Building and Rebuilding of Panama Canal

Building and Rebuilding of Panama Canal

Paul Miller

Shanjiang Zhu

Susan Sloper

Paul Miller

Shanjiang Zhu

Susan Sloper

CE5212 CS5

History of the Panama CanalHistory of the Panama Canal

Vasco Núñez de Balboa was the first European to cross the Isthmus of Panama, 1513. Village of Panama established 1519.

El Camino Real built across isthmus, 1550s Taken by pirate Henry Morgan of England, 1671, but were forced out

by disease and Spaniards in 1700 Liberal trade laws, as well as a war between Spain and Britain, then

rendered Panama irrelevant for the next 150 years Panama became part of Columbia in 1821 Simon Bolivar convened a congress of other liberated Spanish

colonies at Panama, 1826

Vasco Núñez de Balboa was the first European to cross the Isthmus of Panama, 1513. Village of Panama established 1519.

El Camino Real built across isthmus, 1550s Taken by pirate Henry Morgan of England, 1671, but were forced out

by disease and Spaniards in 1700 Liberal trade laws, as well as a war between Spain and Britain, then

rendered Panama irrelevant for the next 150 years Panama became part of Columbia in 1821 Simon Bolivar convened a congress of other liberated Spanish

colonies at Panama, 1826

Panama RailroadPanama Railroad 1849, gold found in California Railroad built across isthmus 1847-1850, became shortest

transit from US East Coast-California New port on east end of railroad, Colon In some spots, swamps 180 feet deep High fares to fund construction January 28, 1855, line officially opens Colon-Panama City Europe-Asia trade became popular over isthmus Wildly successful until completion of trans-continental railroad

in U.S., 1869 Critical to construction of Panama Canal

1849, gold found in California Railroad built across isthmus 1847-1850, became shortest

transit from US East Coast-California New port on east end of railroad, Colon In some spots, swamps 180 feet deep High fares to fund construction January 28, 1855, line officially opens Colon-Panama City Europe-Asia trade became popular over isthmus Wildly successful until completion of trans-continental railroad

in U.S., 1869 Critical to construction of Panama Canal

Early Canal IdeasEarly Canal Ideas

Ferdinand de Lesseps (FRA) proposed sea-level canal Deadly construction attempted by French, abandoned Contract to build canal bought by U.S. in 1899 for $40

million Plans were modified so that the ships would be raised 26

meters (85 feet)

Ferdinand de Lesseps (FRA) proposed sea-level canal Deadly construction attempted by French, abandoned Contract to build canal bought by U.S. in 1899 for $40

million Plans were modified so that the ships would be raised 26

meters (85 feet)

Construction of the CanalConstruction of the Canal

Culebra Cut Gatun Dam Locks Opening

Culebra Cut Gatun Dam Locks Opening

Affects of the CanalAffects of the Canal

Direct Incomes of the Canal Indirect Impacts for American Market Income Allocation After 1977 Treaty Economy of two Panamas Sustainable development of the Canal

Direct Incomes of the Canal Indirect Impacts for American Market Income Allocation After 1977 Treaty Economy of two Panamas Sustainable development of the Canal

Total Cost for the CanalTotal Cost for the Canal

40 Million for Compagnie Universelle 10 Million for Republic of Panama 250,000 Annual Stipulation $397 Million of Total Investment

40 Million for Compagnie Universelle 10 Million for Republic of Panama 250,000 Annual Stipulation $397 Million of Total Investment

Direct income from the CanalDirect income from the Canal

$1.20/Ton of Earning Capacity, or $0.90/Ton of Cargo

$1.20/Ton of Earning Capacity, or $0.90/Ton of Cargo

Panama Canal Toll Revenue and Cargo Tonnage, 1915-1940

0

5

10

15

20

25

30

35

19151916191719181919192019211922192319241925192619271928192919301931193219331934193519361937193819391940

Tolls(Millions of Dollars)

Cargo(Millions of Tons)

Rate of Return for TollRate of Return for Toll

1924, A rate of return of 3.58 percent US Treasury bonds---4.09 percent Railroad---4.85 percent Opportunity Cost---Negative!

1924, A rate of return of 3.58 percent US Treasury bonds---4.09 percent Railroad---4.85 percent Opportunity Cost---Negative!

Travel SavingTravel SavingRout Saving(Miles) Days

Compared to Cape Horn

NY to San F. 7873 33.3

NY to Valparaiso 3747 15.1

NY to Iquiqui 5139 20.7

NY to Guayaquil 7405 29.8

San F. to Liverpool 5666 24.0

Compared to Suez

NY to Yokohama 3768 15.2

NY to Shanghai 1876 7.3

Compared to South Africa

NY to Sydney 3932 15.8

NY to Wellington 2493 9.9

Direct Saving due to Travel Time Saving

Direct Saving due to Travel Time Saving

Import and Export Saving East US-West S. America $4,722,420

Coastwise Shipping Saving East US-West US $32,780,675

Total Saving all water $45,016,426 Compared to Rail $121,107,327 50%by Rail and 60% from New Orleans

