Building and Rebuilding of Panama Canal

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Building and Rebuilding of Panama Canal

• Paul Miller
• Shanjiang Zhu
• Susan Sloper

CE5212 CS5
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History of the Panama Canal

• Vasco Núñez de Balboa was the first European to
  cross the Isthmus of Panama, 1513. Village of
  Panama established 1519.
• El Camino Real built across isthmus, 1550s
• Taken by pirate Henry Morgan of England, 1671,
  but were forced out by disease and Spaniards in
  1700
• Liberal trade laws, as well as a war between
  Spain and Britain, then rendered Panama
  irrelevant for the next 150 years
• Panama became part of Columbia in 1821
• Simon Bolivar convened a congress of other
  liberated Spanish colonies at Panama, 1826

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Panama Railroad

• 1849, gold found in California
• Railroad built across isthmus 1847-1850, became
  shortest transit from US East Coast-California
• New port on east end of railroad, Colon
• In some spots, swamps 180 feet deep
• High fares to fund construction
• January 28, 1855, line officially opens
  Colon-Panama City
• Europe-Asia trade became popular over isthmus
• Wildly successful until completion of
  trans-continental railroad in U.S., 1869
• Critical to construction of Panama Canal

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Early Canal Ideas

• Ferdinand de Lesseps (FRA) proposed sea-level
  canal
• Deadly construction attempted by French,
  abandoned
• Contract to build canal bought by U.S. in 1899
  for 40 million
• Plans were modified so that the ships would be
  raised 26 meters (85 feet)

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Construction of the Canal

• Culebra Cut
• Gatun Dam
• Locks
• Opening

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Affects of the Canal

• Direct Incomes of the Canal
• Indirect Impacts for American Market
• Income Allocation After 1977 Treaty
• Economy of two Panamas
• Sustainable development of the Canal

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Total Cost for the Canal

• 40 Million for Compagnie Universelle
• 10 Million for Republic of Panama
• 250,000 Annual Stipulation
• 397 Million of Total Investment

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Direct income from the Canal

• 1.20/Ton of Earning Capacity, or 0.90/Ton of
  Cargo

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Rate of Return for Toll

• 1924, A rate of return of 3.58 percent
• US Treasury bonds---4.09 percent
• Railroad---4.85 percent
• Opportunity Cost---Negative!

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Travel Saving
Rout Saving(Miles) Days
Compared to Cape Horn Compared to Cape Horn Compared to Cape Horn
NY to San F. 7873 33.3
NY to Valparaiso 3747 15.1
NY to Iquiqui 5139 20.7
NY to Guayaquil 7405 29.8
San F. to Liverpool 5666 24.0
Compared to Suez Compared to Suez Compared to Suez
NY to Yokohama 3768 15.2
NY to Shanghai 1876 7.3
Compared to South Africa Compared to South Africa Compared to South Africa
NY to Sydney 3932 15.8
NY to Wellington 2493 9.9
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Direct Saving due to Travel Time Saving

• Import and Export Saving
• East US-West S. America 4,722,420
• Coastwise Shipping Saving
• East US-West US 32,780,675
• Total Saving all water 45,016,426
• Compared to Rail 121,107,327
• 50by Rail and 60 from New Orleans 69million

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Indirect Saving

• Expansion of Market
• Use Gravity Model
• Use 1912 as basic year to predict 1924
• 864million due to the Canal, 0.99 Percent GNP in
  1924
• Pro-competitive Saving
• 1915, railroads petitioned the ICC to lower
  freight rate for coast-to-coast hauling
• 0.87-0.01GDP

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Revenue after 1977 Treaty

• Relative importance of Panama Canal reduces.
• Two-thirds of the tonnage transiting the canal
  had either a U.S. origin or destination.

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Economic Impact for Panamanian

• Canal Zone
• 1760 km2
• Population 21,000(1950)-153,000(153000)
• Republic of Panama
• 72000 km2
• 75 Gross Internal Revenue from service sector,
  10 from industry,15 from agriculture
• Cattle and Horses---1.5 billion in 1980
• Forested Land 93---38(1970)
• 37 population in poverty, or 64 in countryside

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For the Future
Sustainable Development?
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Future of the Panama Canal

• Threats to the Canal
• Water supply
• Increased ship size and traveling
• Search for alternatives
• Problems?

