Prior to the origination of the plans for the Panama Canal vessels of trade had few options of getting goods from Europe and Asia to N. America. One was to sail around the southern tip of South America (Cape Horn) adding months to the journey if they were lucky enough to make it through what is known as one of the most hazardous shipping routes in the world, where it’s estimated that over 800 ships have been lost over the last couple of centuries of trade. Another was the unloading of goods on one side of coastline and taking land routes across the Isthmus of Panama to re-load on the other side which was time consuming and expensive given the lack of modern infrastructure at the time. Another option was sailing around the southern tip of Africa, (Cape Agulhas), a very long journey opening the door to many hardships at sea. Enter Ferdinand de Lesseps, who had successfully built the Suez Canal, who agreed with many others that it made sense to find the best (shortest) path connecting the Atlantic and Pacific oceans, and they could blast their way through it, which they did with approximately 60 million pounds of dynamite from start to finish.
So, the construction of the Panama Canal began in 1881 under French leadership but faced numerous challenges, including engineering difficulties and disease. The project was later taken over by the United States in 1904, and the canal was officially completed and opened on August 15, 1914. During the French construction period (1881-1889), it is estimated that around 22,000 workers died, primarily due to diseases like malaria and yellow fever. When the United States took over the project (1904-1914), an additional 5,609 workers died from accidents and diseases. Certainly, a monumental cost of human lives within a monumental construction project to say the least.
The ownership of the Panama Canal has changed hands a few times throughout its history. French Ownership (1881-1889), United States Ownership (1904-1977) The U.S. took over the project in 1904 and completed the canal in 1914. The U.S. controlled the canal and the surrounding Canal Zone. Joint U.S.-Panamanian Control (1977-1999) The Torrijos-Carter Treaties, signed in 1977, began the process of transferring control from the U.S. to Panama. This process was completed on December 31, 1999. Panamanian Ownership (1999-Present) Since 1999, the Panama Canal has been fully owned and operated by the Republic of Panama, specifically managed by the Panama Canal Authority.
In the fiscal year 2024, the canal facilitated the transit of 11,240 commercial vessels, which transported approximately 210 million tons of cargo. This generated total revenues of around USD $3.38 billion. Approximately 5% of global trade passes through the Panama Canal annually. This makes it a vital artery for international maritime commerce, significantly reducing travel time and costs for shipping routes between the Atlantic and Pacific Oceans.
Lately the Canal has seen better days, as it has been fighting severe drought conditions which adds to the depletion of water needed to get the massive ships through the channel. Each day, around 36-40 are supposed to be able to pass, and that has been down to 25-27 because of what I would like to call climate change. (Believe it or not) In the last year due to the drought between $500-$700 million in revenue has been lost. However, there were some resources available, and the Canal has undergone several expansions and upgrades to accommodate larger vessels and increase the capacity. The most significant recent upgrade was the Panama Canal Expansion Project, also known as the Third Set of Locks project, which was completed in 2016. This project added a new set of locks, allowing the canal to handle larger ships, known as New Panamax or Neo-Panamax vessels, which can carry up to 14,000 TEU’s.
There are ongoing efforts to maintain and improve the canal's infrastructure to ensure its efficiency and reliability. These include regular maintenance, dredging, and technological upgrades to enhance navigation and operational capabilities. Here are some of the key upgrades:
- Increased Draft and Daily Transits: Recently, the Panama Canal Authority increased the maximum authorized draft to 47 feet, with plans to raise it to 48 feet. Additionally, the number of daily transits through the Neo-Panamax locks will increase to 35 ships per day
- Decarbonization Efforts: The canal is committed to becoming carbon-neutral by 2030. This includes initiatives like an electric vehicle pilot program to transition its fleet away from fossil fuels
- Maintenance and Technological Upgrades: Regular maintenance, dredging, and technological improvements are ongoing to ensure the canal's reliability and efficiency
President Trump has made statements suggesting that the United States should take back control of the Panama Canal. He has criticized the 1977 treaty that transferred control of the canal to Panama, calling it a "foolish gift." He has also expressed frustration over the fees charged for using the canal and has even mentioned the possibility of reasserting U.S. control. Aside from this grievance, there is ongoing background banter from Washington about taking back control of the canal from the Chinese. What? It would make one think that there was some sort of blockade taking place via Chinese vessels. Yes, they have built ports on both sides of the canal, but that was logical based on the mantra of the Belt and Road Initiative. Let’s be clear on this, Chinese companies have made significant investments in infrastructure around the Panama Canal, though they do not control the canal itself. For example, in 2016, China's Landbridge Group secured a $900 million contract to manage the port of Margarita, which is near the Atlantic entrance to the canal. Additionally, Chinese firms have funded the construction of a new bridge over the canal, with investments exceeding $1 billion. If the infrastructure is needed to enhance China trade, they will build it. As my father always said, lead, follow, or get the hell out of the way. These investments are part of broader Chinese efforts to enhance their influence in Central America, but the Panama Canal remains under the control of the Panama Canal Authority, an autonomous government agency.
So, considering what is going on in Washington at this time, pertaining to dropping verbal bombs, then executive orders on the global landscape in trade, what if (purely hypothetical here) the U.S. somehow ended up taking the canal back from the Panamanian Canal Authority. Let’s say that we paid them handsomely, ($10 billion per year for the next ten years, which is more than twice their current annual collection of fees @ $3.4 billion for passage) and Washington promised to keep all 8,000 “Panamanian-not Chinese” employees in place to run daily operations. No Elon Musk and DOGE influence and massive layoffs. Afterall, our ultimate goal is to block China from owning the canal, which they had no intention of doing, but hey, shoot, then aim, then get the facts as to why you pulled the trigger in the first place. It’s what we do when it comes to the ongoing chess pieces being moved about for global trade dominance vs one of our largest trading partners.
