An Economic and Environmental Evaluation of The Nicaragua Canal

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Mulligan This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7665586/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract The proposed Nicaragua Canal would both complement and compete with the Panama Canal. The lock sizes for the proposed Nicaragua Canal would enable it to handle significantly larger Nicmax vessels, even larger than the New Panamax vessels permitted by the Panama Canal’s 2016 expansion, offering additional operating economies and environmental benefits. The larger locks of the Panama Canal’s 2016 expansion can only operate in each direction every other day. The Nicaragua Canal would help overcome the Panama Canal’s capacity constraints and delay them from becoming binding. The cost of the project will be estimated along with the demand it is likely to face between 2030–2060, and whether the revenue it will generate can amortize such a project. JEL codes: Q35, Q37, Q38, Q53, R41. Air Pollution Clean Air Environmental Degradation Exhaustible Resources Fossil Fuels Hydrocarbons International Trade Logistics Nitrogen Oxide Nonrenewable Resources Oil Policy Pollution Shipping Figures Figure 1 Figure 2 1. Introduction This paper evaluates the proposed Nicaragua Canal. The largest vessels the proposed canal will allow (Nicmax) will be compared to the largest vessels allowed by the recently expanded Panama Canal (New Panamax) in terms of cargo capacity, fuel consumption, operating cost, and pollutant emissions. The paper employs a straightforward and widely applicable method for estimating ship fuel consumption and environmental impact. Fuel consumption is a meaningful measure of environmental impact because emissions are directly proportional to the amount of fuel burned. Environmental benefits will also be quantified in terms of specific emissions. International trade will expand with population growth and economic development (Bekkers et al 2023), and substituting waterborne freight transport for land and air movement will alleviate both transport costs and the environmental impact of this expanded trade. This trend will increase the demand for alternative trans-isthmus cargo movement, some of which has already been addressed by expanding the Panama Canal with the third set of locks project (Panama Canal Authority 2006). However, unlike the Panama Canal original two sets of parallel locks which operate year-round in both directions, being closed only for occasional and temporary maintenance and repair, the larger third set of locks only operates in each direction on alternating days. This imposes a capacity constraint on the number of New Panamax ships the Canal can accommodate. The proposed Nicaragua Canal will alleviate this constraint and accommodate further growth in international goods trade. Another alternative to trans-isthmus carriage is the U.S. land bridge, and the costs and constraints of this alternative are also presented for comparison, though they cost significantly more and have much greater environmental impact (Brooks & Frost 2004; Kristensen 2006). North American infrastructure costs for overland transport have grown to the point where road and rail networks cannot easily be expanded to overcome capacity constraints which have been evident for decades and will only worsen as international trade further expands. Highway construction in the U.S. costs approximately $101.2 million per lane mile ($62.9 million per km) plus $316.1 for each interchange in 2025 dollars(U.S. Federal Highway Administration 1997, 2025) . The interstate highway system was originally authorized at 66,000 km. To construct a parallel two-lane system of roughly comparable extent exclusively for trucks would cost approximately $16.5 trillion. This amount ignores required interchanges and is nearly half annual U.S. GDP. The rest of the paper is organized as follows: after this introduction, section 2 develops the background for the Nicaragua Canal project and a brief history of several alternatives for trans-isthmus freight transport; section 3 quantifies the fuel savings and environmental benefits of the Nicaragua Canal, comparing Panamax, New Panamax, and Nicmax vessels operating over alternative routes; section 4 forecasts freight demand for alternative trans-isthmus routes; section 5 evaluates project finance and amortization; and section 6 provides concluding comments. 2. Background The Panama Canal opened in 1912 with two sets of locks providing independent channels allowing ships to transit the isthmus in both directions. When the canal opened, few ships could fill the locks which would typically accommodate several smaller vessels at a time. Eventually larger vessels became more common, and the largest vessels the original canal can accommodate are called Panamax. By 1939 the U.S. Navy, whose strategic needs were instrumental in persuading Congress to appropriate funds for the original canal, increasingly recognized the limitation of the canal’s lock dimensions. By the 1930s, the largest aircraft carriers[1] could just barely fit, and although the Iowa class battleships were designed to fit, the larger planned Montana class would not. For comparison, Japan’s Yamato class battleships could not transit the canal, and the broader beam designed into larger ships made them both more stable gun platforms and allowed for better anti-torpedo protection. Construction of the third set of locks began in 1940 but the project was abandoned when the U.S. entered World War II. The third set of locks project was revived by the Panama Canal Authority (ACP) in 2010 and was completed in 2016 (Panama Canal Authority 2006, 2009, 2010; Mulligan & Lombardo 2011, 2016). The largest ships that can transit the canal using the third set of locks are called New Panamax or NeoPanamax vessels. The proposed Nicaragua Canal will have even larger locks, creating a new class of vessels, Nicmax. To analyze the Nicaragua Canal we focus on the parameters of the currently abandoned Nicaragua