Academic journal article Global Economic Observer

Major Projects That Influence World Trade

Academic journal article Global Economic Observer

Major Projects That Influence World Trade

Article excerpt

1. Introduction

The Suez Canal and the Panama Canal were two of the greatest financial, technological and logistical projects of their time, both originating in France in the 19th Century, Paris being the capital of world engineering during that time.

According to UNCTAD (2012) "The maritime transport is the backbone of international trade and a key engine driving globalization. Around 80 per cent of global trade by volume and over 70 per cent by value is carried by sea and is handled by ports worldwide; these shares are even higher in the case of most developing countries."

During the French occupation of Egypt, Napoleon Bonaparte had the idea of opening a canal between the Red Sea and the Mediterranean Sea. His initiative came to life in 1854 when Ferdinand Lesseps was granted the right to dig a canal across the Isthmus of Suez. The project planning finished in 1856. The Suez Canal Company was established in December 1858 (its stock owned chiefly by French and Egyptian interests1) and in April 1859 the project started its operations. The excavations took almost 11 years and involved over 1,5 million people, registering a death toll of thousands of workers. During its execution the British Empire opposed the project that now accounts for almost 8-10% of world trade volume, probably because they were not involved in it, but, as soon as they had the chance, they bought Egypt's shares in 1875. The Suez Canal shortened the distance between the Port of Constantza and the Port of Doha by 7950 nautical miles, the route around the Cape of Good Hope being 12001 nautical miles long and the one through the Suez Canal, 4051 nautical miles2. The Cost of the Canal was over 3,3 billion, in 2014 dollars.

The Suez Canal is 60 meters wide and its daily traffic is about 50 ships, due to the fact that the vessels travel in one way convoys, thus, the ones coming from the opposite direction have to wait in designated areas for their turn. At present up to 10% of the seaborne trade passes through the Suez Canal, the toll fees reaching over $5 billion in the last three years.

A report from R.K. Johns & Associates Inc. (2005) forecasts that the Suez Authority might raise tolls by 2015, estimating a 5% increase.

The Canal had a strategic importance for the British Empire, and France, enabling a quick route to their colonies. From 1936 until 1954-56, when it was nationalized, London maintained a defensive force along the Suez Canal Zone.

James Feyrer (2009) did an analysis on the influence of the Canal's closure (1967-1975) on international trade flows, taking into account the increase in the distance between the trading partners. He identified a clear drop in trade for the partners, registering distance increases of more than 10 percent and also noticed that it took several years for the partners to reach again the level of trade before the closing.

Feyrer's analysis proves the importance of the Suez Canal for world trade.

The Panama Canal was the first big project of the 20st Century that laid the foundation of modem project management. The main beneficiary of the Canal was the United States of America, which funded its construction for a strategic reason, mainly to ensure an easy transit between the Atlantic and the Pacific Oceans for the American Navy, and then for the transportation of oil from the West Coast to the East Coast. The total cost of the Canal in 2014 dollars was over $8.3 billion. The main advantage to world trade consists of shorter sailing distances. The distance from the Port of Los Angeles to the Port of New Jersey via the Cape Horne is 12788 nautical miles and through the Panama Canal it is 4930 nautical miles. Initiatives to dig a canal in Panama existed before. After the great success of finalizing the Suez Canal, with support from the French authorities, Ferdinand Lesseps, engaged in a new adventure trying to build the Panama Canal. His endeavor took seven years, from 1882 to 1889 and was never finalized due to bad project management (poor environment analysis, bad planning, wrong technical solutions, high mortality among the workers etc. …

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