The Impact the Grand Interoceanic Canal Could Have on Your Wallet

Francisco A. Laguna & Wojciech Kornacki

This third and final article of our series on the Grand Interoceanic Canal examines the financial impact on the canal may have on consumers.

Many experts predict that the new interoceanic canal will significantly reduce the time and costs of shipping goods between Asia and Europe, Asia and the U.S. East coast, and Asia and Brazil, all of which should result in lower prices to consumers. However, lower prices come with numerous environmental and construction challenges which may be difficult to overcome.

The Benefits:

Maersk triple E class ships are the largest ships ever built by cargo volume. This class of ships is longer than the maximum length of the American aircraft carrier Enterprise and not every sea port is equipped to handle them.  They are designed to carry 2,500 containers.  These ships are too big for the Panama Canal, but once completed, the Interoceanic Canal in Nicaragua should be able to handle them.  Courtesy of http:// http://en.wikipedia.org

Maersk triple E class ships are the largest ships ever built by cargo volume. This class of ships is longer than the maximum length of the American aircraft carrier Enterprise and not every sea port is equipped to handle them. They are designed to carry 2,500 containers. These ships are too big for the Panama Canal, but once completed, the Interoceanic Canal in Nicaragua should be able to handle them. Courtesy of http:// http://en.wikipedia.org

Lower Prices: Prices for some products may drop once the interoceanic canal is operational in Nicaragua. Recall that the Panama Canal cannot accommodate many of today’s super transport ships. Thus, with specific regard to the United States, currently, many goods coming from Asia are shipped to the West Coast of the US, and then have to be transported by train or truck to eastern locations, all of which creates additional expenses. The Interoceanic Canal will accommodate super tankers, allowing for the direct shipment of goods and commodities without the need for the middleman on the West Coast of the US.

More Choices: Shippers are also stating that another benefit of the Interoceanic Canal is that it will create choices for international shipping companies. Currently, the only two choices are either the Suez Canal or the Panama Canal. However, the Panama Canal cannot handle the largest triple E cargo ships, even after $5 Billion in improvements. In addition, shipments through the Panama Canal are sometimes delayed by 20 to 30 hours, simply due to volume. Currently ships from Asia using the Panama Canal arrive in New York within 26 days, which is 2 days quicker than through Suez Canal. Once the Interoceanic Canal in Nicaragua is operational, the shipping companies will have another option for shipping goods.

Less Time: The Interoceanic Canal is expected to eliminate approximately 500 miles of travel to get through the Panama Canal. Since shipping is a very competitive industry, shipping companies constantly look for ways of improving their profitability, and the shortened distance should improve the shippers’ bottom line.

The Risks:

 

The Interoceanic Canal is expected to increase the trade between Asia and the U.S. East Coast, Europe and Brazil.  Currently many goods from China are transported through the United States or Canada.  By having an interoceanic canal capable of handling the biggest cargo ships in the world, this may no longer be necessary.  Courtesy of http:// http://en.wikipedia.org

The Interoceanic Canal is expected to increase the trade between Asia and the U.S. East Coast, Europe and Brazil. Currently many goods from China are transported through the United States or Canada. By having an interoceanic canal capable of handling the biggest cargo ships in the world, this may no longer be necessary. Courtesy of http:// http://en.wikipedia.org

Actual Costs: While consumer prices for some goods may experience a decline, it is important to keep in mind that the parties financing the project are expecting to make a profit. The project is estimated to cost over $45 Billion, and that Hong Kong-based developer, HKND Group, will have a 50-year lease. While prices may drop, shipping goods and commodities through Nicaragua will not be free. The President of Nicaragua, Daniel Ortega, hopes that this project will make his country rich or at least end extreme poverty.

Environmental Costs: The environmental impact could result in significant financial hardships for Nicaragua and the region. Critics argue that the Interoceanic Canal and all the mega triple E cargo ships traveling through Nicaragua, and through Lake Nicaragua (Lake Cocibolca), the largest fresh water reserve in Central America, could have very serious environmental consequences. In addition, the project will also cut through 4 nature reserves. According to Nicaraguan officials, the project also involves building seaports, free trade zones, bridges and an airport, among others – all resulting in additional environmental issues. Some proponents point out that some of the proceeds from the canal could be used to protect the Nicaraguan environment, but no definitive approach has been adopted.

International Issues: Nicaragua’s neighbor, Costa Rica, has expressed concern over The Interoceanic Canal. Costa Rican officials are concerned with how little information about the actual project has been made public, and with the fact that there has been no environmental assessment.

Major environmental, financing and construction challenges have to be resolved before the interoceanic canal is declared a success. Once built, it is likely to have positive economic impacts around the world, and it will result in greater flow of commerce from Asia to the East Coast of the United States, Brazil and Europe. The success of this project will not only be measured by the flow of commerce, but it will also depend in part on how it deals with its challenges. TransLegal will continue to monitor as the project progresses.

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