Canal Project Description (HKND 2014). A comparison of constraints on vessel size is given in Table 1. To enable more trans-isthmus cargo movement, one alternative is to further expand the Panama Canal with a fourth set of locks of identical size to the third. This would double the canal’s capacity for New Panamax ships by allowing two sets of large locks that could operate in both directions year-round. The next alternative is to build the Nicaragua Canal. This route would be longer than the Panama Canal and would require locks to elevate ships to the higher level of Lake Nicaragua, 32.7 meters above mean sea level, compared with 27 meters for the Panama Canal’s Gatun Lake. Because the route is north of the Panama Canal, freighters bound for or originating in the U.S. eastern seaboard would benefit from a shorter Pacific route, but the Atlantic-Caribbean-Gulf of Mexico route would be approximately the same due to the need to navigate around various Caribbean islands. A further alternative is Mexico’s Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT), which requires that freight be offloaded at one of two ports and transported by rail or pipeline across the isthmus to be loaded onto a different vessel. The CIIT route uses specialized vessels that accommodate railcars and currently its capacity is determined by the size and number of freight slips in Salina Cruz and Coatzacoalcos that connect with the Tehuantepec railways. Finally, the costliest, most fuel intensive, and environmentally degrading alternative is the U.S. Land Bridge, where the cargo is moved overland from one coast to its final inland destination by rail or truck. [1] These were called fleet or attack carriers. The U.S.’s first two, the Lexington and the Saratoga, had been laid down as battlecruisers but were converted to carriers under the terms of the Washington Naval Treaty. Similar conversions produced the Japanese carriers Kaga and Akagi. By late 1941, the U.S. Navy had also acquired the purpose-built Ranger, Yorktown, Enterprise, Hornet, and Wasp. Although these ships could and did successfully transit the Canal, the postwar Midway class and every subsequent U.S. carrier class were or are too big even for the expanded third set of locks. 3. Fuel Savings & Environmental Benefits We focus on fuel consumption over the operating life of a vessel because that accounts for the largest environmental impact of waterborne transport (Shimotsuura 2024, 2025). The traditional approach to estimating fuel consumption is based on pioneering studies of ship design practices which determine engine requirements (Benford 1957, 1958, 1961,1962, 1963, 1967, 1991a, 1991b, 1993; Benford, Thornton, & Williams 1962). These studies assumed high-pressure steam installation which was typical design for cargo vessels at that time, though in the interim diesel engines became more efficient and more common. Following Mersin, Alkan, & Mısırlıoğlu (2017), required shaft power (P) in kW is estimated as a function of operating speed (v) in knots, deadweight capacity (d) in tons, and Admiralty coefficient (A c ): P = (d 2/3 v 3 )/A c (1 The Admiralty coefficient is a dimensionless measure of a hull form’s hydrodynamic efficiency ranging from 400 (least efficient) to 600 (most efficient). Table 2 provides shaft power requirements computed from Equation 1 for a 120k deadweight ton (dwt) New Panamax vessel operating at speeds from 10 to 30 knots with Admiralty coefficient varying from 400 to 600. These figures are consistent with other sources, including MAN Diesel (2009), Borkowski, Kasyk, and Kowalak (2021), and Christensen (2023). Note particularly the significant energy savings from more efficient hull forms even at low speeds. Figure 1 illustrates that required shaft power increases with the cube of speed, and that for a given 120,000 dwt cargo capacity, falls with the hydrodynamic efficiency of the hull. The most efficient hull form with A C = 600 is finely tapered with a bulbous forefoot like the Normandie or the United States. The least efficient A C = 400 hull is boxier. Because boxier hulls have more internal cargo space, the ideal for any particular application represents a tradeoff, though higher A C hulls will be increasingly preferred for larger ships and higher operating speeds. More efficient hulls are also preferred for larger ships, where the energy and fuel savings are greater. Required shaft power increases with the cube of speed, but falls with hull efficiency, with the benefit of a more efficient hull being greater at higher speeds. Equation 1 also enables us to compute shaft power for the four ship sizes compared here for different operating speeds. Table 3 gives the results of those computations. To convert shaft power to fuel consumption we use data from Adland, Cariou, & Wolff (2020) who measured fuel consumption for different size ships at various speeds. Their data enable us to estimate the relationship between power and fuel consumption. Based on their data, the ratios of daily fuel consumption in kg of residual fuel oil to shaft power in kW are f B = 3.557 (2a f L = 3.983 (2b Diesel fuel density varies with temperature and to simplify calculations we assume a fixed density for residual fuel oil or bunker fuel of 1010 kg/m 3 at 15° Celsius or 59° Fahrenheit. For comparison, the lighter refined diesel fuel burned in trucks and locomotives has a density of 850 kg/m 3 . Actual density would be lower in the tropics and higher in colder climates. This assumption facilitates expressing fuel quantities by weight in kg rather than by volume in liters or cubic meters. Fuel consumption varies over each voyage, since, e.g., ships draw progressively less as they consume fuel over the course of a voyage, wind and sea conditions vary, etc. (Ahlgren, Mondejar, & Thern 2019), but the computations used here provide estimates of average consumption most useful for preliminary planning. The fuel consumption ratio is lower for the same vessel under ballast (f B ) than when fully laden (f L ). Daily fuel consumption in metric tons (thousand kg) is then computed as F B = f B (d 2/3 v 3 )/A c = (3.557d 2/3 v 3 )/A c (3a F L = f L (d 2/3 v 3 )/A c = (3.983d 2/3 v 3 )/A c (3b These equations allow estimates of total fuel consumption at different operating speeds calling for a range of different-sized engines, over different route lengths. Table 4 gives laden fuel consumption F L . Daily fuel consumption increases exponentially with operating speed as shown in Table 4, e.g., increasing operating speed by 50% increases fuel consumption by approximately 350-400%, consistent with findings of Kee, Simon, and Renco (2018). This suggests that higher operating speeds impose dramatically greater environmental impact and fuel costs, however, the faster passage also reduces the duration of each voyage, so there is a tradeoff between operating speed and environmental impact. The largest (Nicmax) ships require the most fuel at any speed. Conversion from fuel consumption per dwt to consumption per TEU (twenty-foot equivalent unit) is based on Abramowski, Cepowski, and Zvolenský (2018). Larger vessels consume more fuel at a given speed, but cargo capacity increases more rapidly than vessel size, providing operating efficiencies for larger ships. Furthermore, any vessel laden below its maximum capacity would consume less fuel. To compute fuel consumption in kg per TEU-km we divide daily consumption by km traveled per day, the product of 24 times speed in km/hr. Fuel consumption patterns for the four sizes are shown graphically in Figure 2. Note particularly that per-unit fuel savings are greater for larger ships operated at higher speeds. The Nicmax class of ships permitted by the Nicaragua canal will transport cargo more cheaply and with less environmental impact. These figures may be compared to fuel consumption per TEU-km for trucks and trains, which are significantly higher. A standard two-TEU tractor-trailer consumes 9.4 liters per km (Mulligan & Lombardo 2016). Diesel fuel density varies with temperature, but assuming a density of 850 kg/m 3 for refined diesel fuel, this converts to 8.00 kg/km or 4.00 kg/TEU-km. Rail fuel economy is much better, approximately 1.14 kg/TEU-km (AAR 2025, CSX 2025, Union Pacific 2025), but still much short of ships. Oil price shocks negatively impact net exports and current account balances except for oil exporting countries (Lebrand, Vasishtha, & Yilmazkuday 2024). Oil price shocks contribute to inflation, particularly in advanced economies which are more dependent on fossil fuels and countries that are most dependent on international trade and finance (Ha et al 2023; Yilmazkuday 2024). Higher fuel prices tend to shift freight carriage from overland to waterborne modes because waterborne carriage is cheaper and less energy intensive (TEMS 2008). Pollutant emissions are computed from Christensen (2023) as shown in Table 7. Daily emissions for different sized vessels at different operating speeds from 10-30 kts are shown in Table 8. Table 9 quantifies actual emissions over alternative trans-Pacific routes from Guangzhou-New York, including the U.S. land bridge by both truck and rail, the expanded Panama Canal, the proposed Nicaragua Canal, and Mexico’s Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT). Since container vessel carrying capacity in TEU increases more rapidly than energy requirement, fuel consumption, or pollutant emissions, there is always an unambiguous economic and environmental benefit from operating larger vessels. This benefit persists even below maximum capacity because partially empty vessels draw less and consume less fuel. Just as there is a clear economic and energy advantage from larger ships, there is an equally unambiguous environmental benefit. Larger ships consume more fuel and emit more pollutants, but their fuel consumption and emissions per unit of cargo carried is unambiguously lower. 4. Demand Forecast International goods trade will inevitably expand with population and economic growth. The WTO forecasts a 3% annual increase over the next five years. Extending this trend further, Table 10 presents forecast trans-isthmus carriage up to 2060. Comparing projected demand to the Panama Canal’s capacity (Table 10) allows for an estimate/forecast of the minimum demand that would be faced by the Nicaragua Canal (Table 11). The Panama Canal, if not further expanded with a fourth set of locks, will reach capacity by 2038, and even if expanded, by 2046. The Nicaragua Canal would capture some of the demand for trans-isthmus crossings earlier, because of occasional operating constraints on the Panama Canal, and because of the better scale economies of Nicmax vessels. Table 12 quantifies the Nicaragua Canal’s contribution to reducing climate change causing emissions. Operation of a sizable fleet of Nicmax vessels offers significant emission reduction and mitigation of global climate change. Since the Nicaragua Canal will be the only way for Nicmax vessels to cross the isthmus, it will enjoy monopoly power—however if tries to take advantage of this market power to extract higher revenue, that will divert all smaller vessels through the competing Panama Canal, and will discourage shipping lines from ordering additional Nicmax vessels, thus the Nicaragua Canal should never charge higher tariffs than the Panama Canal. 5. Construction Costs, Finance, & Amortization Assuming that the Nicaragua Canal charges tariffs comparable to the Panama Canal, approximately $60 per TEU for container vessels, allows for projection of tariff revenue, shown in Table 13. Tariff revenues would be more than adequate to amortize a World Bank loan to construct the canal as shown in Table 15. There are cheaper alternatives to building the Nicaragua Canal, including further expanding the Panama Canal with a fourth set of locks, and further expanding CIIT port and rail infrastructure over the isthmus of Tehuantapec. Because rising world good trade will overwhelm the Panama Canal even if further expanded with a fourth set of locks, by 2046, the Nicaragua Canal should be seen as less an economic competitor to the Panama Canal, but a complement. It may be more appropriate to seek financing from the Panama Canal Authority itself rather than the World Bank or other international capital markets. 