In operation for 110 years, the Panama Canal is one of the world's greatest feats of engineering. It's also a vital component in global trade: around $270 billion (£217bn) worth of cargo passes through each year, with the canal slashing travel time and enabling crucial and cost-saving 'just in time' fulfilment for manufacturers and retailers. 

However, the canal now faces several enormous challenges – not least President Trump's threat to seize control of it – throwing its future into doubt. What's more, neighbouring countries are already working on replacement solutions. 

Read on to discover the story of its construction, the big problems it faces and four huge foreign projects that could rival the Panama Canal.

All dollar amounts in US dollars.

Finding a way to connect the Atlantic and Pacific oceans dates back to the 1500s when Spanish explorers discovered there was nothing but a strip of land separating the two bodies of water.

It was the French who would make the first move in 1876. Ferdinand de Lesseps, who had recently and successfully built the Suez Canal, took charge of the project. However, creating a crossing through Panama proved to be a much bigger task than his work in Egypt.

After eight years, de Lesseps and his team had almost nothing to show for their efforts, having faced landslides, flooding, tropical illness and sweltering heat. To add insult to injury, a French court found him and his son guilty of mismanagement and sentenced them to jail.

With just a 10th of the canal excavated and no money left, project representatives met with then-US President William McKinley in December 1899, hoping to sell off the project rights rather than abandoning it altogether. They eventually sold the rights for $40 million, the equivalent of around $1.5 billion (£1.2bn) in today's money.

Following the California Gold Rush in the late 1840s, the US had become increasingly interested in a trade route that connected its west coast to the Atlantic Ocean and Europe. Along with the route that would become the Panama Canal, US expeditions in 1869 also surveyed options in Mexico and Nicaragua.

The US Senate voted to approve the Panama Canal in June 1902 and approached Colombia – at the time, Panama was its province – with a treaty for the project. The offer was rejected. President Theodore Roosevelt made his feelings known by sending warships to both oceans on either side of the province, and Panama declared independence in November 1903.

The Republic of Panama and the US negotiated the Hay-Bunau-Varilla Treaty of 1903. This gave the US a 10-mile-wide (16km) parcel of land for the canal in exchange for a one-time payment of $10 million (around $359m/£289m today), an annual annuity of $250,000 (almost $9m/£7.3m today) and the guarantee of Panama’s independence. It was considered a major foreign policy achievement at the time.  

The US officially broke ground on the project on 4 May 1904, and construction lasted for almost 10 years. Workers faced many engineering challenges, especially excavating through rock and limestone for the nine-mile-long (14km) Culebra Cut, the narrowest part of the canal. This included blasting 60 million pounds of dynamite to carve out a 45-foot-deep (14m) and 300-foot-wide (91m) ditch through the mountains.

However, it was tropical diseases like malaria and yellow fever that caused graver problems for the project and took many workers’ lives. Injuries from equipment like steam shovels, as well as flooding and landslides, also plagued the French project.

The canal reached its maximum workforce in March 1913, with 44,733 men on the job, not including those who were sick or on leave. It’s estimated that as many as 25,000 people died working on the Panama Canal in both the French and American projects.

The French had pursued a sea-level canal. Having seen the project struggle and ultimately fail, US engineers advocated for a system of locks. These were considered one of the project’s greatest engineering triumphs – nothing like it had been built before.

The locks consisted of three steps or pairs of chambers, and there were 12 in total located on either side of Gatun Lake, an artificial waterway created for the canal. Freshwater lifts ships 85 feet (26m) above sea level and lowers them back down on the other side of the lake without the use of pumps. Instead, water enters and exits through 18-foot (5m) diameter tunnels running between the two pairs of chambers. The electricity needed to operate the locks and gates is also powered by water.

This marvel of engineering also finished ahead of schedule and under budget. The first ocean-going vessel travelled through the completed 50-mile-long (80km) canal on 7 January 1914. Total project costs are estimated at $375 million, about $11.8 billion (£9.5bn) in today's money. This was around $23 million less than expected.

In the first 100 years of operation, more than one million ships passed through the canal, the ownership of which passed to Panama in 1999. However, it struggled to meet demand, and its locks were too small to accommodate newer, larger container ships.

