Mexico’s $4.5BN Panama Canal Rival

For a hundred years, the Panama Canal has powered global trade. There's no better way to transport goods from the Atlantic Ocean to the Pacific — but maybe, that's about to change. Mexico is about to open a new project: the Interoceanic Corridor of the Isthmus of Tehuantepec.

It’s a bit of a mouthful. But what is this thing? And will it replace the Panama Canal?

I’m Regis, and today we will find out! Before we get to Mexico’s new project, we first need to talk about the Panama Canal Along with the Suez Canal, it's probably the most famous artificial waterway on the planet. It cuts through 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 links North America to South America, with the Atlantic and the Pacific on either side.

This isthmus is 65 kilometers wide. That’s also the length of the Panama Canal, which is actually relatively short. The Suez Canal is almost three times as long, while the Grand Canal in China is — quite incredibly — more than twenty times as long.

But what the Panama Canal is lacking in size, it makes up for in terms of importance. Take a look at this map of the Americas. Before the Panama Canal was constructed, way back in 1914, it was a total pain for cargo ships to travel from one side to the other.

Imagine a ship from Europe. It has a load of goods that it wants to sell in California. That ship would have to sail all the way to Chile, cut through the Strait of Magellan, then sail all the way north again.

If the ship was fast enough, it could do it in a few weeks, but for most ships? You’re looking at months. It was dangerous, too.

The Strait of Magellan can get extremely stormy, not to mention some crazy currents. In those days, the only other way around — the Northwest Passage, at the top of the Americas — 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 drew up a plan to build a shipping canal in Central America. This new canal would take less than a day for a ship to navigate, and slash the journey from the Atlantic to the Pacific by a distance of approximately 12,000 kilometers. That’s a good few weeks of travel.

Building the canal wasn’t easy. Laborers had to use dynamite, drills and steam-powered shovels to clear more than 200 million cubic meters of earth. To put that number into perspective: if you piled it all up in a giant mountain, it would be 80 times bigger in volume than the Great Pyramid of Giza, and almost two times taller than the Empire State Building.

Basically, a man-made mountain. To make things even harder, the laborers found themselves working in temperatures of 40 degrees Celsius or more. Almost 6000 people died along the way, sometimes due to heatstroke, but also due to rockslides and the occasional tropical disease.

All in all, it doesn’t sound like fun… There were also some key engineering challenges that the project had to deal with. There was a difference of almost 30 meters between the highest point of the proposed canal and the lowest. This meant the canal’s construction team had to include a series of locks and gates which helped to change the elevation of the water.

These locks let ships climb all the way up to the 30-meter peak, before making their way back down again. In total, the Panama Canal’s construction cost the United States a staggering total of 375 million dollars — that roughly works out as 12 billion dollars today. But despite all the challenges, after a decade of construction, the Panama Canal officially opened in August 1914.

The very first ship to traverse the canal was the SS Ancon — and it proved to be the first of many. About a thousand ships used the canal in the first year, and that number has risen ever since. Nowadays, more than 10,000 ships use the Panama Canal every year, working together to transport half a billion tonnes of goods.

These ships pay a toll to use the canal — for a larger vessel, it can cost about half a million US dollars — but it's well worth the cost when it saves them traveling all the way down to the Strait of Magellan instead. This canal changed the face of global trade. But as of 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’re thinking those letters don’t quite add up, that’s because it’s an abbreviation of the Spanish name for this project. To understand the origins of the CIIT, we need to jump back to the end of the 19th century.

That's around the same time that the United States first started thinking about the Panama Canal — and as it turns out, they weren't the only country exploring these kinds of ideas. In 1884, a powerful man became president of Mexico: José de la Cruz Porfirio Díaz Mori. That’s a mouthful too!

Let’s call him Porfirio Diaz for short. Porfirio Diaz 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 to the coast of Veracruz in the north.

In other words: he wanted to build a railway between the Atlantic and the Pacific, in the hope of tackling the exact same problems that the Panama Canal later solved. Most people have never heard of it, but in the middle of January 1907, this new railway — known as the Tren Interoceánico — officially opened its doors. This was seven whole years before the Panama Canal, and global traders started to use the railway right away.

Over the next few years, hundreds of thousands of tons of cargo were successfully moved along it. Mexico started to thrive economically as it found itself playing a vital role in international trade. But this success was short-lived.

When the Panama Canal first opened its gates, most shipping companies decided to stop using the Tren Interoceánico, and switch to the canal instead. In 1914, when the Panama Canal opened, the amount of cargo traveling along the Mexican railway dropped by a third, and a year later, it had dropped 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 America, and saved a good few days for anyone who wanted to use it.

So why did people choose Panama? At first, it might not make sense. But there are actually a couple of very important reasons.