$69million

Import and Export Saving East US-West S. America $4,722,420

Coastwise Shipping Saving East US-West US $32,780,675

Total Saving all water $45,016,426 Compared to Rail $121,107,327 50%by Rail and 60% from New Orleans

$69million

Indirect SavingIndirect Saving

Expansion of Market Use Gravity Model Use 1912 as basic year to predict 1924 $864million due to the Canal, 0.99 Percent GNP in

1924

Pro-competitive Saving 1915, railroads petitioned the ICC to lower freight rate

for coast-to-coast hauling 0.87-0.01GDP

Expansion of Market Use Gravity Model Use 1912 as basic year to predict 1924 $864million due to the Canal, 0.99 Percent GNP in

1924

Pro-competitive Saving 1915, railroads petitioned the ICC to lower freight rate

for coast-to-coast hauling 0.87-0.01GDP

Revenue after 1977 Treaty Revenue after 1977 Treaty

Relative importance of Panama Canal reduces. Two-thirds of the tonnage transiting the canal had either a U.S. origin or destination.

Relative importance of Panama Canal reduces. Two-thirds of the tonnage transiting the canal had either a U.S. origin or destination.

Revenue of Panama Canal

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Revenue of Panama Canal

Water Total

Economic Impact for Panamanian

Economic Impact for Panamanian

Canal Zone 1760 km^2 Population 21,000(1950)-153,000(153000)

Republic of Panama 72000 km^2 75% Gross Internal Revenue from service sector, 10%

from industry,15% from agriculture Cattle and Horses---1.5 billion in 1980 Forested Land 93%---38(1970) 37% population in poverty, or 64% in countryside

Canal Zone 1760 km^2 Population 21,000(1950)-153,000(153000)

Republic of Panama 72000 km^2 75% Gross Internal Revenue from service sector, 10%

from industry,15% from agriculture Cattle and Horses---1.5 billion in 1980 Forested Land 93%---38(1970) 37% population in poverty, or 64% in countryside

For the FutureFor the Future

Future of the Panama CanalFuture of the Panama Canal Threats to the Canal

Water supply Increased ship size and # traveling

Search for alternatives Problems?

Threats to the Canal Water supply Increased ship size and # traveling

Search for alternatives Problems?

Canal’s water is supplied from Lake Gatun

The canal’s operation of locks requires a continuous supply of water to operate

Canal’s water is supplied from Lake Gatun

The canal’s operation of locks requires a continuous supply of water to operate

Source:worldatlas.com

The destruction of the Central American Rainforest is reducing Panama’s water supply

The health of Gatun Lake depends on the health of the surrounding watershed forest

In the past few decades, ½ of the forest has been lost to over-logging & slash/burn agriculture

The destruction of the Central American Rainforest is reducing Panama’s water supply

The health of Gatun Lake depends on the health of the surrounding watershed forest

In the past few decades, ½ of the forest has been lost to over-logging & slash/burn agriculture

Each ship that goes through the canal requires 52 million gallons of freshwater from Gatun Lake

Reservoir also serves as a water source for many people of Panama With a rapidly growing population and an increasing # of canal

transits, there is an increased demand on the reservoir 1990-1991- a drought prevented the usual # of ships from passing

because of insufficient water Less than 30 ships were allowed, normally there are 40 ships on a

busy day

Each ship that goes through the canal requires 52 million gallons of freshwater from Gatun Lake

Reservoir also serves as a water source for many people of Panama With a rapidly growing population and an increasing # of canal

transits, there is an increased demand on the reservoir 1990-1991- a drought prevented the usual # of ships from passing

because of insufficient water Less than 30 ships were allowed, normally there are 40 ships on a

busy day

Modern shipping has increased the size of ships Oil supertankers- nearly 50 ft. too wide to fit

inside the locks of the canal “post-panamax”

Increased size means increased tonnage

Modern shipping has increased the size of ships Oil supertankers- nearly 50 ft. too wide to fit

inside the locks of the canal “post-panamax”

Increased size means increased tonnage

Canal is also approaching its daily transit capacity limit

Current canal capacity constraint of about 47 transits per day and 17,000 per year is expected to be reached by 2012

Canal is also approaching its daily transit capacity limit

Current canal capacity constraint of about 47 transits per day and 17,000 per year is expected to be reached by 2012

Proposed AlternativesProposed Alternatives Expansion of the canal Nicaragua Mexico

Expansion of the canal Nicaragua Mexico

Expansion of the Panama CanalExpansion of the Panama Canal

Autoridad del Canal de Panama (ACP) –panama canal authority– proposed the construction of a 3rd set of larger locks

Deemed essential by the ACP in order to remain competitive and foster continuing economic growth for Panama

Autoridad del Canal de Panama (ACP) –panama canal authority– proposed the construction of a 3rd set of larger locks

Deemed essential by the ACP in order to remain competitive and foster continuing economic growth for Panama

With expansion- commercial growth of canal is projected to increase 400% between 1990 and 2060

Problem: Lake Gatun does not have sufficient water to supply an expanded canal

Solution: construct a new dam on the Indio River

With expansion- commercial growth of canal is projected to increase 400% between 1990 and 2060