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• Canals water is supplied from Lake Gatun
• The canals operation of locks requires a
  continuous supply of water to operate

Sourceworldatlas.com
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• The destruction of the Central American
  Rainforest is reducing Panamas water supply
• The health of Gatun Lake depends on the health of
  the surrounding watershed forest
• In the past few decades, ½ of the forest has been
  lost to over-logging slash/burn agriculture

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• Each ship that goes through the canal requires 52
  million gallons of freshwater from Gatun Lake
• Reservoir also serves as a water source for many
  people of Panama
• With a rapidly growing population and an
  increasing of canal transits, there is an
  increased demand on the reservoir
• 1990-1991- a drought prevented the usual of
  ships from passing because of insufficient water
• Less than 30 ships were allowed, normally there
  are 40 ships on a busy day

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• Modern shipping has increased the size of ships
• Oil supertankers- nearly 50 ft. too wide to fit
  inside the locks of the canal
• post-panamax
• Increased size means increased tonnage

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• Canal is also approaching its daily transit
  capacity limit
• Current canal capacity constraint of about 47
  transits per day and 17,000 per year is expected
  to be reached by 2012

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Proposed Alternatives

• Expansion of the canal
• Nicaragua
• Mexico

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Expansion of the Panama Canal

• Autoridad del Canal de Panama (ACP) panama canal
  authority proposed the construction of a 3rd set
  of larger locks
• Deemed essential by the ACP in order to remain
  competitive and foster continuing economic growth
  for Panama

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• With expansion- commercial growth of canal is
  projected to increase 400 between 1990 and 2060
• Problem Lake Gatun does not have sufficient
  water to supply an expanded canal
• Solution construct a new dam on the Indio River

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Effects of expansion

• Estimated that at least 3500 people living in the
  region-mostly poor farmers will have to be
  relocated as their lands will be flooded by the
  new dam

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• Opposition- rural peasants organization, La
  Coordinadora Campesina Contra Las Embalses (CCCE)
  is opposing any construction of new dam in
  watershed
• Claim never to have seen any benefits from the
  current canal

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Cost

• QUESTION
• Should the people of Panama be solely responsible
  for financing the canal expansion? If so, how
  will they pay for it?
• Investment opportunities for International
  Business?

• Projections for expansion range from 2 billion
  to 12 billion USD
• Panamas population- 3 million and annual GDP is
  12 billion USD

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Other Alternatives

• Nicaragua
• wet and dry canal
• Mexico
• Isthmus of Tehuantepec Railroad

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Nicaragua

• 4 proposals
• 2 dry canals
• Eco-canal
• Grand Canal

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Dry Canal

• High speed railways designed to carry containers
  from deep water ports at either end
• Double decker trains up to 23 km long
• Difference is in the cost- 1.4 billion v. 2.6
  billion

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Eco-canal

• Priced at 50 million
• Low-impact use of San Juan River and Lake
  Nicaragua
• Instead of traditional locks, air-powered
  moveable dams would be used to assist cargo
  barges to pass through rapids
• Has approval of Nicaraguas congress, but has
  struggled to raise 4 million for the feasability
  study

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Grand Canal

• This proposal is very extensive and expensive
• Canal would be 172.8 miles long and would follow
  the San Juan River
• Proposed by a public private partnership called
  the Grand Canal Foundation
• Would create jobs and be wide and deep enough to
  handle the post-panamax container ships

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Issue of Cost

• QUESTION Would would truly reap the profits from
  the megaprojects, and who would suffer?
• Many are skeptical about the proposals, they
  wonder who will benefits.
• They often see it as a foreign benefit

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MEXICO

• Isthmus of Tehuantepec
• Shortest distance between the Gulf of Mexico and
  the Pacific Ocean
• Considered a favorable route for an interoceanic
  canal and since the 19th Century for an
  interoceanic railway
• Benefits from its proximity to the axis of
  International trade

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• James B. Eads
• Proposed to construct a quadruple track
  ship-railway in the 1800s

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Issues/concerns with proposals

• Cost
• Economic winners and losers
• Environmental concerns
• Many of proposals are located in the heart of
  tropical jungles and forests
• Biodiversity

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QUESTIONS

• What are the benefits brought by the Panama Canal
  for the U.S. How does the Canal influence the
  life of a Panamanian?
• How much political influence did the U.S. yield
  in Central America while controlling the Panama
  Canal?
• Should alternatives be looked at for a new canal?
  If so, is it possible to ensure that the
  problems that have faced the Panama Canal do not
  occur in a new canal?