» The Costarican Dry Canal: Challenges and Possible Impacts

5
Mar

The Costarican Dry Canal: Challenges and Possible Impacts

By: Dr. Luis G. Loria-Salazar., Ph.DCIPA-CPPP-logo3
Special Guest Columnist

From the last decades, the Central American countries, Colombia and Mexico have dreamed, separately, about the possibility of constructing and operating a Transoceanic Dry Canal that competes directly with the Canal of Panama. According to the web site entitled “The Geography of Transportation Systems” there are seven projects that might achieved that dream. Figure 1 shows the various projects and some of the planned port capacity measure in TEUs (Twenty-foot Equivalent Unit or a standard container, Figure 2). The Dry Canal idea usually consists on a couple of big ports, one located at the Pacific Ocean and the other in the Caribbean Sea, two sets of railroads with enough traveling speed and carrying capacity trains and, a series of logistic facilities that accelerate the merchandise interchange between one side and the other.

FIGURE 1. Transoceanic Dry Canals Projects in Central America, Mexico and Colombia

FIGURE 1. Transoceanic Dry Canals Projects in Central America, Mexico and Colombia

 

FIGURE 2. Normalized 20 ft container, 1 TEU.

FIGURE 2. Normalized 20 ft container, 1 TEU.

 

Therefore, the most ambitious projects are summarized in the following table:

Project Approximate Length (km) Location
Isthmus of Tehuantepec; Mexico 200 Gulf of Mexico and the Pacific Ocean
Guatemala 372 Atlantic and Caribbean coasts.
Honduras 280 Amapala island in the Pacific to Puerto Castilla
Nicaragua Not indicated Not indicated.
Costa Rica 300 Cuajiniquil (Pacific) to Parismina or Moin, Caribean Sea.
Panama 70 Operational canal following same path of current canal. Capacity over 350.000,00 TEU´s per year.
Colombia 220 Colombia’s Pacific and Atlantic coasts

 

There is no doubt that the trigger for this idea was the construction of the Canal of Panama and the most recent project to increase its capacity by widen it. Unfortunately, most of the efforts have not been well planned and have corresponded more to political offers to increase the vote-hunting during electoral periods, good intentions or just an idea of aisle political/economical groups.

The Beginnings of the Costa Rican Efforts

Costa Rica, as the other Central American countries, also had plans to construct its own Canal since the XIX century when other nations, like Peru and the United States, offered to construct a canal -previous to the Panama´s one-, through the Nicaragua-Costa Rican fluvial border. Later on, during the twentieth century, mostly at its second half, more serious efforts were carried out, in order to develop technical studies to determine the suitability of constructing a Dry Canal  using the very plain northern lands of Costa Rica. The most comprehensive study was developed by the consortium BEL Ingeniería, S.A. – C.B.I.D.C. – UMA Engineering, Ltd., CADDEV – AGI Consultants in 1989, whose main conclusions determined the most cost-effective route through the north of the country but also, gave few chances of having economical success in front of the highly competing Canal of Panama. As a main reason for that poor expectations was that commerce had been blocked between Chinese and American ships since 1950, and re-opened until the late 70´s and during the 80´s, the commerce had not reach yet today´s levels.

Another reason that made all the plans to fail was embedded in the Costa Rican political evolution between 1948 and 1980, a time of great social and economical achievements due to the abolishing of the army, the nationalization of the bank, and; the improvement of the health and education system, but based on a strong central power, a sort of “business state”, that preferred to construct everything by itself, reducing and denying the private participation on public projects. Until now, economic figures as the private concessions or the Public-Private-Partnerships are still not well-established even there is legislation about it.

Therefore, the idea of developing a Dry Canal in Costa Rica was abandoned by the following governments and it became like a far dream, sort of  a urban myth for the citizens that once in a while talked about the old canal plans based on what they still remembered about the project. Unfortunately, at that time, the project was never well socialized and explain to the Costa Ricans, who never knew its real possibilities or the conditions that made it not suitable. Also, the lack of a clear and well-established public policy about the Dry Canal project and its integration to the future plans for improving the internal communication and logistic, ended burying the expectations.

