| The resolve of the leadership of the United States to build an inter-oceanic canal across Central America was a wise determination. The choice of site, however, was faulty and the decision process deplorable. There is overwhelming technical documentation in support of the Nicaragua route, as well as ample evidence that the political process was subverted. The canal affords substantial distance savings for select trade routes. A hypothetical canal closure in 1995 would have forced shippers to spend an additional 2.8 billion dollars to ship goods along the next best alternative routes. In terms of tonnage the United States and Canada are the canal leading users, however, the canal holds greater importance to select Latin American nations, heavily dependent on the canal as the least-cost transportation route. Tolls adjusted for inflation have decreased since 1915 at an average compound rate of 2.8% per year, indicating that the canal continues achieving economies of scale, and that consumer surplus is growing.; Economies of scale have been achieved by virtue of increased vessel size rather than increased transits. The inquiry suggests that economies of scale are likely to be exhausted at an average transit of 12,716 ships per year, registering an expected average total of 267.3 million gross registered tons, yielding an average gross tonnage of 21,021 per vessel. Total bilateral trade conducted by countries that use the Panama Canal trade routes in 1990 was 0.4 billion tons, equivalent to 10% of world trade. On a mileage basis, potential trade for the canal was 0.2 billion tons or 5% of world trade. Due to a combination of tolls and size, the canal only captured 3.9% of world trade. Approximately 90% of all bypass trade is due to coal and coke, iron ore and orimulsion. The price elasticity of demand for canal services is highly inelastic. Given projected volumes of trade for the years 2020 and 2060, and a toll rate increase of 100%, the 150,000 DWT lock canal option would likely capture 79% of all potential trade and would appear to be financially feasible. A similar size canal through Nicaragua would shorten distance on the East-West trade routes and would be expected to achieve cost/ton parity with the rail/land-bridge alternative. The major disadvantage of a canal through Nicaragua is the higher construction and operating cost. However, benefits such as shorter distance, political and economic impact on the region, benefits to U.S. Gulf ports and induced trade, could prove sufficient to justify the project. |