6. Conclusion Waterborne transportation has clear advantages over land movement in terms of fuel economy and environmental impact, even when using dirtier fuel, and these advantages only increase for larger vessels. The transition from completely unrefined bunker fuel to more modern, reduced-sulfur residual fuel oil has only increased this advantage. The fuel and emission advantage derives from the lower energy required to move vessels through water with very low friction compared with the much greater energy to overcome land transport’s static and dynamic friction and elevation gradients. The energy benefit of waterborne transport translates directly into economic and environmental benefits which increase with vessel size. For many years, even as international trade expanded dramatically, the size constraint of the Panama Canal’s original 1914 locks limited the extent of this benefit for trans-Pacific trade with the east coast of the Americas. Even the 2016 opening of the expanded third set of locks, because they only operate in each direction on alternate days, leaves significant capacity constraints. These constraints are further aggravated by drought and water conservation imperatives which limit the draft of new Panamax vessels, requiring them to operate below full capacity. This contingency eliminates some of the benefits of operating larger ships. Expanding economic growth and international trade will eventually require the development of alternate routes, such as the proposed Nicaragua Canal project and the overland Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT) and Colombian overland routes. There are also improvements in time performance from alleviating or avoiding congestion in overland carriage. Facilitating transoceanic cargo movement is essential to avoid further aggravating the overburdened and capacity constrained U.S. land bridge. The more freight shifted to waterborne carriage, the greater the cost saving and the greater the environmental benefit. Every kilometer freight is carried by sea instead of either by rail or interstate highway reduces both fuel consumption and environmental impact. Declarations Author Contribution R. Mulligan wrote the main manuscript text, prepared Tables 1-13, and reviewed the manuscript. 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Energy Economics 140 (2024) 107985. https://doi.org/10.1016/j.eneco.2024.107985 Tables Tables 1–13 and 15 are available in the Supplementary Files section. Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. 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1","display":"","copyAsset":false,"role":"figure","size":42703,"visible":true,"origin":"","legend":"\u003cp\u003eSee image above for figure legend.\u003c/p\u003e","description":"","filename":"1.png","url":"https://assets-eu.researchsquare.com/files/rs-7665586/v1/3eabc6aac2484d93ef5ad189.png"},{"id":93057692,"identity":"31467186-3183-40a6-ad1c-011afaec3c53","added_by":"auto","created_at":"2025-10-08 15:15:31","extension":"png","order_by":2,"title":"Figure 2","display":"","copyAsset":false,"role":"figure","size":32333,"visible":true,"origin":"","legend":"\u003cp\u003eSee image above for figure legend.\u003c/p\u003e","description":"","filename":"2.png","url":"https://assets-eu.researchsquare.com/files/rs-7665586/v1/1c2cacf1f556bd3dc52e060b.png"},{"id":93059222,"identity":"5d566870-6b88-4cb0-9988-08379b02a9bb","added_by":"auto","created_at":"2025-10-08 15:31:36","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":432840,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7665586/v1/a1e5583d-84c5-42d6-a4c4-70d32d0cae27.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003eAn Economic and Environmental Evaluation of The Nicaragua Canal\u003c/p\u003e","fulltext":[{"header":"1. Introduction","content":"\u003cp\u003eThis paper evaluates the proposed Nicaragua Canal. The largest vessels the proposed canal will allow (Nicmax) will be compared to the largest vessels allowed by the recently expanded Panama Canal (New Panamax) in terms of cargo capacity, fuel consumption, operating cost, and pollutant emissions. The paper employs a straightforward and widely applicable method for estimating ship fuel consumption and environmental impact. Fuel consumption is a meaningful measure of environmental impact because emissions are directly proportional to the amount of fuel burned. Environmental benefits will also be quantified in terms of specific emissions.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eInternational trade will expand with population growth and economic development (Bekkers et al 2023), and substituting waterborne freight transport for land and air movement will alleviate both transport costs and the environmental impact of this expanded trade. This trend will increase the demand for alternative trans-isthmus cargo movement, some of which has already been addressed by expanding the Panama Canal with the third set of locks project (Panama Canal Authority 2006). However, unlike the Panama Canal original two sets of parallel locks which operate year-round in both directions, being closed only for occasional and temporary maintenance and repair, the larger third set of locks only operates in each direction on alternating days. This imposes a capacity constraint on the number of New Panamax ships the Canal can accommodate. The proposed Nicaragua Canal will alleviate this constraint and accommodate further growth in international goods trade.