The Costa Rican Economy

During most of the twentieth century Costa Rica main activities were devoted to agriculture, mostly coffee, banana and African palm production. All those products always were internationally recognized for their quality and low prices. Even though, the low international prices did usually not recognize the high quality of the products,  the amount of selling allowed to settle a small but stable economy, and; it provided the platform for the great social changes that occurred after 1940, like the initiation of the social guarantees, massive education, reduction of poverty, social security for everybody, national electrification, and the abolishing of the army (1948). These facts produced a buoyant country, increased the economic and social indicators, and let Costa Rica, as an almost developed country by the end of the seventies.

However, at the beginning of the eighties, the petroleum crisis and the felt of the coffee prices tackled down the country economy and social indicators, what made the industry and the following governments to look into a totally new area: green tourism based on the concept of sustainable development. It went very well, by changing in less than two decades the agriculture, as main activity, for tourism, and also pushed other activities as services and high technology companies, such INTEL, that has its biggest factory in Costa Rica.

Although the new activities saved the Costa Rican economy and its social achievements from sinking, the country never recovered its prodigious development and expectations reached back in the seventies., and moreover, activities like education quality or transportation became worst than before. The average speed of the vehicles crossing Costa Rica is less than 40 km/hr, and the traffic jams at the Central Valley are much worst. About eight consecutive presidents have failed trying to improve the mobility problems of the country basically for the reduce funding, lack of asset management and a clear public policy, and a reduce vision for the proposed solutions, because of thinking only in the current presidential period.

Based on that, the design, construction and success operation of a Transoceanic Dry Canal might provide, among other projects, a mean to re-shape the Costa Rican economy and probably convert the country in a huge hub and logistical center for the Americas.

Current Efforts: PPP as the best alternative

During the past decade, various consortiums have shown interest in designing, constructing and operating a Transoceanic Dry Canal in Costa Rica, among those companies the more visible ones are AMEGA, from Canada, and TICO, from the United States (owned by Walter James Amoss), both efforts have included local entrepreneurs as partners. Among the advantages of Costa Rica as a potential place to establish a Dry Canal are that the country is located in a strategic region that connects the North and South of the American Continent, its strong democracy, stable economy, its public institutions and respect for the law, and, regarding the canal, has the potential of becoming a hub that links both oceans allowing for intercontinental commercial transport. For those investors, the construction is planned in Costa Rica since it is the only Central American country that makes the construction feasible. Costa Rica has also been and is a pacific country and has no real threats from other nations. All these benefits provide confidence for international investors.

Additionally, there are geographic and economical reasons. The rapid increase in use of containers for maritime transport of cargo presents to Costa Rica an unprecedented economic opportunity. The great promoter of this increase in commerce are the wide range of products produced in Asia, mainly the Peoples Republic of China, Korea, Japan, Taiwan, South-East Asia, and the Indian Sub Continent, as well as the large Occidental Hemisphere economies such as USA, Brazil, Argentina, Ecuador, Perú, Chile, Colombia and Venezuela.

Figures 3 and 4 show both of the Dry Canal paths according to AMEGA and TICO companies. The main difference among the proposals is the location of Caribbean port since TICO is trying to establish it along the Parismina River and, in the other hand, AMEGA prefers the already established port of Moin, where a big port and logistic center is already under construction (By APM Terminals) and has been used since the colony as the Costa Rican Caribbean port. APM Terminals, a Dutch company, received in 2008 the government concession for the construction and operation of a new big port facility in the Caribbean Sea.

TICO´s proposal of using the Parismina River in the Atlantic might find detractors from the strong environment regulations and organized groups that protect the Costa Rican environment.

From the Atlantic to the Pacific in less than three hours…

Both projects include the construction of a new port or dock in Costa Rica´s Pacific coast, and a new port or dock in Costa Rica´s Atlantic coast. It also includes the construction of 2 rail lines that run parallel to each other in both East-West directions. The main objective will be receiving, destination distribution, and shipping thru Costa Rican territory container shipments. If the trains are able to travel at a speed of 100 km/hr, the time to connect the Pacific to the Atlantic will be around three hours.

Geographic wise, the projects lengths range between 300 to 360 km in a very plain route. The maximum height over the sea level will be less than 300 meters which make the project very suitable for the long trains that will transport the containers.

The Project construction requires approximately between 5.000 to 20.000 Costa Rican workers for a period of 5 to 6 years; as well as permanent work for thousands of them. The project also requires an enormous quantity of materials, many of local origin, and the professional services of many local companies. The economic benefits for the country in terms of job generation, use of local materials, and hiring of local companies will be really impressive.

