Horizons: Connecting Global Markets By Crossing Continents, Oceans

Exporters from the United States benefit from an impressive array of options to access global markets. The diverse routings and pathways within the U.S. are not only the envy of global competitors but also a benchmark for efficiency and connectivity.

Critical to this advantage is the access to “isthmatic” and interoceanic crossings like the Panama Canal, which significantly enhances the United States’ competitive edge. However, this global envy is spurring other nations to develop their own competitive pathways.

Envy of the World

The United States has a strategic advantage with direct transport access to the Atlantic and Pacific oceans from its East, West and Gulf coasts. The center Gulf, serviced by barges on the mighty Mississippi River and Tributaries (MR&T), provides unparalleled access to natural resources and key markets. Annually, the volume of commodities transported by barge on the MR&T totals between 500 million and 600 million short tons, much of which is traded globally. For instance, approximately 50 to 60 percent of U.S. grain and soybean exports are carried by barge to export elevators in the center Gulf.

The U.S. commodity supply chain is resilient because it has access to global markets with its transcontinental network of highways, railroads and pipelines. It also benefits from crossings through the Panama Canal and Suez Canal.

Trading Freight, Not Commodities

While commodities such as corn, soybeans, wheat, coal and oil have value on their own, the true value is not realized until transportation is available. Without transportation, farmers have a mountain of debt and consumers go hungry, without fuel or fiber. Transportation allows the mountain of debt to be transformed into value for consumers to use. It’s not just the rolling and floating assets that bring value, either. It’s also the infrastructure.

Trading freight or transportation has many factors to consider, such as equipment availability, demand and capacity utilization, infrastructure impediments, fuel costs, labor, insurance, capital costs and distance to market. The distance to market is a key variable because it says a lot about the mode of use, the amount of fuel consumed, the opportunity cost of doing something else, etc.

Shortening the distance between markets maximizes equipment use, allowing for greater competitiveness.

Isthmatic or Interoceanic Crossings

Accessing Asia from the center Gulf has been competitive because of the Panama Canal, which traverses the Isthmus of Panama to connect the Atlantic and Pacific oceans, thus shortening the distance to market. Without the Panama Canal, vessels would have to sail around the Cape of Good Hope or through the Suez Canal.

With draft capability to 50 feet on the Lower Mississippi River, bigger vessels can take on larger cargo loadings and reduce the per-unit costs of sailing around the Cape of Good Hope or through the Suez Canal, rather than traversing the Panama Canal. Doing so means there will be more sailing days, but sailing costs are spread over the greater cargo volume loaded. (But that is another column for another day!)

With competition comes opportunity, and for many years investors, shippers and various countries have proposed their own continental, isthmatic or oceanic crossings. The Panama Canal experienced one of its worst droughts during 2023 into early 2024 that severely impacted the number of vessel transits and routings of global trade. From that drought, several alternative projects to the Panama Canal garnered much attention. Projects in other regions of the world were also being promoted. Below is a select list of existing routes and proposed alternatives.

Existing Options

Panama Canal: A series of locks that opened in 1916 to shorten the distance between the U.S. East and West Coasts and expanding with a new set of locks to accommodate larger, modern vessels in 2016.

Panama Canal Railway: This railway complements the canal by quickly repositioning containers across the isthmus.

North American Transcontinental Land Bridges: These include the Canadian, American and Mexican land bridges, offering faster alternatives for North American supply chains.

Northwest Passage: This Arctic route is the shortest between the North Pacific and North Atlantic but remains hazardous due to icing and lacks significant cargo opportunities.

Suez Canal: Particularly relevant for cargo transiting through Singapore, this route is an alternative for reaching the U.S. East Coast.

Cape of Good Hope route: Around the tip of South Africa, this route is used for trade between Brazil, Argentina and China.

Proposed Routes

Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT): Mexico is constructing this railway to provide an alternative route for cargo transportation between the Atlantic and Pacific oceans. The project aims to alleviate strain on the Panama Canal and boost international trade. Cost: $7.5 billion.

Rio Indio Dam Project: Panama is considering this project to ensure the canal’s water viability and expand container capability. Cost: $8 billion.

Brazil-Peru Transcontinental Railway: A proposed freight line stretching about 5,000 kilometers to connect Brazil’s hinterland to the Pacific Ocean. Cost: $72 billion.

Nicaragua Canal: Although the project was abandoned in 2019, it was intended to handle ships of more than 250,000 tons, significantly larger than those the Panama Canal can accommodate. Cost: $40 billion.

Is the cost worth the investment?

Some of the proposed projects have hefty price tags requiring significant capital investment. With any infrastructure project, it is not a matter of building for tomorrow but into the future to accommodate potential growth and trade opportunities. Thus, investment requirements can be quite high.

With distance between markets a key transport cost variable, looking at a couple of the proposed projects gives insight into what they have to offer. The Brazil-Peru Transcontinental Railway route to China has a distance estimated at about 11,700 equivalent nautical miles from Brazil to the Peruvian port and onward to China. This route is considered to be a competitor route to the United States, favoring Brazil commodity exports.

At present, two options for shipping cargoes from Brazil to China include southern ports such as Santos and from the Northern Arc, including Barcarena. Through Santos, the distance to China around the Cape of Good Hope or from Barcarena through the Panama Canal is about 11,100 nautical miles each, not including inland transport distance.

The Interoceanic Corridor of the Isthmus of Tehuantepec could offer U.S. cargoes an alternative to China. This route from the center Gulf is estimated to total about 8,600 equivalent nautical miles, not including inland transport distance.

Shipping cargoes such as grain and soybeans from the center Gulf to China through the Panama Canal totals about 10,200 nautical miles. Through the Suez Canal it’s13,900 nautical miles, and it’s 15,000 nautical miles around the Cape of Good Hope, not including inland transport distance.

However, shipping grain and soybeans through export elevators in the Pacific Northwest to China is about 5,300 nautical miles, not including inland transport distance.

The proposed transcontinental, isthmatic or interoceanic alternatives come with galactic price tags. The adage from the film Field of Dreams says, “If you build it, they will come.” The naysayers say “maybe,” but this much is true. If you do not build it, no one will come.

For the United States, infrastructure investments have been made over many decades. Those investments have served the country well, but that infrastructure also requires ongoing maintenance. It must be renovated, modernized and expanded, but at what price? Without infrastructure investment, competitiveness suffers. Investment, though, spurs competition.