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eAnother alternative to trans-isthmus carriage is the U.S. land bridge, and the costs and constraints of this alternative are also presented for comparison, though they cost significantly more and have much greater environmental impact (Brooks \u0026amp; Frost 2004; Kristensen 2006). \u0026nbsp;North American infrastructure costs for overland transport have grown to the point where road and rail networks cannot easily be expanded to overcome capacity constraints which have been evident for decades and will only worsen as international trade further expands. \u0026nbsp; Highway construction in the U.S. costs approximately $101.2 million per lane mile ($62.9 million per km) plus $316.1 for each interchange in 2025 dollars(U.S. Federal Highway Administration 1997, 2025)\u003cstrong\u003e.\u0026nbsp;\u003c/strong\u003eThe interstate highway system was originally authorized at 66,000 km. \u0026nbsp;To construct a parallel two-lane system of roughly comparable extent exclusively for trucks would cost approximately $16.5 trillion. \u0026nbsp;This amount ignores required interchanges and is nearly half annual U.S. GDP.\u003c/p\u003e\n\u003cp\u003eThe rest of the paper is organized as follows: after this introduction, section 2 develops the background for the Nicaragua Canal project and a brief history of several alternatives for trans-isthmus freight transport; section 3 quantifies the fuel savings and environmental benefits of the Nicaragua Canal, comparing Panamax, New Panamax, and Nicmax vessels operating over alternative routes; section 4 forecasts freight demand for alternative trans-isthmus routes; section 5 evaluates project finance and amortization; and section 6 provides concluding comments.\u003c/p\u003e"},{"header":"2. Background","content":"\u003cp\u003eThe Panama Canal opened in 1912 with two sets of locks providing independent channels allowing ships to transit the isthmus in both directions. When the canal opened, few ships could fill the locks which would typically accommodate several smaller vessels at a time. Eventually larger vessels became more common, and the largest vessels the original canal can accommodate are called Panamax. By 1939 the U.S. Navy, whose strategic needs were instrumental in persuading Congress to appropriate funds for the original canal, increasingly recognized the limitation of the canal\u0026rsquo;s lock dimensions. By the 1930s, the largest aircraft carriers[1] could just barely fit, and although the \u003cem\u003eIowa\u003c/em\u003e class battleships were designed to fit, the larger planned \u003cem\u003eMontana\u003c/em\u003e class would not. For comparison, Japan\u0026rsquo;s \u003cem\u003eYamato\u003c/em\u003e class battleships could not transit the canal, and the broader beam designed into larger ships made them both more stable gun platforms and allowed for better anti-torpedo protection. Construction of the third set of locks began in 1940 but the project was abandoned when the U.S. entered World War II. The third set of locks project was revived by the Panama Canal Authority (ACP) in 2010 and was completed in 2016 (Panama Canal Authority 2006, 2009, 2010; Mulligan \u0026amp; Lombardo 2011, 2016). The largest ships that can transit the canal using the third set of locks are called New Panamax or NeoPanamax vessels. The proposed Nicaragua Canal will have even larger locks, creating a new class of vessels, Nicmax. To analyze the Nicaragua Canal we focus on the parameters of the currently abandoned Nicaragua Canal Project Description (HKND 2014). A comparison of constraints on vessel size is given in Table 1.\u003c/p\u003e\n\u003cp\u003eTo enable more trans-isthmus cargo movement, one alternative is to further expand the Panama Canal with a fourth set of locks of identical size to the third. This would double the canal\u0026rsquo;s capacity for New Panamax ships by allowing two sets of large locks that could operate in both directions year-round. The next alternative is to build the Nicaragua Canal. This route would be longer than the Panama Canal and would require locks to elevate ships to the higher level of Lake Nicaragua, 32.7 meters above mean sea level, compared with 27 meters for the Panama Canal\u0026rsquo;s Gatun Lake. Because the route is north of the Panama Canal, freighters bound for or originating in the U.S. eastern seaboard would benefit from a shorter Pacific route, but the Atlantic-Caribbean-Gulf of Mexico route would be approximately the same due to the need to navigate around various Caribbean islands.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eA further alternative is Mexico\u0026rsquo;s Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT), which requires that freight be offloaded at one of two ports and transported by rail or pipeline across the isthmus to be loaded onto a different vessel. The CIIT route uses specialized vessels that accommodate railcars and currently its capacity is determined by the size and number of freight slips in Salina Cruz and Coatzacoalcos that connect with the Tehuantepec railways. Finally, the costliest, most fuel intensive, and environmentally degrading alternative is the U.S. Land Bridge, where the cargo is moved overland from one coast to its final inland destination by rail or truck.\u003c/p\u003e\n\u003cp\u003e[1] These were called fleet or attack carriers. The U.S.\u0026rsquo;s first two, the Lexington and the Saratoga, had been laid down as battlecruisers but were converted to carriers under the terms of the Washington Naval Treaty. Similar conversions produced the Japanese carriers Kaga and Akagi. By late 1941, the U.S. Navy had also acquired the purpose-built Ranger, Yorktown, Enterprise, Hornet, and Wasp. Although these ships could and did successfully transit the Canal, the postwar Midway class and every subsequent U.S. carrier class were or are too big even for the expanded third set of locks.