The Transoceanic Dry Canal is the project that can drive the next fifty years of the Costa Rican future.

FIGURE 3. AMEGA´s Dry Canal Route.

FIGURE 3. AMEGA´s Dry Canal Route.

 

FIGURE 4. TICO´s Dry Canal Route.

FIGURE 4. TICO´s Dry Canal Route.

The Panama Canal – A Real Threat?

Based on information provided by TICO, some advantages of establishing a Dry Canal in  Costa Rica can be raised. Currently, the Panama Canal is operating at maximum capacity and the Panamanian government constructed a series of new locks that will allow navigation by larger ships. However, the growth projections in the use of containers as a transport means continues to grow, displaying a 10% annual increase. Therefore, how can the Costa Rican Dry Canal project competitively attract the large shipping and freight companies?

The previous question has multiple answers:

1.- The cost projections for the expansion of the Panama Canal were estimated in $5.25 billion. Even if the official projections were correct, the projected costs associated to tolls on the container ships by twenty-foot equivalent unit (TEU), for the canal expansion based on the initial construction estimated costs of $4.5 billon (now officially $5.25 billion) are such that the 2009 costs of $64 per TEU will double to $108 per TEU with an annual increase of more than 20% according to a financial study by Global Insight, a Boston company dedicated to economic projections and research. The previous was published by the Journal of Commerce, a weekly publication of established importance within the maritime shipping industry.

Based on that analysis, the Panama Canal tolls would be above the $ 200 per TEU. Tolls are less than 50% of the cost for using the Panama Canal, a fact poorly acknowledged by international consultants. Among crossing costs, port costs, pilot costs, tugboats before each of the sluices, and agency costs are also included. One of the biggest carriers using the channel indicates that currently the cost is $ 195 per TEU without taking into account the fact that tolls should be only $ 64 per TEU. At a cost of $ 250 per TEU it is projected that the PROYECTO TICO will have a break point when its operation is 30% of its capacity, producing a substantial profit when it is in the range of 60%.

2.- The difference in time / distance for a mega ship sailing at 26 knots from China or Japan to Panama is 590 miles or one more day than to Costa Rica. One day is equivalent to $ 140,000 in the cost of a mega ship. Transit through the Panama Canal without wasting time by congestion requires a day and a half more since the arrival. The additional distance from Cristobal, Panama, to the United States Gulf or to a port on the East Coast is ¼ of day more in boat time. This difference of 2.75 days in time / cost is an important element of the overall comparison.

FIGURE 5. ASIA-TICO ROUTE ASIA- PANAMA CANAL

FIGURE 5. ASIA-TICO ROUTE ASIA- PANAMA CANAL

Also, it is important to take note that once the mega ship arrives at the port in the United States, the load must be distributed on other ships to sail to their final destination.

FIGURE 6. ASIA – USA ROUTE BY PANAMÁ CANAL

FIGURE 6. ASIA – USA ROUTE BY PANAMÁ CANAL

3.– TICO together with equipment manufacturers and container cranes has developed a unique system for loading and unloading containers to be transferred between a boat and railroad cars in the port. It is a system that improves productivity, saves time in ports and reduce transit time, so that the mega ships can be completely unloaded, loaded and sail within two days. Then, a typical 8000-10000 TEU boat loaded in Asia will have a range of 35-day trip requiring five large ships to provide a weekly service to multiple trade routes via Costa Rica along with 3 smaller boats to serve other routes. By comparison, a direct service via Panama requires 9 mega ships and would be confined to a single trade route, as shown in Figures above.

Containers transported by rail from the Pacific port to the Atlantic port through the TICO project would be ready to be transferred to smaller boats destined for United States Gulf, USA East Coast and South America; while containers destined for Ecuador, Peru and Chile can be transferred to smaller boats in the Pacific port. The total time from arrival at the Pacific port to be aboard a smaller boat in the Atlantic port requires 2.5 days, slightly less than the time used by a boat using the Panama Canal.

FIGURE 7. ASIA ROUTE FINAL DESTINATION VIA TICO

FIGURE 7. ASIA ROUTE FINAL DESTINATION VIA TICO

AMEGA´s proposal advantages are the following:

  • Providing transshipping services for container megacarriers ship-to-ship
  • Storage and logistic services in the region
  • Capacity for Panamax and post-Panamax ships (> 12.000 TEU)
  • Use of the current capacities of the Moin Port (advantage over TICO proposal)
  • A fretwork of 19 meters.
  • 9 trains carrying 100 double-deck wagons

Figure 8 shows the AMEGA project renders. As it is shown, the facilities would be right in front of the currently under construction artificial island of the APM Terminal. Its proposal has a first stage that consists of constructing a big logistic port in the Atlantic, and later, the construction of the Dry Canal.

