Tuesday, June 11, 2013

The new exponential canal

Nicaragua is having a new canal built for them by the Chinese.  As with the Panama Canal, it will avoid the need to pump water uphill by using an interior large freshwater lake to fill its locks.  And of course it will be large
John Daly, Naked Capitalism, 11 June 2013
As with the Three Gorges Dam, Beijing is not thinking small, as the proposed canal could take 11 years to build, cost $40 billion and require digging roughly 130 miles of channel. The Panama Canal, in contrast, is 48 miles long.
Fare enough, it is not clear that having an extra canal in the area will hurt U.S. strategic interests.  The big issue has generally been a fear of the Panama Canal being blocked, and its not that clear what use it would be to the Chinese Navy in an open war.  It obviously would break the Panamanian monopoly on quick Pacific Ocean - Caribbean Sea transit.
What I find problematic is the math used to justify the expenditure:
Nicaraguan advocates say that the channel is needed, arguing that inter-oceanic maritime freight traffic demand will outstrip the capacity of even the expanded Panama Canal by more than 300 percent within 123 years, and the canal’s construction create 40,000 construction jobs. Better yet, is could double the per-capita GDP.
There is no doubt that the sizing of even the enlarged Panama Canal locks causes some long lines.  
But for traffic to grow to 300% in 123 years requires a compounding growth rate of 4.6% every year (calculator: enter 1; blank, 123, 300). 
Is that a lot?
The U.S. through its very dynamic, expansive period of growth, with some able assists from European self inflicted implosions (aka: world wars) has had a compounding growth rate of 3%.  Even some of the status quo types think that that percentage may turn out to be lower in the future, with the size of the United States you might eventually run out of atoms and electrons in the solar system to absorb all the growth.  Since the United States is by far the largest user of the canal in the Western Hemisphere, a growth rate larger than the U.S. historical rate, seems a bit improbable.   Asking for that type of growth based on China- South American trade is asking a lot.
One suspects there is just a little bubble logic here.


PioneerPreppy said...

Especially since baltic dry and all other ship born transport has been down for years.

Anyone claiming growth for anything other than third world population is selling something and placing their hopes on bubble-gum logic.

russell1200 said...

Pioneer: I had thought of bringing up recent shipping gluts, but decided not to overcomplicate the issue.