An expansion project started in 2007, which built two more sets of triple locks on either side, created a third lane for canal traffic, and deepened and widened the original canal entrances.

The expansion project, which finished in 2016 at a cost of $5.25 billion (almost $7m/£5.6m in 2025), doubled the canal’s cargo capacity. Today, it takes an average of 8-10 hours for a ship to make the 50-mile (80km) journey through the Panama Canal, while travelling thousands of miles around Cape Horn and the southernmost parts of South America takes several weeks.

As part of the expansion project, the new locks have been designed to conserve water. Although they're 70 feet (21m) wider and 18 feet (5m) deeper than the originals, they actually use less of Gatun Lake’s freshwater through a recycling system.

Each of the new locks’ chambers has a set of three basins (pictured right). Each basin is roughly the size of 25 Olympic pools and can receive and supply water to and from the chamber, raising or lowering the water level to meet the next chamber and continuing a ship’s journey. These basins allow up to 60% of the water to be reused.

Though the Panama Canal has been upgraded to better meet the demands of the 21st century’s commercial shipping trade, its future remains uncertain.

One of the biggest issues is that the artificial Gatun Lake relies on rainfall and a severe drought in 2023 reduced water levels to record lows. The Panama Canal Authority restricted the number of ships that could pass through the waterway for more than a year to conserve the lake’s freshwater, which created a pile-up of ships at either entrance. Shippers had two options: wait as long as two weeks to enter the canal or pay extra to jump the queue.

On top of that, freight ships had to limit the number of containers they carried through the canal. The delays these measures caused were felt around the world, and shipping costs skyrocketed.

Similar droughts caused problems in 2016 and 2019, and the Panama Canal Authority worries dry spells like these may happen more often as a result of climate change.

Making the situation more complex, Gatun Lake provides water for several nearby cities. The Panama Canal Authority is considering several projects that will help conserve water for the canal’s operations and meet the needs of the local community, although it’s uncertain if any will be built soon.

There’s yet another challenge ahead. Since the 2016 expansion, freight traffic is increasingly using new ships that are too large to fit in the canal.

By the end of 2024, rising water levels meant the Panama Canal Authority could restore traffic through the waterway. While good news, the authority didn’t take a moment to rest. Along with short-term improvements for conserving water, it's also exploring a land connection using rail and trucks.

This so-called 'land bridge' would not rely on Gatun Lake (pictured) and would effectively be a backup option in periods of high demand or drought. It would also mean the canal could boost its capacity by five million containers a year and could offer a connection for the cargo on ships too large to use the canal.

According to reports in November 2024, the authority has been looking for financing to advance the idea, asking for up to $1.4 billion (£1.1bn). Shipping companies have reportedly shown little interest in the idea.

Adding to the problems facing the canal is Donald Trump's return to the US presidency. In his inauguration speech, Trump mentioned Panama six times, more than any other foreign country. He’s threatened to seize control of the canal and criticised the “bad deal” that former president Jimmy Carter made when arranging its return.

Citing national security concerns, Trump has further dialled up the rhetoric by claiming the canal is under Chinese control, an allegation Panama has strenuously denied. What's more, the newly-elected president has claimed that American ships have been “severely overcharged” for transit through the canal. 

Panama’s president, José Raúl Mulino, has refuted Trump’s claims of overcharging, pointing out that the treaties that govern transit through the canal do not discriminate against any country and that all nations pay the same. America does use the canal more than any other country, but Mulino has insisted there is “no possibility” of negotiating a discount for US vessels.

Despite questions over its future, what is certain is that the canal remains a lucrative money-spinner. It’s estimated to have generated around $5 billion (£4bn) in revenue in 2024 alone and is vital to Panama’s economy. Vessels that pass through the waterway face an array of tolls and tariffs, with the bills for the largest tankers running into hundreds of thousands of dollars for a single transit. 

