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Massive Canal Project Seeks to Streamline Global Trade

It's been referred to as the largest construction project in the history of mankind, and it has a lot to do with the grain that passes through your augers on its way to destinations around the world.

A Chinese company has broken ground on the Nicaragua Canal, a 170-mile-plus waterway that could take five years and $50 billion to complete. It would accommodate the world's largest barges and create a new, more efficient way for grain to make it through the Americas to ports on either the Pacific or Atlantic Ocean. Amid immediate questions that the project could even be finished, officials broke ground on the canal that would cross Lake Nicaragua earlier this year.

A canal crossing the nation just north of the current Panama Canal has a long history. Napoleon III proposed such a waterway in the 1800s, though any thoughts of developing the area for commercial traffic was halted when the U.S. built the Panama Canal in the 1910s.

A century later, though, times have changed immensely; the Panama Canal, which itself is nearing the end of a decade-long renovation that will make it better able to accommodate barges common in long-distance commercial transportation, still falls short, proponents of the Nicaragua Canal say. It takes a lot of time for a large vessel to cross the 48-mile canal, and those backing the new waterway to the north say that's a growing impediment to the global movement of freight like corn and soybeans. In the last four decades alone, the amount of freight traversing the world's oceans has quadrupled, according to a National Academy of Engineering (NAE) report, with more than 50,000 vessels moving freight worldwide.

The 30,000-foot view

  • Aging canal infrastructure, vessel technology, and growth is driving new canal's construction.

  • Shorter shipping distances and greater efficiency can save as much as $1 million per trip.

  • As many as 50,000 vessels are moving goods and commodities at sea at any given time.

  • The Nicaragua Canal could take five years and $50 billion to construct.

So, in stepped the Beijing, China-based infrastructure-development firm HKND Group, whose CEO Wang Jing, a 43-year-old billionaire, has backed "major infrastructure, mining, aviation, and telecommunications" projects in 35 countries. The company cites World Trade Organization data that shows world trade accounts for more than $18 trillion in annual global revenue, with 90% of the world's "total global commerce" hinging on the world's transportation system, including infrastructure like the Suez, Panama, and potential Nicaragua canals. These numbers, coupled with general economic growth in China and elsewhere in the world, make up just part of the force behind the canal's construction, according to HKND Group.

"The first decade of the 21st century saw unprecedented changes in global maritime trade. Volume of global trade increased rapidly prior to the 2008-09 financial crisis, with one of the drivers being China’s own growth and the fact that China became a main trading partner of many developed and developing economies alike. Post-financial crisis, China and many other countries in the global economy have faced lower economic growth trajectories. Yet after some consolidation, China should be expected to again accelerate its own economic growth in the coming decades, while many other countries will reestablish more respectable growth rates than those experienced in recent years," according to an HKND Group report. "At the same time, from the mid-'90s onward, container vessel sizes have increased some threefold, contributing not only to the rapid growth of maritime trade and containerization but also to continued revolutions in the lowering of transportation costs per unit and, as a result, lower costs for consumer goods around the world."

Infrastructure improvements badly needed

Though some see the canal's construction as a shot by China to simply get more for less on the global market via cheaper and more efficient global transportation, it's not the only development going on in the Americas to upgrade overall shipping facilities. Improvements have been underway at ports on both East and West Coasts of the U.S. to allow more efficient movement of barges of increasing size, according to NAE.

"Port infrastructure is being continuously adapted to increases in ship size. Port planning is driven by pressures to increase productivity and throughput and reduce air emissions from the terminal equipment, as well as from the ships, trains, and trucks entering and leaving the port," according to an NAE report by Keith Michel, chairman of Herbert Engineering Corporation, and Peter Noble, chief naval architect at ConocoPhillips. "The ports of Los Angeles and Long Beach, the largest container ports in the United States, have been in the forefront of these changes. For example, new cranes with greater vertical clearance and outreach that require less power are highly automated to improve productivity."

Size matters

In the realm of international shipping, size definitely matters. The largest barges on the water today can carry as much as 14,000 20-foot equivalent units (TEU, a common measure for maritime transport capacity). Yet the Panama Canal, once improvements are completed (expected next year), can only handle barges up to 13,000 TEU. So, HKND Group officials say that makes the Nicaragua Canal a vital piece of the future of global trade.

"Currently, some of the largest global trade lanes remain to the U.S. West Coast and the U.S. East Coast. The majority of container shipping volumes to the U.S. East Coast rely on a Panama Canal transit. At the same time, a substantial portion of containers unloaded on the U.S. West Coast transit further eastward, with some traveling to the same destinations as containers unloaded on the U.S. East Coast. The fact that the U.S. can receive more and more larger vessels is itself already a big leap for U.S. ports. But this shift-up in vessel sizes has been in the works for about the last decade. We believe, partly also because of the recent further acceleration in vessel sizes, that further North America infrastructure upsizing will likely take place post-2020," according to HKND Group. "Due to the drive for continued trade globalization and the further enhancement of growth in developing economies, international container shipment volume will continue to grow.

"With the rapid increase in East-West trade volume and increasing ship sizes, there is a sufficient justification for a second Interoceanic Canal spanning Central America. The trend of increasing ship size alone demonstrates there is a huge market potential for the Nicaragua Canal. This market belongs to the Nicaragua canal," an HKND Group report continues. "We believe, in 2030, 16 years from now, the combined value of goods passing through the Nicaragua Canal and Panama Canal will surpass 1.4 trillion dollars. This will be one of the most important concentrations of shipping in the world. In addition, the fuel savings will be considerable for Super Post Panamax ships passing through Nicaragua Canal. For example, from Shanghai to Baltimore, the Nicaragua canal route is shorter than Suez Canal route and Cape of Good Hope route by 4,000 km, and 7,500 km, respectively. Based on current fuel cost and average scale container ships, this results in round trip savings of $0.5m and $1m, respectively."

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