Problem: Lake Gatun does not have sufficient water to supply an expanded canal

Solution: construct a new dam on the Indio River

Effects of expansionEffects of expansion Estimated that at least 3500 people living in

the region-mostly poor farmers will have to be relocated as their lands will be flooded by the new dam

Estimated that at least 3500 people living in the region-mostly poor farmers will have to be relocated as their lands will be flooded by the new dam

Opposition- rural peasants organization, La Coordinadora Campesina Contra Las Embalses (CCCE) is opposing any construction of new dam in watershed Claim never to have seen any benefits from the

current canal

Opposition- rural peasants organization, La Coordinadora Campesina Contra Las Embalses (CCCE) is opposing any construction of new dam in watershed Claim never to have seen any benefits from the

current canal

CostCost Projections for

expansion range from $2 billion to $12 billion USD

Panama’s population- 3 million and annual GDP is $12 billion USD

Projections for expansion range from $2 billion to $12 billion USD

Panama’s population- 3 million and annual GDP is $12 billion USD

QUESTION: Should the people of

Panama be solely responsible for financing the canal expansion? If so, how will they pay for it?

Investment opportunities for International Business?

QUESTION: Should the people of

Panama be solely responsible for financing the canal expansion? If so, how will they pay for it?

Investment opportunities for International Business?

Other AlternativesOther Alternatives Nicaragua

wet and dry canal

Mexico Isthmus of Tehuantepec

Railroad

Nicaragua wet and dry canal

Mexico Isthmus of Tehuantepec

Railroad

NicaraguaNicaragua 4 proposals

2 dry canals Eco-canal Grand Canal

4 proposals 2 dry canals Eco-canal Grand Canal

Dry CanalDry Canal

High speed railways designed to carry containers from deep water ports at either end

Double decker trains up to 23 km long Difference is in the cost- 1.4 billion v. 2.6

billion

High speed railways designed to carry containers from deep water ports at either end

Double decker trains up to 23 km long Difference is in the cost- 1.4 billion v. 2.6

billion

Eco-canalEco-canal Priced at $50 million Low-impact use of San Juan River and Lake

Nicaragua Instead of traditional locks, air-powered moveable

dams would be used to assist cargo barges to pass through rapids

Has approval of Nicaragua’s congress, but has struggled to raise $4 million for the feasability study

Priced at $50 million Low-impact use of San Juan River and Lake

Nicaragua Instead of traditional locks, air-powered moveable

dams would be used to assist cargo barges to pass through rapids

Has approval of Nicaragua’s congress, but has struggled to raise $4 million for the feasability study

Grand CanalGrand Canal This proposal is very extensive and expensive Canal would be 172.8 miles long and would

follow the San Juan River Proposed by a public private partnership called the

Grand Canal Foundation Would create jobs and be wide and deep enough

to handle the “post-panamax” container ships

This proposal is very extensive and expensive Canal would be 172.8 miles long and would

follow the San Juan River Proposed by a public private partnership called the

Grand Canal Foundation Would create jobs and be wide and deep enough

to handle the “post-panamax” container ships

Issue of CostIssue of Cost

QUESTION: Would would truly reap the profits from the megaprojects, and who would suffer?

Many are skeptical about the proposals, they wonder who will benefits. They often see it as a foreign benefit

QUESTION: Would would truly reap the profits from the megaprojects, and who would suffer?

Many are skeptical about the proposals, they wonder who will benefits. They often see it as a foreign benefit

MEXICOMEXICO Isthmus of Tehuantepec Shortest distance between the Gulf of

Mexico and the Pacific Ocean Considered a favorable route for an

interoceanic canal and since the 19th Century for an interoceanic railway

Benefits from its proximity to the axis of International trade

Isthmus of Tehuantepec Shortest distance between the Gulf of

Mexico and the Pacific Ocean Considered a favorable route for an

interoceanic canal and since the 19th Century for an interoceanic railway

Benefits from its proximity to the axis of International trade

James B. Eads Proposed to construct a

quadruple track ship-railway in the 1800’s

James B. Eads Proposed to construct a

quadruple track ship-railway in the 1800’s

Issues/concerns with proposalsIssues/concerns with proposals

Cost Economic winners and losers

Environmental concerns Many of proposals are located in the heart of

tropical jungles and forests Biodiversity

Cost Economic winners and losers

Environmental concerns Many of proposals are located in the heart of

tropical jungles and forests Biodiversity

QUESTIONS:QUESTIONS: What are the benefits brought by the Panama Canal for the U.S. How

does the Canal influence the life of a Panamanian? How much political influence did the U.S. yield in Central America

while controlling the Panama Canal? Should alternatives be looked at for a new canal? If so, is it possible

to ensure that the problems that have faced the Panama Canal do not occur in a new canal?

What are the benefits brought by the Panama Canal for the U.S. How does the Canal influence the life of a Panamanian?

How much political influence did the U.S. yield in Central America while controlling the Panama Canal?

Should alternatives be looked at for a new canal? If so, is it possible to ensure that the problems that have faced the Panama Canal do not occur in a new canal?