\u003c/p\u003e"},{"header":"3. Fuel Savings \u0026 Environmental Benefits","content":"\u003cp\u003eWe focus on fuel consumption over the operating life of a vessel because that accounts for the largest environmental impact of waterborne transport (Shimotsuura 2024, 2025). The traditional approach to estimating fuel consumption is based on pioneering studies of ship design practices which determine engine requirements (Benford 1957, 1958, 1961,1962, 1963, 1967, 1991a, 1991b, 1993; Benford, Thornton, \u0026amp; Williams 1962). These studies assumed high-pressure steam installation which was typical design for cargo vessels at that time, though in the interim diesel engines became more efficient and more common. Following Mersin, Alkan, \u0026amp; Mısırlıoğlu (2017), required shaft power (P) in kW is estimated as a function of operating speed (v) in knots, deadweight capacity (d) in tons, and Admiralty coefficient (A\u003csub\u003ec\u003c/sub\u003e):\u003c/p\u003e\u003cp\u003eP = (d\u003csup\u003e2/3\u003c/sup\u003ev\u003csup\u003e3\u003c/sup\u003e)/A\u003csub\u003ec\u003c/sub\u003e\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; (1\u003c/p\u003e\u003cp\u003eThe Admiralty coefficient is a dimensionless measure of a hull form’s hydrodynamic efficiency ranging from 400 (least efficient) to 600 (most efficient). Table 2 provides shaft power requirements computed from Equation 1 for a 120k deadweight ton (dwt) New Panamax vessel operating at speeds from 10 to 30 knots with Admiralty coefficient varying from 400 to 600. These figures are consistent with other sources, including MAN Diesel (2009), Borkowski, Kasyk, and Kowalak (2021), and Christensen (2023). Note particularly the significant energy savings from more efficient hull forms even at low speeds.\u003c/p\u003e\u003cp\u003eFigure 1 illustrates that required shaft power increases with the cube of speed, and that for a given 120,000 dwt cargo capacity, falls with the hydrodynamic efficiency of the hull. The most efficient hull form with A\u003csub\u003eC\u003c/sub\u003e = 600 is finely tapered with a bulbous forefoot like the \u003cem\u003eNormandie\u0026nbsp;\u003c/em\u003eor the\u003cem\u003e\u0026nbsp;United States.\u003c/em\u003e The least efficient A\u003csub\u003eC\u003c/sub\u003e = 400 hull is boxier. Because boxier hulls have more internal cargo space, the ideal for any particular application represents a tradeoff, though higher A\u003csub\u003eC\u003c/sub\u003e hulls will be increasingly preferred for larger ships and higher operating speeds. More efficient hulls are also preferred for larger ships, where the energy and fuel savings are greater.\u003c/p\u003e\u003cp\u003eRequired shaft power increases with the cube of speed, but falls with hull efficiency, with the benefit of a more efficient hull being greater at higher speeds. Equation 1 also enables us to compute shaft power for the four ship sizes compared here for different operating speeds. Table 3 gives the results of those computations.\u003c/p\u003e\u003cp\u003eTo convert shaft power to fuel consumption we use data from Adland, Cariou, \u0026amp; Wolff (2020) who measured fuel consumption for different size ships at various speeds. Their data enable us to estimate the relationship between power and fuel consumption. Based on their data, the ratios of daily fuel consumption in kg of residual fuel oil to shaft power in kW are\u003c/p\u003e\u003cp\u003ef\u003csub\u003eB\u003c/sub\u003e = 3.557 \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;(2a\u003c/p\u003e\u003cp\u003ef\u003csub\u003eL\u003c/sub\u003e = 3.983 \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;(2b\u003c/p\u003e\u003cp\u003eDiesel fuel density varies with temperature and to simplify calculations we assume a fixed density for residual fuel oil or bunker fuel of 1010 kg/m\u003csup\u003e3\u003c/sup\u003e at 15° Celsius or 59° Fahrenheit. For comparison, the lighter refined diesel fuel burned in trucks and locomotives has a density of 850 kg/m\u003csup\u003e3\u003c/sup\u003e. Actual density would be lower in the tropics and higher in colder climates. \u0026nbsp;This assumption facilitates expressing fuel quantities by weight in kg rather than by volume in liters or cubic meters. Fuel consumption varies over each voyage, since, e.g., ships draw progressively less as they consume fuel over the course of a voyage, wind and sea conditions vary, etc. (Ahlgren, Mondejar, \u0026amp; Thern 2019), but the computations used here provide estimates of average consumption most useful for preliminary planning. The fuel consumption ratio is lower for the same vessel under ballast (f\u003csub\u003eB\u003c/sub\u003e) than when fully laden (f\u003csub\u003eL\u003c/sub\u003e). Daily fuel consumption in metric tons (thousand kg) is then computed as\u0026nbsp;\u003c/p\u003e\u003cp\u003eF\u003csub\u003eB\u003c/sub\u003e = f\u003csub\u003eB\u003c/sub\u003e(d\u003csup\u003e2/3\u003c/sup\u003ev\u003csup\u003e3\u003c/sup\u003e)/A\u003csub\u003ec\u003c/sub\u003e\u0026nbsp; = (3.557d\u003csup\u003e2/3\u003c/sup\u003ev\u003csup\u003e3\u003c/sup\u003e)/A\u003csub\u003ec\u003c/sub\u003e\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;(3a\u003c/p\u003e\u003cp\u003eF\u003csub\u003eL\u003c/sub\u003e = f\u003csub\u003eL\u003c/sub\u003e(d\u003csup\u003e2/3\u003c/sup\u003ev\u003csup\u003e3\u003c/sup\u003e)/A\u003csub\u003ec\u003c/sub\u003e\u0026nbsp; = (3.983d\u003csup\u003e2/3\u003c/sup\u003ev\u003csup\u003e3\u003c/sup\u003e)/A\u003csub\u003ec\u003c/sub\u003e\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;(3b\u003c/p\u003e\u003cp\u003eThese equations allow estimates of total fuel consumption at different operating speeds calling for a range of different-sized engines, over different route lengths. \u0026nbsp;Table 4 gives laden fuel consumption F\u003csub\u003eL\u003c/sub\u003e.\u0026nbsp;\u003c/p\u003e\u003cp\u003eDaily fuel consumption increases exponentially with operating speed as shown in Table 4, e.g., increasing operating speed by 50% increases fuel consumption by approximately 350-400%, consistent with findings of Kee, Simon, and Renco (2018). \u0026nbsp;This suggests that higher operating speeds impose dramatically greater environmental impact and fuel costs, however, the faster passage also reduces the duration of each voyage, so there is a tradeoff between operating speed and environmental impact.