IT HAS BEEN an unhappy new year in the world’s busiest shipping lanes. Houthi rebels began attacking vessels passing into the Red Sea through the Bab al-Mandab Strait in early December. Trade volumes through the Suez Canal have dropped by 40% as ships are diverted around the Cape of Good Hope. Trade through the Panama Canal, the second-busiest man-made shipping lane, has also declined by 30% since November. But while the Suez’s problems are geopolitical, those in Panama are climatic. The lakes that feed the canal are drying up, thanks to annual droughts which appear to be growing worse as the climate warms. This makes the series of locks connecting the Atlantic ocean to the Pacific via Gatun Lake too shallow to allow the passage of the largest container ships.
Other Latin American governments spy opportunity. In normal times the canal carries some 5% of global maritime trade. And it is lucrative, generating some $2.5bn for the Panamanian treasury in the 2022/23 financial year, about 3% of GDP. Politicians in several other countries with both Pacific and Atlantic coastlines are either building or mulling infrastructure projects that might lure traffic and revenue away from Panama. The most viable alternatives are land-based, with containers unloaded from ships onto trains or trucks at one port and transported cross-country, before being reloaded onto a waiting ship on the other side.
Mexico’s Interoceanic Corridor (CIIT) is the closest to completion. It has been discussed for decades, but is finally being built as part of President Andrés Manuel López Obrador’s infrastructure agenda. Its central component is the modernisation of a 300‑km (190-mile) railway that runs across southern Mexico, from the Pacific to the Atlantic coast. The ports at either end—Coatzacoalcos and Salina Cruz—are being revamped to expand capacity and speed up customs checks. Most of the railway construction is complete and passenger services have started. Work on the ports has not been finished, delaying the start of coast-to-coast freight journeys. Mexico’s government plans to launch the CIIT’s second and third rail lines, which will carry freight, later in 2024.
Other competition for Panama is more conceptual. Colombia’s president Gustavo Petro wants to run a railway line through the northern province of Chocó, connecting the Pacific port of Buenaventura with the Caribbean. The country’s National Infrastructure Agency is working on the project, but has made little public beyond a map with a line connecting both coasts, posted on the president’s X (formerly Twitter) account. On the Caribbean side, it is not clear at which port the envisaged railway line will end.
The other big project is designed around roads. The “Capricorn Bioceanic Corridor” is a dual-carriage highway bisecting Brazil, Bolivia, Paraguay, Argentina and Chile, roughly at the level of the Tropic of Capricorn. Although at 2,250km it is too long to offer direct competition to the Panama Canal for global shipping, it may be a useful option via which Latin American-based firms might trade with Asia. The corridor is already part-built, thanks to multilateral funding. Sergio Díaz-Granados, the president of CAF, a regional development bank, is confident that it will be completed, calling it one of the greatest opportunities that exists today in Latin America for trade and services.
Several maritime alternatives to the Panama Canal have been mooted, too, though they are more speculative than land-based routes. Nicaragua wants to build a canal of its own, despite huge projected costs and complexity, and the utter failure of an earlier attempt backed by a Hong Kong construction firm. The same warming climate that is making the Panama Canal less viable is also melting ice in the Canadian Arctic. There is speculation that the Northwest Passage—a sea route that skirts Canada’s Arctic coast—might become commercially viable for shipping.
The reality is that land-based alternatives are more realistic prospects. They are cheaper, less risky, and thus easier to finance. But even projects like CIIT will struggle to entice cargo away from the Panama Canal. The largest vessels that transit the canal can carry 14,000 containers. Mexico’s government accurately boasts that the coast-to-coast rail journey will be quicker than crossing the canal. But it neglects to mention that the capacity of the trains, and the speed at which they can be loaded and unloaded, means that the overall rate of transit of goods between Pacific and Atlantic will be much slower than the canal.
Niels Rasmussen, chief shipping analyst at Bimco, an industry association, says that transporting cargo by train or road is far from ideal. He reckons that most shippers would prefer to rack up extra miles on other maritime routes, including the Cape of Good Hope, rather than deal with the hassle of unloading and reloading. And if push comes to shove, many would probably opt for existing routes in the United States over untested offerings in Latin America.
That does not mean new routes are useless. The Capricorn Corridor will bring a much-needed upgrade to South America’s road networks and help spur export capacity, as well as regional trade, which is often pitifully thin. Mexico’s plans may also gain a boost from nearshoring, as it is well-placed to take advantage of the United States’ efforts to shorten supply chains and move them away from China.
And for global trade, new land routes may end up complementing, rather than competing with, the Panama Canal. Circumstances may well worsen for both the Suez and the Panama canals, with tensions rising in the Middle East and drought worsening in Panama. In this “perfect storm” scenario, says Mr Rasmussen, imperfect alternative land-based routes will be better than no alternative at all.■