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Canal competition would push down rates

Monday, January 5, 2015

Consumers in North America and Asia can expect low prices, as a result of reduced transportation costs.

Assuming there is competition between the Panama Canal and a proposed Nicaraguan waterway, shipping lines would get good rates, which would be passed on.

A press conference and the start of expropriations last month marked the start of a NIcaraguan inter-ocean canal, to be built and operated for 100 years by a Chinese company.

A Nicaraguan canal would compete with Panama, for what by 2020 would be more than 20,000 transits a year, assuming that historical trends persist of an annual increase of 5% in trans-Pacific shipments, measured by tonnage.

Even with its expanded waterway, Panama would be able to handle little more than 18,000 transits a year.

The Panama Canal currently has an annual capacity of 12,000 transits.

A Nicaraguan canal would in addition be the shortest route for container ships, which travel between East Asia and the Eastern United States, and which – with a capacity of 15,000 or more units - are too big to fit in the Panama Canal.

The Nicaraguan project faces economic obstacles, including local residents, who don’t want to be expropriated.

Engineering challenges include the need to dredge Lake Nicaragua, through which the route would pass, and to build locks, which raise and lower ships a distance of 33 meters (108 feet), seven meters (23 feet) greater than that of the Panama Canal.

On the other hand, China has the necessary resources.

The Nicaraguan government last year awarded the project to Hong Kong Nicaragua Development Company, which almost certainly has the support of the Chinese state.

The Panama Canal last year charged $74 per 20-foot container, up 50% since 2007.

Revenues were close to $2.5 billion, while earnings were nearly half that amount.