New Nicaragua Canal May Change Global Trade

Jim Randle
August 28,2013

A Hong Kong-based company is working out the route for a canal across Nicaragua that would rival the Panama Canal, bolster world trade, and might create a strategic headache for the United States. Company officials say it may be some time next year before they finish preliminary engineering and environmental studies. The canal has been proposed many times before, but some experts say this time it actually may get built.

Most international trade moves by ship, five percent of which moves through the century-old Panama Canal, a short cut between the Atlantic and Pacific Oceans.

HKND, a Hong Kong based company, recently won Nicaraguan approval to build a canal across that nation. The company says a second canal is needed to accommodate expanding international trade and the growing number of ships too big to use the Panama Canal.

George Mason University transportation expert Rodney McFadden said bigger ships are advantageous. "They carry more cargo for about the same amount of money per mile [kilometer]. They are much easier on the environment, and they increase trade.

A $5-billion expansion of the Panama Canal, currently under way, means ships there will be able to increase their loads from 5,000 containers to 13,000 containers.

McFadden said the Nicaraguan Canal may more than double that, to 30,000 containers, though HKND will not confirm this.

So the Nicaragua waterway could accommodate a new generation of ore, gas, and oil carriers that otherwise would have to take a longer route around the southern tip of South America.

Experts say greater capacity and competition could cut shipping costs and boost economic growth for many nations.

For relatively poor Nicaragua, the canal could bring improved roads and ports, and add jobs.

But there are environmental issues. The canal is likely to cross a lake that is a source of fresh water for Nicaragua. The builder promises to operate in a transparent manner.

Ronald Maclean-Abaroa, who works for HKND, said, "We have plans to obtain financing from international sources and that is why, from the outset, we want to be very clear about our commitment to conform to good international practices consistent with a world class project of this kind.

Critics of the project say China may have a strong influence on it because the company is headed by a Chinese national. Some worry China's influence in the region is growing.

Evan Ellis, who teaches at the National Defense University in Washington, said, "What we undervalue is things like this, in which, little by little, our political maneuvering space is being lost, and at least for me as a strategic analyst, I mean, that’s a concern.

HKND experts are studying engineering and environmental issues, in a bet that this canal will succeed where previous efforts have failed.