With tensions rising at the prospect of a US intervention in the region, and the huge sums of money at stake, it’s little surprise that several rival projects to the Panama Canal are gaining fresh impetus…

Mexico is leading the charge. Its Interoceanic Corridor of the Isthmus of Tehuantepec (CIIT) project between Oaxaca and Veracruz would connect four Mexican ports with 745 miles (1,200km) of railroad tracks and the national highway system.

This rail line would create much-needed jobs and growth in the southern part of the country and could potentially rival the Panama Canal.

At an estimated cost of $7.5 billion (£6bn), the route would see containers transferred from ships to trains and then transported to the opposite coast for reloading onto ships – not exactly a new idea. Much of the existing railway originally opened in 1907 and was then abandoned after the Panama Canal became operational seven years later.

Former President Andrés Manuel López Obrador inaugurated the passenger service of the CIIT route linking the Pacific and Atlantic in December 2023. Work is now underway to upgrade and expand the ports of Coatzacoalcos and Salina Cruz, which are not yet ready to handle the amount of cargo expected.

In a second phase of the CIIT project, Mexico plans to build industrial parks and logistics centres along the rail corridor, hoping to take advantage of US interests in relocating semiconductor factories closer to home. There are even proposals to develop specialised terminals, including one for liquid natural gas (LNG) at the Port of Coatzacoalcos.

While companies could avoid any shipping delays at the Panama Canal by using the rail line, and potentially evade the rising costs that accompany disruptions, there are downsides.

Though the rail line would complete the journey in as little as seven hours, trains are unable to carry as many containers as ships. Plus, transferring cargo from ship to train and back again at each ocean port would add time to the journey, making it potentially less competitive.

Whether the rail line can compete on journey time and cost is up in the air. The corridor will offer an alternative but is expected to take only about 5% of the canal’s share of traffic.

Colombia is also pursuing a rail alternative that can compete with, or at least relieve pressure on, the Panama Canal.

The proposed 150-mile-long (240km) line near the border with Panama would connect ports in Cupica on the Pacific Ocean with Turbo on the Atlantic (pictured). As with Mexico’s line, the corridor would include transferring containers between ships and trains at the ports.

It’s an idea that dates back to at least 1994, but it has never progressed. With the Panama Canal’s water woes and the recent disruptions to shipping, Colombia is reconsidering the rail line. Project sponsors estimate the corridor could handle as much as 196 million tonnes of containers annually, noting that the Panama Canal only processed slightly less than 193 million tonnes during the drought of 2023.

Unlike Mexico, which only needed to revive an existing line, Colombia’s line would require new construction through the environmentally sensitive rainforests of the Chocó region, home to many indigenous communities.

It’s one of the most underdeveloped areas in Colombia and has seen the lowest public investment in the country’s history – a reality highlighted by a devastating landslide in January 2024 that killed 39 people. Shortly after, President Gustavo Petro announced his proposal for the rail line, noting that the only region in Colombia “that has coasts on both oceans is Choco. Shouldn’t it be the richest?”

Planning documents call for more than 80 miles (130km) of viaducts, one of which would be 74 miles (119km) long, to minimise the environmental impact of the rail corridor.

The Turbo to Cúpica Interoceanic Rail Corridor is only one component of a wider programme to reactivate the country’s stagnant rail sector. Less than one-third of the country’s 2,175 miles (3,500km) of existing rail is operational today, and critics have recommended that the programme focus more on local transit instead of chasing after the Panama Canal’s freight traffic.

Only announced in January 2024, the project is in the feasibility stage with several alignments being studied. Current estimates for cost range between $7–$15 billion (£5.6bn–£12bn), though project completion would not be expected before 2050.

Even more ambitious is Nicaragua’s plan for a supersized canal stretching 173 miles (278km) across the country. This would be many times longer, wider and deeper than the Panama Canal, requiring extensive excavation. From the Atlantic, a 60-mile-long (97km) canal would connect to Lake Nicaragua, the region’s largest freshwater lake that’s about 36 miles (58km) wide. A second 15-mile-long (24km) canal would then connect to the Pacific Ocean.

Such an incredibly complex construction and engineering project would not come cheap, especially considering Nicaragua is one of the poorest countries in Latin America with almost 25% of the population living in poverty.