\u0026nbsp;\u003c/p\u003e\u003cp\u003eThe largest (Nicmax) ships require the most fuel at any speed. Conversion from fuel consumption per dwt to consumption per TEU (twenty-foot equivalent unit) is based on Abramowski, Cepowski, and Zvolenský (2018). Larger vessels consume more fuel at a given speed, but cargo capacity increases more rapidly than vessel size, providing operating efficiencies for larger ships. Furthermore, any vessel laden below its maximum capacity would consume less fuel.\u0026nbsp;\u003c/p\u003e\u003cp\u003eTo compute fuel consumption in kg per TEU-km we divide daily consumption by km traveled per day, the product of 24 times speed in km/hr.\u0026nbsp;\u003c/p\u003e\u003cp\u003eFuel consumption patterns for the four sizes are shown graphically in Figure 2. Note particularly that per-unit fuel savings are greater for larger ships operated at higher speeds. The Nicmax class of ships permitted by the Nicaragua canal will transport cargo more cheaply and with less environmental impact.\u003c/p\u003e\u003cp\u003eThese figures may be compared to fuel consumption per TEU-km for trucks and trains, which are significantly higher. A standard two-TEU tractor-trailer consumes 9.4 liters per km (Mulligan \u0026amp; Lombardo 2016). Diesel fuel density varies with temperature, but assuming a density of 850 kg/m\u003csup\u003e3\u0026nbsp;\u003c/sup\u003efor refined diesel fuel, this converts to 8.00 kg/km or 4.00 kg/TEU-km. Rail fuel economy is much better, approximately 1.14 kg/TEU-km (AAR 2025, CSX 2025, Union Pacific 2025), but still much short of ships.\u0026nbsp;\u003c/p\u003e\u003cp\u003eOil price shocks negatively impact net exports and current account balances except for oil exporting countries (Lebrand, Vasishtha, \u0026amp; Yilmazkuday 2024). Oil price shocks contribute to inflation, particularly in advanced economies which are more dependent on fossil fuels and countries that are most dependent on international trade and finance (Ha et al 2023; Yilmazkuday 2024). Higher fuel prices tend to shift freight carriage from overland to waterborne modes because waterborne carriage is cheaper and less energy intensive (TEMS 2008).\u003c/p\u003e\u003cp\u003e\u003cstrong\u003e\u0026nbsp;Pollutant emissions are computed from Christensen (2023) as shown in Table 7.\u003c/strong\u003e\u003c/p\u003e\u003cp\u003eDaily emissions for different sized vessels at different operating speeds from 10-30 kts are shown in Table 8.\u003c/p\u003e\u003cp\u003eTable 9 quantifies actual emissions over alternative trans-Pacific routes from Guangzhou-New York, including the U.S. land bridge by both truck and rail, the expanded Panama Canal, the proposed Nicaragua Canal, and Mexico’s Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT).\u003c/p\u003e\u003cp\u003eSince container vessel carrying capacity in TEU increases more rapidly than energy requirement, fuel consumption, or pollutant emissions, there is always an unambiguous economic and environmental benefit from operating larger vessels. This benefit persists even below maximum capacity because partially empty vessels draw less and consume less fuel. Just as there is a clear economic and energy advantage from larger ships, there is an equally unambiguous environmental benefit. Larger ships consume more fuel and emit more pollutants, but their fuel consumption and emissions per unit of cargo carried is unambiguously lower.\u003c/p\u003e"},{"header":"4. Demand Forecast","content":"\u003cp\u003eInternational goods trade will inevitably expand with population and economic growth. The WTO forecasts a 3% annual increase over the next five years. Extending this trend further, Table 10 presents forecast trans-isthmus carriage up to 2060.\u003c/p\u003e\n\u003cp\u003eComparing projected demand to the Panama Canal\u0026rsquo;s capacity (Table 10) allows for an estimate/forecast of the minimum demand that would be faced by the Nicaragua Canal (Table 11).\u003c/p\u003e\n\u003cp\u003eThe Panama Canal, if not further expanded with a fourth set of locks, will reach capacity by 2038, and even if expanded, by 2046. The Nicaragua Canal would capture some of the demand for trans-isthmus crossings earlier, because of occasional operating constraints on the Panama Canal, and because of the better scale economies of Nicmax vessels.\u003c/p\u003e\n\u003cp\u003eTable 12 quantifies the Nicaragua Canal\u0026rsquo;s contribution to reducing climate change causing emissions.\u003c/p\u003e\n\u003cp\u003eOperation of a sizable fleet of Nicmax vessels offers significant emission reduction and mitigation of global climate change. Since the Nicaragua Canal will be the only way for Nicmax vessels to cross the isthmus, it will enjoy monopoly power\u0026mdash;however if tries to take advantage of this market power to extract higher revenue, that will divert all smaller vessels through the competing Panama Canal, and will discourage shipping lines from ordering additional Nicmax vessels, thus the Nicaragua Canal should never charge higher tariffs than the Panama Canal.\u003c/p\u003e"},{"header":"5. Construction Costs, Finance, \u0026 Amortization","content":"\u003cp\u003eAssuming that the Nicaragua Canal charges tariffs comparable to the Panama Canal, approximately $60 per TEU for container vessels, allows for projection of tariff revenue, shown in Table 13.\u003c/p\u003e\n\u003cp\u003eTariff revenues would be more than adequate to amortize a World Bank loan to construct the canal as shown in Table 15.\u003c/p\u003e\n\u003cp\u003eThere are cheaper alternatives to building the Nicaragua Canal, including further expanding the Panama Canal with a fourth set of locks, and further expanding CIIT port and rail infrastructure over the isthmus of Tehuantapec. Because rising world good trade will overwhelm the Panama Canal even if further expanded with a fourth set of locks, by 2046, the Nicaragua Canal should be seen as less an economic competitor to the Panama Canal, but a complement. It may be more appropriate to seek financing from the Panama Canal Authority itself rather than the World Bank or other international capital markets.