Say Goodbye to the Panama Canal

Investment Analysis Clubs Macro Economic Trends and Risks
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A single shipment of 900 vehicles crossed southern Mexico by rail in roughly nine hours this spring, moving from the Pacific to the U.S. East Coast in about 72 hours. The operation, run by Hyundai and its logistics arm Hyundai Glovis, marks the first major international test of Mexico’s Interoceanic Corridor of the Isthmus of Tehuantepec . This 303-kilometer rail route is taking shape just as climate pressures threaten the reliability of the Panama Canal.

Vehicles traveled from South Korea to the Pacific port of Salina Cruz in Oaxaca. There, crews loaded them onto 50 BI-MAX freight wagons built for vehicle transport. The trains used Line Z of the corridor to reach Coatzacoalcos on the Gulf of Mexico, where the cargo transferred to a second ship for the final leg to Brunswick, Georgia. The full operation showed the corridor can handle multi-modal international freight at commercial scale.

A Water Problem Decades in the Making

Every ship that moves through the Panama Canal depends on Gatún Lake. A single transit consumes more than 26 million gallons of freshwater. When drought hit in 2023, canal operators slashed daily crossings from 38 ships to as few as 22 and forced vessels to lighten their loads. Some cargo faced delays stretching past two weeks.

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Hmm. Two extra intermodal transfers and an extra 60 hours. They’re going to have to have very competitive pricing to make up the difference.

DB2

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Clearly they have done the math, but this involves doubling the “loading and unloading” time, plus the expense of doing so, and of keeping a railroad running but waiting to be loaded and hooked up.

If the water in Gatun continues to be a problem then those costs are ameliorated, but if it comes back (or a workaround is found) then methinks this is a pretty expensive way to fly.

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The rail crossing across Panama has been there for ages. Sounds like it has recently been improved. Compared to the cost of shipping around South America it could be attractive. And they have the option of landing in Mexico and shipping by rail to the US or across to the Gulf. No doubt they know all the costs and shipper decides the urgency of the need and what its worth.

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I don’t think the cost is the only factor.

As discussed, the challenge is water capacity. At some point, there just isn’t any more water from that source.

Economics will drive rail, piped in water or alternate routes. All of these will be higher in cost than prior Panamanian transport through the canal.

Will the price be higher? Certainly.
Will the combination of all methods serve capacity or limit (costs factored, and foundational to the question of capacity).

At some level of capability in the future, cars could be self driven along a closed route and auto unloaded/loaded.

Again… Economics will drive the process.

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Keep in mind also the POTUS has expressed interest is using military force to capture the Panama Canal, falsely claiming that it is being operated by China. We’ve seen he’s willing to overthrow foreign and block interternation shipping, so a rail line by passing the canal seems prudent.

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Although it is possible that competition could lower the price. That depends upon the profit margins on the canal route.

DB2

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Any resulting dislocations in cost/price for shipping will be continuously eroded by efficiency challenges for each individual assembly of movements.

While you are likely correct in an instance, you will not stand on any sort of firmament over the long term.

Glittering generalities for the win. I win, you win, we all win…

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A funny thing happened on the way to the coast.

When the intercontinental railroad was built, the business case was transshipment from the eastern ports to the western ports.

There was no business case for opening up the great plains. End the end, most of the shipping was not coast to coast but internal and it built the economy in the heart land of the USA.

I wonder if this will happen in Mexico

I posted this the Claude and got this response.

Your railroad analogy lands even harder here because the Isthmus of Tehuantepec is one of the most underdeveloped regions in Mexico — Oaxaca, Veracruz, Tabasco borderlands. Indigenous communities, chronic poverty, minimal industrial base.
The transcontinental parallel is almost exact:
The investors and planners are thinking about throughput — tons of cargo per day crossing the isthmus. But the infrastructure buildout — power, logistics, labor, road connections — creates the conditions for industrial parks along the corridor that have nothing to do with transshipment.
AMLO’s government designated ten “Polos de Desarrollo” — development zones along the corridor specifically anticipating this secondary effect. Whether that was genuine vision or political theater is debatable, but they at least recognized the pattern.