First of all, a lot of the shipping companies were America-based, and they preferred to support an American project as opposed to a Mexican rival. On top of that, a civil war had recently broken out in Mexico. The violence scared a lot of the other companies off.

Logistically speaking, it’s also simpler to use a shipping lane — you don’t have to unload your cargo onto trains. And so, with such a massive drop in traffic, the Tren Interoceánico became too expensive to maintain. It collapsed into disrepair.

And it stayed that way for a hundred years, until an ambitious new president came to power in Mexico: López Obrador In 2018, President López Obrador made plans to redevelop Mexico’s former 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 primary rail lines: Line Z, Line FA, and Line K. If anyone knows what these letters stand for, please let us know in the comments.

We’ve had our team working hard on this, and none of us can figure it out! Anyway, back to the CIIT. Work began in June 2020, cutting back vegetation, pulling up old tracks, and replacing them with shiny new ones.

In total, the new railway — with those three main lines — is expected to be more than 1000 kilometers long. The Mexican government is also planning to build a series of industrial parks along the railway. And López Obrador isn't messing around here.

In 2023, he sent the army to capture a stretch of old railway that was officially owned by a private company. Later, he offered to compensate the company — but not before making 100% sure that this stretch of railway was safely in the government's hands. He didn't want to risk the project collapsing, just because he couldn't strike a deal with a stubborn private company.

There have actually been a few clashes with protestors, including several groups from indigenous communities in Oaxaca. They're worried about the environmental impact of the project; construction workers have been cutting down trees and damaging local habitats. One group of protestors was briefly imprisoned, after supposedly attacking construction workers with machetes.

In other places, local families have been forcibly relocated. It all feels a little bit controversial… But most people in the region think the negatives of the project will be outweighed by all the benefits. Some experts think that the CIIT will create half a million jobs for local people, and attract 50 billion dollars of international investment.

This economic boom could transform the country — and that's what President López Obrador is counting on. In August 2023, Line Z was officially completed. In September, López Obrador himself rode a passenger train from one end of the route to the other.

The journey took less than nine hours, making it officially faster than traversing the Panama Canal. Two months later, just a few days before Christmas 2023, the first trains opened their doors to the general public and started to carry local passengers from the Atlantic coast to the Pacific. The other two lines are expected to be finished by the end of 2024.

Despite all this progress, the government still has some work to do before the CIIT can be used for international shipping. Another feature of the project is a total rehaul of the ports at both ends of the train 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 shelter the harbor.

These giant rock walls are meant to reduce the risk of cargo ships being knocked over by storms or waves, which really wouldn’t be ideal. Work is still underway on that breakwater. But as of recent news, it’s getting closer and closer to being finished, meaning that the CIIT will open to cargo sooner rather than later.

And that raises a pretty interesting question: What happens to the Panama Canal? Before we answer this question, we would really appreciate your feedback down below in the comments! If you enjoy these videos, make sure to subscribe to our channel.

But now, back to the video! Some experts think that the CIIT will prove to be a cheaper and faster alternative to the existing Panama Canal. If that turns out to be true, it would make sense for companies to change their shipping routes, traveling through Mexico's railway corridor instead of using the crossing in Panama.

Potentially, the canal could be driven out of business, just as it drove the original version of the Mexican railway out of business one century earlier. But actually, that isn't what the CIIT was built for. The people involved have repeatedly said that this Mexican railway will complement the existing Panama Canal, as opposed to trying to replace it.

The Panama Canal has the capacity to handle up to four million cargo containers every year, but often, that isn't enough. More and more ships want to use the canal with every passing year, and it struggles to keep up with demand. To make things worse, the canal has been having some problems.

In 2023, Panama was struck by the driest season in their recorded history. The authorities decided to limit the canal in the hope of preserving water. All its gates and locks use water to operate — and that water was too valuable to waste.

A decision was made. Only 25 ships would be allowed to use the canal per day — down from an average of almost 40 per day. This led to a bit of a frenzy, as companies started bidding millions of dollars just to guarantee a precious slot.

Other ships were left stranded, forced to wait for a chance to cross the channel. This is where another option like the CIIT could help. It could take some pressure off the Panama Canal, and give shipping companies an alternative route when the canal is in high demand.

This would make shipping more reliable: companies would have another viable option to help them reach their target destinations on time. The water shortages in Panama actually disrupted some deliveries in the run-up to Christmas. If the CIIT had been up and running, those deliveries might have all 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 project in 2023: "It's not just about connecting the country, it's about connecting the world. " But in the future, there's also a chance that the CIIT will face competition of its own.

In 2014, a Chinese businessman tried to build a canal in Nicaragua, in the hope of setting up 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's also a possibility that the Northwest Passage — once blocked by ice — could be opening up as a result of global warming. In the last few years, a few ships have managed to use that route to get from one side of America to the other. One thing’s certain: the state of trade between the Pacific and the 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. Thank you for watching, and we will see you in the next video!