I realize that the title sounds rather presumptuous! However I did propose this idea to the Government of Mexico in 2007 as well as the last three Presidents of Mexico in person. There is actually an interesting alternative. There are very few remaining opportunities to use geography to change how the world is organized but there is such an opportunity in Mexico. An interest in logistics and a curiosity as to how the world works is helpful when reading this post.
An Alternative to the Panama Canal
We take the Panama Canal for granted – but is it really the best way to cross the American barrier? If there was no canal today – what would be built? I will suggest that in the world of containers a different strategy could win.
In 2007 I published an essay in Letras y Libros – sort of the Latin American equivalent of Atlantic Monthly – titled El Futuro Cruza el Istmo de Tehuantepec or in the original English version Imagining a New Future for Mexico. The journal was founded by the Nobel Laureate Octavio Paz. Enrique Krauze, historian and current editor invited me to write about an idea I had shared with him. The original article was philosophical in nature. In this essay I will argue the more pragmatic merits of the idea. (You can connect to the original in either language or locate on my website).
The basic concept is that the container flow between the Atlantic and Pacific oceans and relevant ports would be better served by a ’scramble’ or transfer point located on what I call the American barrier rather than the current canal. FEDEX and UPS represent variations of the scramble idea with their strategy of shipping all parcels via one central North American location rather than point-to-point. My research indicates a time saving of one to two weeks for the average container and a significant cost saving. This strategy would radically reshape the politics and economy of Mexico in a constructive direction. This concept would also shift the container flow away from a number of the larger ports in favor of a variety of medium and smaller ports. All of these changes imply disruption and adjustments in power relationships – in the same way that the original Panama Canal affected many cities and regions.
Why have I become engaged in this idea? In 2007 I participated in a pro bono study for the Canadian Government into the question how Canada could participate more effectively in the global container trade using its geography. The imminent opening of the northern Canadian Port of Prince Rupert for the container trade created new opportunities for strategic use of Ports and inland connections to markets such as the Central US. (Asia Pacific Gateway and Corridor Initiative). We visited many of the world’s great ports and studied how they functioned and in particular how they inter-acted with their respective hinterlands. In 1998 my company expanded into Mexico with manufacturing facilities including an investigation of southern Mexico. We concluded that it was impossible to develop in the south because of logistic isolation. Leona and I have more recently made Mexico our winter home so we have a heightened level of interest and awareness.
The Rationale – and a short study in Global Logistics
- The impact of Port size
The sending ports in Asia and the receiving ports on the Atlantic Seaboard are very different in size. The largest port globally is Shanghai at 34 million TEU (20 foot equivalent units) and the top 8 ports are all in East Asia. The largest US Atlantic port is New York at 5.5 million TEU and # 27 in global size. The next East Coast port in size at #45 is the ‘Georgia Ports’ at 3 million and its down from there. To understand what that means think of a 747 flying from New York to service cities like Des Moines and Wichita – but that is the container reality of today.
- The impact of ship size and port size on schedules.
Panamax refers to the maximum size of a ship that can traverse the canal. The current locks allow for a containership with max capacity of about 5,000 TEU and the new enlarged canal will have capacity for ships with 12,000 TEU. Why should that be a problem? Consider that there are various shipping lines who divide the business and each makes pickups and deliveries from a variety of ports. Because of the relatively smaller size of US ports the standard pattern is to visit 4 ports in Asia and then stop at 4 ports on the East Coast. This relatively large number of stops reflects the challenge of balancing differences in port size. This pattern typically requires 63 days or 9 weeks for a roundtrip – and therefore 9 ships for a single schedule of one shipping line. Now imagine the scheduling challenge of increasing ship size from 5,000 to 12,000 TEU?
- What affects the days required from shipper to recipient?
- Weekly shipping schedule – Most shippers have a contractual arrangement so the container may be ready to go on a Monday but generally the ship will sail on some other day of the week so a built in delay.
- The additional stops create delays. The length of delay depends on the order of ports but typically will add on average an extra week.
- The transshipment problem for the smaller ports. The strategy of maximum 4 port stops mean that the lesser ports must transship to the major ports such as Singapore or Hong King – adding time and cost.
The example of FEDEX makes the point that a scramble allows for the use of larger and smaller planes to a great variety of locations. Without that strategy FEDEX could not guarantee one day service to every city it serves. The container world has accepted the idea of major and minor ports with variable shipping times because it is assumed there is no alternative – what if there was an alternative?
The Isthmus of Tehuantepec in southern Mexico is a break in the mountains with a low elevation and a short distance between oceans. It is located north of the Yucatan and given the nature of the Great Circle route on the Pacific requires several days less sailing time than the Panama route. The conquistadores crossed at this point, built ships and sailed away to conquer new worlds. Mexico started to build a railroad across the Isthmus in 1857, before any transcontinental rail in the US, but the idea never captured the imagination of the world. Why could it be a good idea today?
