Guatemala's Inter-oceanic Corridor: a feasible alternative to the Panama Canal?

The Panama Canal was inaugurated in 1914, creating a way of rapid communication between the Atlantic and Pacific oceans that has had a great impact on global freight transport and the global economic development. After a century operating, some 900,000 ships have sailed through, paying an average rate of around USD 55,000. 

Currently, the channel is undergoing expansion work to be able to provide service to larger vessels which could even triple its current capacity. 

"Twenty years ago, when we built container ships, their size was based on the capacity of the Panama Canal, 4,500 TEU; ships today exceed that capacity. The new Panama Canal expansion will allow ships through measuring up to 336 metres long and with 12,000 TEU capacity. The new ships are becoming larger, which entails that even after expansion, larger ships may not be able to pass through the new Panama Canal," said Keith Svendsen, head of operations at Maersk Line, the largest container operator worldwide, in an interview with the magazine Shippingwatch.


All alternative routes would cross Lake Nicaragua

In response to the demand for these ships of monstrous size, plans for two new routes, the Grand Canal of Nicaragua and Guatemala's Inter-oceanic Corridor, are looking to have a significant impact on world trade. 

Nicaragua's government granted the Hong Kong-based company HKND the rights to build a canal three times longer than that of Panama, budgeted at $ 40,000 million. The project was considered "ridiculous" by the press due to its high cost and put into question by Nicaraguans, who see it as a serious environmental threat, since the canal would pollute the waters of Lake Nicaragua, which is the country's main source of fresh water. The Chinese company has not yet given many details about the project. 

The Inter-oceanic Corridor of Guatemala is basically a dry channel 372 kilometres long and 140 metres wide, with two railway tracks, a highway for freight, pipelines, an optic fibre network and an electrical production and distribution system.

At both ends, two modern ports, San Luis and San Jorge, one in the Pacific and one in the Atlantic, will be built. These will be the largest ports in Central America and will have the ability to simultaneously receive the mega-ships that, because of their size, cannot pass through the Panama Canal.


The operation of loading, transport and unloading of a 14,000 TEU shipment will take six days.

The estimated cost of the project stands at 9,600 million. The investment will come from a structure integrated by a multilateral fund, investment banking and end users. 

"The business model is based on BOT contracts (Build Operate and Transfer), where an operator or group of operators acquire the rights for about fifty years; they build, operate and, after fifty years, transfer. This is similar to how it was done with the Panama Canal," explains Guillermo Catalán, president of Board of the Inter-oceanic Corridor. 

The Guatemalan project aims not only to provide a solution to the 14,000 TEU vessels that cannot pass today and will not be able to even after the expansion of the Panama Canal. 

"The spirit of the project is to compete with railroad corridors; for it to connect both coasts of the United States; that is our main goal. The central-east of the United States concentrates 66% of trade in the country; this represents 26% of the world's economy," he affirms.

Annually, around 9,000,000 TEUs are shipped by rail between the east coast and the west coast, travelling an average distance of 3,500 kilometres with a high cost per container. 

"We can most certainly say that we will have an impact on the competitiveness of foreign trade from the east coast and east-central area, reducing logistics costs by 30%," he states. 

The positive impact that a new, more affordable route would have on the competitiveness of countries like Chile, Peru and Ecuador itself, which nowadays takes 80% of its banana shipments through the Panama Canal, would be significant. 

"We see great potential in Chile as a customer; for Chilean fruit exporters, we will offer cold storage facilities just 1,200 kilometres from their target market, where they can store their products until they reach the best prices," he points out.

Regarding the impact in the countries of the region, Catalán claims that it will be very positive, as the way global trade logistics is currently organised is not suitable for them. 

"Guatemala, Honduras and El Salvador will all directly benefit from the reduction of tariffs on exports. At the moment, shipping a container to the United States costs us $ 4,200, while for Argentina it costs only $ 1,100," he says. 

As for how long will a project of this scale take to become a reality, according to Guillermo Catalán the Inter-oceanic Corridor should be already operational in 2019.


More information:
Guillermo Catalán
President of the Board
gcatalan@me.com


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