\u003c/p\u003e"},{"header":"6. Conclusion","content":"\u003cp\u003eWaterborne transportation has clear advantages over land movement in terms of fuel economy and environmental impact, even when using dirtier fuel, and these advantages only increase for larger vessels. The transition from completely unrefined bunker fuel to more modern, reduced-sulfur residual fuel oil has only increased this advantage. The fuel and emission advantage derives from the lower energy required to move vessels through water with very low friction compared with the much greater energy to overcome land transport\u0026rsquo;s static and dynamic friction and elevation gradients. The energy benefit of waterborne transport translates directly into economic and environmental benefits which increase with vessel size. For many years, even as international trade expanded dramatically, the size constraint of the Panama Canal\u0026rsquo;s original 1914 locks limited the extent of this benefit for trans-Pacific trade with the east coast of the Americas. Even the 2016 opening of the expanded third set of locks, because they only operate in each direction on alternate days, leaves significant capacity constraints. These constraints are further aggravated by drought and water conservation imperatives which limit the draft of new Panamax vessels, requiring them to operate below full capacity. This contingency eliminates some of the benefits of operating larger ships. Expanding economic growth and international trade will eventually require the development of alternate routes, such as the proposed Nicaragua Canal project and the overland Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT) and Colombian overland routes.\u003c/p\u003e\u003cp\u003eThere are also improvements in time performance from alleviating or avoiding congestion in overland carriage. Facilitating transoceanic cargo movement is essential to avoid further aggravating the overburdened and capacity constrained U.S. land bridge. The more freight shifted to waterborne carriage, the greater the cost saving and the greater the environmental benefit. Every kilometer freight is carried by sea instead of either by rail or interstate highway reduces both fuel consumption and environmental impact.\u003c/p\u003e"},{"header":"Declarations","content":"\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eR. Mulligan wrote the main manuscript text, prepared Tables 1-13, and reviewed the manuscript.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n \u003cli\u003eAbramowski, Tomasz; Cepowski, Tomasz; \u0026amp; Zvolensk\u0026yacute;, Peter (2018) Determination of Regression Formulas for Key Design Characteristics of Container Ships at Preliminary Design Stage. \u003cem\u003eNew Trends in Production Engineering\u003c/em\u003e 1 (1): 247-257. 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(TEMS) (2008) \u003cem\u003eImpact of High Oil Prices on Freight Transportation: Modal Shift Potential in Five Corridors\u003c/em\u003e. \u0026nbsp;Report for U.S. Maritime Administration, U.S. Department of Transportation.\u003c/li\u003e\n \u003cli\u003eUnion Pacific Railroad (2025) How Are Locomotives Getting More Fuel Efficient for the Railroad Industry? (website) https://www.up.com/customers/track-record/tr040522-locomotive-fuel-efficiency-improvements.htm\u003c/li\u003e\n \u003cli\u003eU.S. Federal Highway Administration, Department of Transportation (1997) Typical Interstate System Cost per Mile. Document Route Symbol HNG-13 (March 21, 1997). Federal Highway Administration, Federal Aid \u0026amp; Design Division.\u0026nbsp;\u003c/li\u003e\n \u003cli\u003eU.S. Federal Highway Administration, Department of Transportation (2025) National Highway Construction Cost Index (NHCCI) https://www.fhwa.dot.gov/policy/otps/nhcci/\u003c/li\u003e\n \u003cli\u003eWorld Trade Organization (2024) \u003cem\u003eGlobal Trade Outlook and Statistics\u003c/em\u003e. Geneva.\u003c/li\u003e\n \u003cli\u003eYilmazkuday, Hakan (2024) Geopolitical Risks and Energy Uncertainty: Implications for Global and Domestic Energy Prices. \u003cem\u003eEnergy Economics\u003c/em\u003e 140 (2024) 107985. https://doi.org/10.1016/j.eneco.2024.107985\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"Tables","content":"\u003cp\u003eTables 1\u0026ndash;13 and 15 are available in the Supplementary Files section.\u003c/p\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Air Pollution, Clean Air, Environmental Degradation, Exhaustible Resources, Fossil Fuels, Hydrocarbons, International Trade, Logistics, Nitrogen Oxide, Nonrenewable Resources, Oil Policy, Pollution, Shipping","lastPublishedDoi":"10.21203/rs.3.rs-7665586/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7665586/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe proposed Nicaragua Canal would both complement and compete with the Panama Canal. The lock sizes for the proposed Nicaragua Canal would enable it to handle significantly larger Nicmax vessels, even larger than the New Panamax vessels permitted by the Panama Canal’s 2016 expansion, offering additional operating economies and environmental benefits. The larger locks of the Panama Canal’s 2016 expansion can only operate in each direction every other day. The Nicaragua Canal would help overcome the Panama Canal’s capacity constraints and delay them from becoming binding. The cost of the project will be estimated along with the demand it is likely to face between 2030–2060, and whether the revenue it will generate can amortize such a project.\u003c/p\u003e\n\u003cp\u003eJEL codes: Q35, Q37, Q38, Q53, R41.\u003c/p\u003e","manuscriptTitle":"An Economic and Environmental Evaluation of The Nicaragua Canal","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-10-08 15:15:27","doi":"10.21203/rs.3.rs-7665586/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"5fb0cd5f-4311-4e77-bdca-6025b7d02a6b","owner":[],"postedDate":"October 8th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2026-03-11T19:38:26+00:00","versionOfRecord":[],"versionCreatedAt":"2025-10-08 15:15:27","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-7665586","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-7665586","identity":"rs-7665586","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}