What happens then is what is actually happening now. China is currently funding some of the options to the Panama Canal for passage. Enter the Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT), Mexico. The Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT) is a significant infrastructure project in southern Mexico. It aims to provide an alternative route to the Panama Canal by connecting the Pacific and Atlantic Oceans through a railway system. Here are some key details: The corridor spans the Isthmus of Tehuantepec, linking the ports of Salina Cruz (Pacific Ocean) and Coatzacoalcos (Atlantic Ocean). It is approximately 188 miles (303 kilometers) long. The project includes the modernization of the Tehuantepec Railway, the development of seaports, and the creation of industrial parks to attract private investment. I mentioned a few additional projects in my February newsletter article regarding China building industrial parks in Mexico. https://www.braumillerlaw.com/chinese-industrial-parks-in-mexicobrmexico-a-growing-hub-for-chinese-fdi-and-byd/ The CIIT aims to boost the economy and industry of southern Mexico, which has historically been one of the poorest regions in the country. Putting the blinders on regarding geopolitics, it simply seeks to facilitate international commerce and the transportation of goods. Mexico’s President Sheinbaum is 100% behind the project which has already secured $4.5 billion in potential investments from various companies. Champagne glasses ready to clink together, the Interoceanic Corridor of the Isthmus of Tehuantepec is nearing completion. The main railway line was completed back in December 2023, and the corridor began freight services in August 2023 and passenger services in September 2023. However, some parts of the project, such as the modernization of the Salina Cruz port, are still under construction. The main railway line is open, with additional lines planned for completion in 2025. The CIIT is expected to be a cheaper and faster alternative to the Panama Canal, potentially offering a long-term boost to the Mexican economy.
As the current Washington administration moves to call out trade allies around the globe regarding equality in tariffs, and the ensuing tit-for-tat on retaliatory tariffs is launched, more international governments will move toward other less volatile options regarding partners. Like Mexico entertaining even more projects with China. Chinese companies have shown interest and made investments in not just the Interoceanic Corridor of the Isthmus of Tehuantepec but others such as infrastructure projects in Mexico's southeast, specifically the construction of the Olmeca Refinery and the Mayan Train. The Olmeca Refinery, also known as the Dos Bocas Refinery, is a major oil refinery located in Dos Bocas, Tabasco, Mexico. It is operated by Pemex, Mexico's state-owned petroleum company. The refinery is designed to process up to 340,000 barrels of crude oil per day and produce a variety of refined products, including gasoline and ultra-low sulfur diesel. The project is part of Mexico's broader strategy to achieve energy self-sufficiency by reducing its dependence on imported refined products. The refinery began processing crude oil in mid-2024 and is expected to reach full operational capacity by the end of 2026. The Industrial and Commercial Bank of China (ICBC) and the Bank of China have invested over $600 million in the construction of the Olmeca Refinery in Dos Bocas. China has also invested significantly in the Mayan Train project through the China Communications Construction Company (CCCC). The consortium led by CCCC, along with other partners, was awarded a contract worth approximately $626 million for the first phase of construction. This phase involves building a 227-kilometer section of the railway.
As the investments seem to be laser focused as well as consistent from China, another option worth a mention is the Nicaragua Canal. Although not yet launched, this proposed canal would be wider and deeper than the Panama Canal. The Nicaragua Canal, also known as the Nicaragua Grand Canal, was a project intended to create a shipping route through Nicaragua to connect the Caribbean Sea (Atlantic Ocean) with the Pacific Ocean. However, the project faced numerous challenges and was ultimately abandoned. Yes, Chinese investment was a significant part of the proposed Nicaragua Canal project. The project was spearheaded by Wang Jing, (not Wang Chung) a Chinese businessman, through his company, HK Nicaragua Canal Development Investment Co. The canal was intended to be a major interoceanic waterway, rivaling the Panama Canal. However, despite the initial groundbreaking in 2014, the project faced numerous setbacks, including environmental concerns, financial issues, and local opposition. Ultimately, the Nicaraguan government canceled the canal concession in 2024, and no significant construction was ever completed. Beijing, and who knows, maybe Canada could possibly revisit this project soon.
My vote at this time, wearing rose colored glasses, but eyes closed, hands swaying in the air to the tune of Kumbaya in a tie-dyed t-shirt is for China and the U.S. to put aside all global trade grievances and actually show the world that they too can work together on a major infrastructure project. Wouldn’t that be amazing at this time in our history. All kidding aside, I would never wear a tie-dyed t-shirt and sing Kumbaya (Some Zeppelin in my favorite rocker shirt, sure), as I have been severely tainted by reality for years via daily clips from the media regarding global conflict, especially between China and the U.S., and that’s a damn shame. It can bring melancholy to any day I permit. Come to think of it, the Vietnamese girl who does my pedicures never even watches the news, has no idea what the hell is going on geopolitically, doesn’t give a ratz-azz, and always has a smile on her face, even though she works ten-hour days six days a week. Granted, our conversations have never progressed past the weather and her work schedule for the past seven years, but there is something to be said about the phrase ignorance is bliss. If we all just vanished from the earth tomorrow, she would at least have had a smile on her face in those final moments. I, on the other hand, could possibly spend my last few moments thinking about how things globally with trade could have, should have, would have, been so much better, if China and the U.S. could have just worked together, like China and Mexico. A significant note in closing. Panama recently declined to renew a key infrastructure agreement with China, which included potential further upgrades and maintenance for the Panama Canal. This decision was influenced by geopolitical pressures, particularly from the United States. Gosh, (insert sarcasm here) I wonder where this is going.