Cheers
Qazulight

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I’m sure the fees to use the canal are not small. Rail costs more plus the cost of loading and unloading adds. If drought limits canal capacity and causes delays you decide whether to accept delays and wait your turn or pay more for an alternative.

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You can get through the canal for as little as $15,000 (if they can tuck you into a lock with a larger boat) or it may cost you $300,000 to use the Panamax lock depending on draught, size, cargo, or it could be up to $500,000 to use the new NeoPanamax canal, again depending. [edit: saw a figure yesterday saying $850,000 for the largest NeoPanamax ships]

After reading this thread yesterday I spent a fair part of the night watching various docs and reading about the Canal and learned some interesting things. First, fewer than 30-40 ships per day go through the canals, and they operate only in daylight. That means both ends must hustle ships through early so they can complete the 8-hour journey and get thru the locks at the other end. (To me that would seem an obvious choke point; they can’t light 50 miles of river?)

Second, there is a large natural gas pipeline being built along the canal route so that natural gas tankers don’t have to traverse the canal at all. (This requires storage, pumping, and maintenance facilities at both ends). That will obviate the necessity of many of the ships now going thru the canal carrying American natural gas to Asia, allowing more throughput for other cargos.) This should be operational by later this year, and in full use by 2027.

Third, a third dam is in development to capture rainwater which now flows away from Gatun Lake, and which will ameliorate (some of) the risk of drought. It is further north in the country, and by size looks to be only about 15% the size of Gatun, but it will also help supply drinking water to locals, a problem the new NeoPanamax locks are causing by allowing large volumes of sea water into freshwater Gatun. (This is an environmental challenge beyond the obvious, as salt water plants and fish/crustaceans etc are beginning to show up in the lower reaches of the Lake threatening native species - and there is fear that some could migrate out the other end bringing Atlantic and Pacific species into contact which have been separated for millions of years, with whatever environmental/evolutionary effects that might presage.)

I am sure the “12 hour day” problem has been looked at, but I certainly don’t understand why a solution hasn’t been found. In the days of pinpoint GPS, low power consumption lighting and other solutions, it seems this would be an obvious place to put some investment.

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As soon as the Union Pacific and Norfolk Southern merger happens, it will put a bigger dent in the Panama Canal and this southern Mexico rail route.

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Like the case for going to Mars until we all figure out we can not even survive on the moon.

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Kansas City Southern now part of CPK also has service from west coast of Mexico north to Texas and extending to Kansas City and north or east through Meridian connecting w eastern railroads. Yes, Missouri Pacific now UP very strong in routes north from Texas. Also Illinois Central now part of CN.

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A reply to no particular person…

It is too bad that China cancelled the Nicaraguan canal. The Panama canal is 50 miles long. The shortest distance across Nicaragua is something like 20 miles - with a massive lake in the middle. Would seem to have been an excellent alternative/addition.

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Every AI output gives you an opportunity to rate the response thumbs up or thumbs down. The AI is trained to give you responses that will get a thumbs up.

That means the AI is going to think all your ideas (and mine too) are great.

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Would have been insane to go forward with the extremely nasty ruling family and their junta of ex-Sandinistas in place. More rapacious than their predecessors, the Samozas, and not interested in actual development of the nation.

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To be clear, I don’t think this is correct. But perhaps the Mercator projection is messing with me!

JimA

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I used to do medical mission trips to Nicaragua, so kept tabs about goings on and the planned Nicaragua Canal. Extremely divisive among the population. Would have displaced many indigenous farmers and cut through a couple of ecological sensitive areas. But that has never stopped people before. Plus, China made a lot of promises and planning but was short on delivery and never got really started.

The one big “con” is the active nearby volcanoes. That was part of the original argument in building the Panama Canal. True, non has erupted in over 300 years but still a little disconcerting when flying into Managua and seeing active steam vents from the air. Of course makes for a good story and video when “volcano surfing”.

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You are correct, bad Gemini AI response.