The advantage of a scramble is that the two oceans and their various ports can be served in the two oceans by a variety of ship sizes that are designed for the particular ports they serve. Today major ports such as Hong Kong send a number of ships daily to transit the Panama Canal and then go off in different directions in the Atlantic visiting a variety of ports – often including transshipment to minor locations. In the proposed scenario a single ship departing a Pacific port could carry containers from one Asian port for every single port in the Atlantic and even across the Atlantic – from Argentina to Halifax. An important change would be that secondary ports such as Ho Chi Minh or Surabaya could now send ships directly to the Isthmus, bypassing the expense and disruption of transshipping through another port. This could radically change the importance of some of the major ports that rely on the accumulation rather than generation of freight.
Crossing the Isthmus would involve the development of a specialized port on the Pacific to handle the expected giant containerships combined with the redevelopment of several existing smaller ports on the Atlantic side that could be re-designed to handle a variety of medium and smaller ships. The crossing could utilize rail or a specialized road but these are not especially difficult challenges.
An important point to understand is that with this system the great majority of containers would be carried on ships appropriate to the volume of a port and would not require multiple stops. This makes it absolutely the fastest and least expensive (ocean) way to ship product around the world. Now think of the possibility of the Isthmus as being more than a scramble location but also an industrial hub that receives commodities and components from around the world and ships back to the world. There is no other location on the planet that would have as direct and frequent shipping connections to a very large number of ports across the globe. Given an underutilized labor force of 50 million in southern Mexico and neighboring Central America this would create a fantastic new industrial opportunity – and a human and economic development opportunity for Mexico.
The point is that when a container leaves the ship it has many possibilities. It can certainly cross the Isthmus and be loaded onto another ship. However, should there be an unexpected urgency the container could be routed from the initial ship to a truck and sent north to its destination saving critical days. As already noted the products of a container could be warehoused for future shipment, stored for safe-keeping or included in an industrial enterprise. Panama does not serve any of these purposes well.
Who would promote or not promote such a potentially beneficial system? We should expect that the very large transshipment ports would see such a change as a threat since the lesser ports in both Asia and America could now bypass the dominant ports. Do not expect support from the owners of the large ports.
Shipping companies face a more complex problem. They can adjust to the new pattern but the scramble would create opportunities for specialized smaller or larger shipping lines that offer exceptional designer service to certain ports and take away portions of the available business. If the Isthmus became important they could hardly avoid becoming part of the action.
Mexico should find this idea very attractive but the Isthmus is part of a region that still operates in a feudal style and there will be parties who will attempt to retain control. A significant change in the region would alter the political structure of Mexico by making the south more like the industrialized and more modern Center and North.
What about the United States? An important portion of migrants crossing the US border originate in southern Mexico or in Central America. A genuine hub of development could act as a “migration dam” by creating incentives to find employment at home or stop and work on the way north – provided Mexico allows. Possibly the US should consider paying for the Isthmus project from the savings and presumed aggravation of unwanted irregular migration. If it works it would even be a profitable intervention! Mexico has had a North-South fixation for centuries and a project that adds East-West to their view of the world could be incredibly helpful to Mexico.
I discussed this concept with a senior automotive executive and he expressed surprise that to his knowledge nobody had ever considered this idea seriously. He quickly calculated that this could be the least expensive point on the planet to ship from or to. Next he calculated that this location could have most of the advantages currently enjoyed by the auto industry in Central Mexico but would benefit from a new large and low cost labor supply. An Isthmus location would offer the ability to not only ship north by truck or rail but could now ship effectively to either coast up and down the Americas plus source or ship anywhere else on the Atlantic or Pacific or globally with great efficiency. With the right policies on the part of Mexico he stated that this could become one of the premier industrial locations in the world.
My personal calculation is that an Isthmus project that achieved scale could reduce most container shipments between oceans by one to two weeks with a cost reduction of 20%. It would allow smaller ports to become competitive in many countries with significant social and political impact.
If the idea has so much merit why has it not happened and why is it not high on the agenda of Mexican politicians and development organizations? As stated, while the concept would be useful to users of shipping services in North America it may not be of obvious benefit to the big players such as ship owners and operators of major ports – so they will not promote. It should be of great benefit to Mexico itself and I have personally handed this proposal to the last three Mexican Presidents plus a number of senior officials. The response is typically that it is a very interesting idea. However, consider the cost (never properly researched), the political barriers – and they are fighting more urgent alligators. They also state that the concept of the Isthmus has been studied to death. I looked at reports done prior to 2007. None of them considered a container scramble and generally the consultants studied previous reports and summarized them – with expected outcomes. I asked the most recent consultant if he had visited ports in Asia or America – No. Did he speak to major shipping companies such as Maersk – No. Did he speak to important users of the service like Home Depot or WalMart – No.
As part of my personal study in 2007 I developed a great deal of information on shipping patterns, strategies to cross the Isthmus, ideas to develop the required ports and so forth. This is not the place to get into that level of detail but the concept has the potential to develop incrementally so that the initial investment is not prohibitive especially in comparison to projects like the proposed canal in Nicaragua (40-50 bilion).
Will the Isthmus ever be developed as a container bridge? A recent news report from Mexico announced a series of investments at the Isthmus to improve roads, rail and ports – but no mention of a container strategy. This idea must begin with a huge leap of the imagination. It could have an incredible outcome for Mexico and its people if developed correctly. I see my role to be the Prophet pointing in a new direction – others will need to decide if they choose to follow that path and then make it happen.