FIGURE 8. AMEGA Project

FIGURE 8. AMEGA Project

Employment

AMEGA´s expectation is to hire 3,000 to 5,000 employees during the construction phase, and 1,000 fixed position for the operation. TICO´s will hire, according the provided documentation, 20,000 workers for the construction and did not specify how many for the operation.

Costs

Both of the companies have calculated the project cost around USD 3,000 millions.

Transshipping Capacity

AMEGA´s facilities will have a capacity for 2 million TEU per year, and TICO indicates an average of 10,000 per day or 3,5 millions TEU per year.

Issues

Some issues that both companies have faced are related to the lack of decision of the Costa Rican government to approve the pre-feasibility study that is the first step to develop a PPP according to the local law. What is weird about such delay is that the aforementioned study is under the risk and cost of the interest company and the government is not going to lose anything by approving it.

Another possible issue is the opposition of some conservationist groups that might object the project. It is necessary to establish communication with those organizations to ensure that the environment will be the less possible affected.

Another aspect to consider is a sort of lack of socialization and communication by the companies. Even thought the companies have had meetings with high level of the administration of various governments periods, the Costa Ricans have not known the project yet, only few people have learn about it. This is not good, since due to the strong democracy in Costa Rica, citizens have often decided -by voting or strikes- on some of the most important infrastructure projects. I will discuss in another blog about a strike that turned down the second concession project of the country, a project worth of a USD 450 millions.

Final Remarks

The construction of an Transoceanic Dry Canal in Costa Rica might be a significant change in the economy, and hence, the social indicators for this small Central American country. As it was stated, Costa Rica has several advantages regarding political and economical stability, educated population, and geographically, the very flat lands for the northern area that would allowed for the transportation of loads in a time less than three hours, between the Pacific and the Atlantic and vice versa.

As mentioned, two big consortiums are pushing to lead the effort, and the initial numbers seems promising. However, there are still some flaws in the big picture of the project. For example, the lack of a public policy related to the canal, and how it fits in the transportation development and logistic plans of Costa Rica.

There is not yet a clear idea to link the railroad to the communities that will be crossed by the trains. From informal conversations that this author has had with both of the interested consortiums, the project is not attach to only the Dry Canal construction but also, they are open to construct other facilities as a highway or a pipeline for petroleum transportation.  Also, an important economical-academic group from the biggest northern city, San Carlos, is interested in the development of a free-trade park and a logistics center right in the middle of the canal.

These facts link the Dry Canal project to other needs that have not been yet analyzed, and indicate the need of answering some key issues, for example: Is there a need of educating specialized workers for the various activities of the canal (logistics, engineering, computation, etc). Also, the tourism industry is raising its hands to take a part of this big cake. It will be awesome if marinas, hotels and other tourism developments would be constructed along the two big ports and the railroad. For example, a tourism ad might be: Have your breakfast at the Pacific, lunch by a volcano and, your dinner, at the Caribbean sea. These questions and possible joint-ventures have not yet included in the various analysis.

Basically, the government of Costa Rica has not taken seriously the tremendous possibilities that could be open through the canal construction and operation, and it is not clear yet about its support to the project. This is quite sad, since the globalization offers a very good opportunity to the country of taking a piece of the logistics market in the world without harm other big competitors, and allowing for the development of Costa Rica.

References

https://people.hofstra.edu/geotrans/eng/ch1en/appl1en/map_dry_canals_central_america.html

BEL Ingeniería, S.A. – C.B.I.D.C. – UMA Engineering, Ltd., CADDEV – AGI Consultants. “PRE-FACTIBILIDAD PARA LA CONSTRUCCIÓN DE UN CANAL SECO EN COSTA RICA”; San Jose, Costa Rica, 1989.

TREN INTEROCEANICO CONTINENTAL, TICO. Postulación para Concesión. May, 2007.

AMEGA. Plan Conceptual del Canal Seco. Power Point Presentation, 2014.

TICO. TREN INTEROCEANICO CONTINENTAL, Power Point Presentation, 2014.

 

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