Chinese company HKND, led by businessman Wang Jing, stepped in to finance the $50 billion (£40bn) five-year project, holding a groundbreaking ceremony in 2014.

The festive mood was not shared by all. Protesters lashed out against the government and HKND. Farmers opposed land seizures and residents refused to leave numerous villages in the path of the canals. It was thought that as many as 120,000 people would be forcibly displaced including many in protected indigenous territories.

Criticism of the project mounted due to its potential for environmental damage as the canal would cross rainforests, wetlands and conservation areas, possibly destroying sensitive ecosystems.

Making things worse, Wang, who made his money in telecoms and lacked engineering experience, lost as much as 85% of his fortune in China’s 2015 stock market crash. HKND postponed the project, and the Nicaraguan government revoked the concession in May 2024. Without any other source of cash, the Grand Canal (which had barely progressed) stalled.

Disruption and congestion at the Panama Canal have not escaped the attention of Nicaraguan President Daniel Ortega. In late 2024, government officials revealed the details of a new interoceanic canal, even longer than the original Grand Canal, and carrying a hefty $64.5 billion (£52bn) price tag.

Measuring 277 miles (445km) in length, this iteration of the project would connect Bluefields on the Atlantic coast with Puerto Corinto on the Pacific. It would skirt north of Lake Nicaragua and instead cross the smaller Lake Managua. 

Ortega initially presented the idea at a China-Latin American and Caribbean Business Summit in November 2024, and Chinese firm CAMC has since agreed to build the port facilities at Bluefields. Nevertheless, there’s no word yet if the bigger, and more expensive, canal route has piqued the attention of Chinese investors.

The Honduran government is also exploring options for an interoceanic railway – a project that was first aired in the 1850s, but never pursued.

Announced in early 2024, the current proposal is a similar length to the updated Nicaragua line at 273 miles (440km). Construction will cost an estimated $20 billion (£16bn) and take at least 10 years to build. In brief, the line would connect the port of Cortes (pictured) on the Atlantic Ocean to a new megaport at the sleepy island town of Amapala on the Pacific in its first phase.

A second phase would connect Amapala to the port of Castillo, east of Cortes. That would be a 737-mile (600km) journey.  

The proposal drew attention from governments worldwide, with delegates from the US, Japan, South Korea, Spain, China, Qatar and Italy attending a meeting with the Honduran commission in charge of the project.

Honduras has received funding to explore two logistics projects key to the interoceanic railway: the new port in Amapala and a bridge connecting it to the mainland. However, whether the project would compete with the Panama Canal and its 50-mile (80km) route is still in question.

After ships unload in Cortes, cargo would be taken by rail to a dry port in La Barca where it would be moved by truck to a second dry port. It would be transferred again for a second 50-mile (80km) rail journey to Amapala before being reloaded onto another ship. The even bigger question, with no answer in sight, is how to pay for the project.

While the Panama Canal Authority has several short-term solutions in mind, there's a long-term option on the table, too: a new water resource to supplement Gatun Lake. A second reservoir has been on the authority’s wishlist for years, but it's been restricted from expanding outside of its traditional watershed.

In the summer of 2024, Panama’s Supreme Court reversed this rule. The authority aims to build a dam on the Indio River, which runs parallel to the canal, creating a second reservoir near the southeast side of Gatun Lake (pictured), which would be connected through a new five-mile (8km) tunnel to replenish the lake’s freshwater supply in times of drought.

There are numerous groups who are opposed to the idea of a dam on the Indio River, including around 2,000 people who would be relocated when their villages flood, as well as local farmers.

Supporters point out that the dam is the most “complete” option, and will provide water for many local communities, in addition to supporting global trade through Panama. Meanwhile, the US Army Corps of Engineers and the Panama Canal Authority have reported conservation measures alone cannot meet the canal’s growing water demands due to increasing threats of drought.

Should the project go ahead, the new reservoir would enable the canal to facilitate up to 15 more ship crossings each day. Project estimates put the cost at $900 million to $1.6 billion (£725m–£1.3bn) and the construction timeline at five years. Panama's President Jose Mulino said the approval process and other governmental debates could be completed this year, so watch this space...

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