Mexico’s $4.5BN Panama Canal Rival

For one hundred years, the Panama Canal has fueled global trade. There is no better way to transport goods from the Atlantic Ocean to the Pacific, but perhaps that is about to change. Mexico is about to inaugurate a new project: the Interoceanic Corridor of the Isthmus of Tehuantepec. It's a little bit complicated. But what is this? And will it replace the Panama Canal? I'm Regis and today we'll find out! Before addressing the new project in Mexico, we must first talk about the Panama Canal. Along with the Suez Canal, it is probably the most famous man-made waterway on the planet.

It crosses the isthmus of Panama. You don't hear that word very often: “isthmus.” It's basically just a strip of land that connects two larger land masses. The Isthmus of Panama joins North America and South America, with the Atlantic and the Pacific on either side. This isthmus is 65 kilometers wide. That is also the length of the Panama Canal, which is actually relatively short. The Suez Canal is almost three times longer, while the Grand China Canal is, incredibly, more than twenty times longer. But what the Panama Canal lacks in size, it makes up for in terms of importance.

Take a look at this map of America. Before the Panama Canal was built, back in 1914, it was a real headache for cargo ships to travel from one side to the other. Imagine a ship from Europe. He has a lot of products he wants to sell in California. That ship would have to sail to Chile, pass through the Strait of Magellan, and then sail north again. If the boat was fast enough it could be done in a few weeks, but for most boats? You're looking at months. It was also dangerous. The Strait of Magellan can get extremely stormy, not to mention some crazy currents.

In those days, the only alternative route (the Northwest Passage, at the top of America) was clogged by ice for most of the year and impossible for ships to navigate. In 1902, the United States decided to do something about it. They made a plan to build a shipping

canal

in Central America. This new

canal

would take a ship less than a day to navigate and would shorten the trip from the Atlantic to the Pacific by a distance of approximately 12,000 kilometers. It's a good few weeks of travel. Building the canal was not easy. Workers had to use dynamite, drills and steam shovels to clear more than 200 million cubic meters of earth.

To put that number in perspective: If you piled it all into one giant mountain, it would be 80 times larger in volume than the Great Pyramid of Giza and almost twice as tall as the Empire State Building. Basically, an artificial mountain. To further complicate matters, workers found themselves working in temperatures of 40 degrees Celsius or more. Almost 6,000 people died along the way, sometimes from heatstroke, but also from rockfalls and the occasional tropical disease. All in all, it doesn't look like fun... There were also some key engineering challenges that the project had to address. There was a difference of almost 30 meters between the highest point of the proposed canal and the lowest.

This meant that the canal construction team had to include a series of locks and gates that helped change the elevation of the water. These locks allow boats to climb to the top of 30 metres, before descending again. In total, the construction of the Panama Canal cost the United States a staggering $375 million, which is roughly equivalent to $12 billion today. But despite all the challenges, after a decade of construction, the Panama Canal officially opened in August 1914. The first ship to pass through the canal was the SS Ancón, and it turned out to be the first of many. About a thousand ships used the canal in the first year and that number has increased since then.

Today, more than 10,000 ships use the Panama Canal each year, working together to transport 500 million tons of goods. These ships pay a toll to use the canal (for a larger ship, it can cost around half a million US dollars), but it is worth the cost when it saves them having to travel to the Strait of Magellan. This channel changed the face of world trade. But starting in 2024, this famous waterway could have some serious competition. That's right, it's finally time to talk about: The Interoceanic Corridor of the Isthmus of Tehuantepec Or... the CIIT, for short. If you think those letters don't quite add up, it's because it's an abbreviation of the Spanish name of this project.

To understand the origins of the CIIT, we must go back to the end of the 19th century. That was around the same time the United States started thinking about the Panama Canal, and it turns out they weren't the only country exploring these kinds of ideas. In 1884, a powerful man assumed the presidency of Mexico: José de la Cruz Porfirio Díaz Mori. That's a mouthful too! Let's call him Porfirio Díaz for short. Porfirio Díaz was from the state of Oaxaca, on the southern coast of Mexico. When he came to power, he decided to build a railway line to connect Oaxaca with the coast of Veracruz in the north.

In other words: he wanted to build a railroad between the Atlantic and the Pacific, hoping to address exactly the same problems that the Panama Canal later solved. Most people have never heard of it, but in mid-January 1907, this new railroad, known as the Interoceanic Train, officially opened its doors. This was seven years before the Panama Canal, and global merchants began using the railroad immediately. Over the next few years, hundreds of thousands of tons of cargo were successfully moved. Mexico began to prosper economically as it discovered that it played a vital role in international trade. But this success was short-lived.

When the Panama Canal first opened, most shipping companies decided to stop using the Interoceanic Train and switch to the canal. In 1914, when the Panama Canal opened, the amount of cargo traveling on the Mexican railroad was reduced by a third, and a year later, it had decreased by almost 80%. This was despite the fact that the train line through Mexico was actually faster than the Panama Canal: it was closer to the United States and saved a good few days for anyone who wanted to use it. So why did people choose Panama? At first it may not make sense.

