes for large container vessels could be going East from Asia and crossing the Pacific Ocean to the US West coast.

For US domestic shipping from East to West coast the Nicaragua channel would also reduce the transit time. The Nicaragua canal could have a major impact on international trade and on the shipping industry.

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