Some Latin American governments see an opportunity. In normal times, the canal is the passage route for around 5% of world maritime trade. And it is lucrative, because in the 2022-2023 financial year it has generated about 2.5 billion dollars for the Panamanian treasury, around 3% of GDP. Politicians in other Pacific and Atlantic countries are building or considering infrastructure projects that could attract traffic and revenues now going to Panama. The most viable alternatives are land-based: containers are unloaded from ships onto trains or trucks at a port, transported across the country and reloaded onto a ship waiting on the other side.
The Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT) is almost finished. It was discussed for decades, but has finally been built as part of President Andrés Manuel López Obrador's infrastructure agenda. Its central component is the modernization of a 300-kilometer railway that crosses southern Mexico, from the Pacific coast to the Atlantic coast. The ports at both ends (Coatzacoalcos and Salina Cruz) are being renovated to expand their capacity and streamline customs controls. Most of the railway construction is completed and passenger services are now operating. The port works have not been completed, hence the delay in freight traffic from coast to coast. The Mexican government plans to launch the second and third CIIT railway lines throughout 2024, which will transport goods.
Another competition for Panama is more theoretical. Colombian President Gustavo Petro wants to build a railway line through the northern province of Chocó that connects the Pacific port of Buenaventura with the Caribbean. The country's National Infrastructure Agency is working on the project, but has not released major details, beyond a map with a line connecting both coasts published on the president's account on X (formerly Twitter). On the Caribbean side, it is unclear at which port the planned rail line will end.
The other major project is designed around roads. The Capricorn Bioceanic Corridor is a dual carriageway that crosses Brazil, Bolivia, Paraguay, Argentina and Chile, approximately at the height of the Tropic of Capricorn. Although at 2,250 kilometers it is too long to compete directly with the Panama Canal in global maritime transport, it can be a useful option for Latin American companies to trade with Asia. Thanks to multilateral financing, the corridor is already partially built. Sergio Díaz-Granados, executive president of CAF, a regional development bank, is confident that it will be completed, and considers it one of the greatest opportunities that exist today in Latin America for trade and services.
Various maritime alternatives to the Panama Canal have also been proposed, although they are more speculative than land routes. Nicaragua wants to build its own canal, despite the enormous expected costs and complexity, as well as the complete failure of a previous attempt backed by a Hong Kong construction company. The same climate warming that is making the Panama Canal less viable is also melting the ice in the Canadian Arctic. There is talk of the possibility that the Northwest Passage (a shipping route that skirts Canada's Arctic coast) could become commercially viable for shipping.
The truth is that terrestrial alternatives constitute more realistic perspectives. They are cheaper, less risky and therefore easier to finance. However, even projects like the CIIT will have difficulty attracting cargo from the Panama Canal. The largest ships that transit the canal are capable of transporting 14,000 containers. The Mexican government boasts—and it is right—that rail travel from coast to coast will be faster than crossing the canal; but forget to mention that the capacity of the trains (and the speed at which they can be loaded and unloaded) will make the overall pace of freight transit between the Pacific and the Atlantic much slower than passage through the canal.
Niels Rasmussen, chief shipping analyst at Bimco, a trade association, says transporting goods by rail or road is far from ideal. He believes that most shippers will prefer to add additional miles on other shipping routes, including the Cape of Good Hope, rather than face the hassle of unloading and reloading cargo. And if the situation worsens, many will likely opt for existing U.S. routes over unproven offerings from Latin America.
That doesn't mean the new routes are useless. The Capricorn Corridor will provide a much-needed upgrade to South American road networks and help stimulate export capacity and regional trade, which is often ridiculously small. Mexico's plans may also be boosted by nearshore production, as the country is well placed to take advantage of U.S. efforts to shorten supply chains and move them out of China.
And, in the case of global trade, new land routes may end up complementing the Panama Canal, rather than competing with it. Circumstances may worsen for both the Suez and Panama Canals with tensions rising in the Middle East and drought in Panama worsening. In that "perfect storm" scenario, Rasmussen says, imperfect alternative land routes will be better than no alternative at all.
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Translation: Juan Gabriel López Guix