But there are actually a couple of very important reasons. First, many of the shipping companies were based in the United States and preferred to support an American project rather than a Mexican

rival

. Furthermore, a civil war had recently broken out in Mexico. The violence scared many other businesses. Logistically, it is also easier to use a shipping route: there is no need to unload cargo onto trains. And so, with such a massive drop in traffic, the Interoceanic Train became too expensive to maintain. It collapsed and fell into disrepair. And it remained that way for a hundred years, until a new ambitious president came to power in Mexico: López Obrador.

In 2018, President López Obrador made plans to rebuild Mexico's old railway line and create a new corridor between the Atlantic and the Pacific. a modern

rival

to the nearby Panama Canal. The ambitious project was officially announced just a few months later, with plans for a trio of major rail lines: Line Z, Line FA, and Line K. If anyone knows what these letters mean, let us know in the comments. We've made our team work hard on this and none of us can figure it out! Anyway, back to CIIT. Work began in June 2020, trimming vegetation, removing old tracks and replacing them with shiny new ones.

In total, the new railway, with these three main lines, is expected to have a length of more than 1,000 kilometers. The Mexican government also plans to build a series of industrial parks along the railway. And López Obrador is not fooling around here. In 2023, he sent the military to capture a stretch of old railroad that was officially owned by a private company. Later, he offered to compensate the company, but not before making 100% sure that this section of railway was in government hands. He didn't want to risk the project collapsing simply because he couldn't reach an agreement with a stubborn private company.

In fact, there have been some clashes with protesters, including several indigenous community groups in Oaxaca. They are concerned about the environmental impact of the project; Construction workers have been cutting down trees and damaging local habitats. A group of protesters were briefly jailed after allegedly attacking construction workers with machetes. Elsewhere, local families have been forcibly relocated. It all seems a bit controversial... But most people in the region believe that the negative aspects of the project will be outweighed by all the benefits. Some experts believe the CIIT will create half a million jobs for local people and attract $50 billion of international investment.

This economic boom could transform the country, and that is what President López Obrador is counting on. In August 2023, Line Z was officially completed. In September, López Obrador himself traveled on a passenger train from one end of the route to the other. The trip took less than nine hours, making it officially faster than passing through the Panama Canal. Two months later, just a few days before Christmas 2023, the first trains opened their doors to the general public and began transporting local passengers from the Atlantic coast to the Pacific. The other two lines are expected to be completed by the end of 2024.

Despite all this progress, the government still has work to do before the CIIT can be used for international shipping. Another feature of the project is the total remodeling of the ports at both ends of the railway lines, to make them more suitable for cargo ships. This includes a giant breakwater at the port of Salina Cruz, which will consist of hundreds of thousands of tons of rock to protect the port. These gigantic rock walls are intended to reduce the risk of cargo ships being knocked over by storms or waves, which really wouldn't be ideal. Work is still being done on that breakwater.

But according to recent news, it is getting closer to being completed, which means the CIIT will be opened for business sooner rather than later. And that raises a pretty interesting question: What about the Panama Canal? Before we answer this question, we would really appreciate your feedback below in the comments! If you enjoy these videos, be sure to subscribe to our channel. But now, back to the video! Some experts think the CIIT will prove to be a cheaper and faster alternative to the current Panama Canal. If that turns out to be true, it would make sense for companies to change their shipping routes, traveling through Mexico's rail corridor instead of using the crossing in Panama.

The canal could potentially go out of business, just as it did a century earlier with the original version of the Mexican railroad. But in reality, the CIIT was not created for that. The people involved have repeatedly said that this Mexican railroad will complement the existing Panama Canal, rather than attempt to replace it. The Panama Canal has the capacity to handle up to four million cargo containers each year, but that is often not enough. With each passing year, more ships want to use the canal and it is struggling to meet demand. To make matters worse, the channel has been having some problems.

In 2023, Panama suffered the driest season in its history. Authorities decided to limit the canal in hopes of preserving water. All of its gates and locks use water to function, and that water was too valuable to waste. A decision was made. Only 25 ships per day would be allowed to use the canal, compared to an average of nearly 40 per day. This caused a bit of a frenzy as companies began bidding millions of dollars just to secure a precious spot. Other ships were stranded, forced to wait for the opportunity to cross the channel. This is where another option like CIIT could help.

It could relieve some pressure on the Panama Canal and give shipping companies an alternative route when the canal is in high demand. This would make shipping more reliable – businesses would have another viable option to help them reach their target destinations on time. In fact, water shortages in Panama disrupted some deliveries in the run-up to Christmas. Had CIIT been operational, all such deliveries might have been made on time. Working together, the Panama Canal and the CIIT could also lead to an increase in global trade, with more goods now able to move between the Atlantic and the Pacific.

As one Mexican official said of the 2023 project: "It's not just about connecting the country, it's about connecting the world." But in the future, there is also a possibility that the CIIT will face its owncompetence. In 2014, a Chinese businessman attempted to build a canal in Nicaragua, hoping to establish another alternative to Panama. When the Chinese stock market crashed in 2015, he was forced to abandon the project. But maybe someone will come back to that in the future. There is also a possibility that the Northwest Passage, once blocked by ice, is opening up as a result of global warming.

In recent years, some ships have managed to use that route to get from one side of America to the other. One thing is certain: the state of trade between the Pacific and Atlantic is on the verge of some major changes. What do you think of Mexico's latest megaproject? Let us know in the comments below. Thanks for watching and see you in the next video!