The route to development

The Logistic Corridor between Honduras and El Salvador is part of Central America’s economic and infrastructure integration plans, many of which were included in the Puebla-Panama Plan (PPP). The PPP is a forum where the presidents of Belize, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, and Panama agreed to create a social and economic development agenda for the region in order to enhance the quality of life for its inhabitants.

One of the PPP’s priorities is the infrastructure of the region: road networks, ports and airports. The road networks are grouped into the International Network of Mesoamerican Highways, which includes seven corridors or main roads: three of them will cross the entire region; the other four will connect both oceans in Costa Rica, Guatemala, and Panama, and between Honduras and El Salvador (the Logistic Corridor). “The Logistic Corridor is totally financed,” says Maria Teresa de Rendón, Executive Director of the Plan Puebla Panama (PPP) in El Salvador.

The Logistic Corridor between El Salvador and Honduras links two of the most important ports of the region: Puerto Cortés and Puerto La Unión. La Unión, which is still under construction, will be finished by the end of 2008 and will be one of the few ports on the Pacific coast capable of receiving post-Panamax ships—a new line of vessels that have three times the cargo capacity of Panamax ships and are currently too large to fit through the Panama Canal’s locks. According to the Panama Canal Authority, post-Panamax vessels will constitute 37 percent of the world’s fleet by 2011. These vessels have a maximum capacity of 12,000 TEU (Twenty-Foot Equivalent Unit) and, in order to dock, they need a 15 meter (49 feet) depth, even with low tide. This new breed of ships has forced the Panama Canal to start building a third set of locks in order to accommodate this maritime traffic.

Both El Salvador and Honduras have a vested interest in building the Logistic Corridor. In the case of El Salvador, the Corridor and resulting linkage with Puerto Cortés will validate the country’s $132 million investment in the new Puerto La Unión, which is the main infrastructure project of President Saca’s government. The government’s goal is to turn the country into a logistic and distribution center with “added value.” This means, for example, that the country might receive unfinished merchandise that could be finished within the country and labeled as Salvadoran, thus allowing them to re-export the products tax-free to the United States under CAFTA-DR. There are several factors that will lead to this success: the new port, with its special capacity; El Salvador’s strategic geographic position on the Pacific coast allowing for easier access to Asian countries; the country’s high-quality road network (considered by the Inter-American Development Bank as the best in the region); Salvador’s free trade agreements, especially CAFTA-DR; the country’s qualification by Moody’s as one of the three countries in Latin America with an investment-grade rating; and a modern airport.

El Salvador’s plans to become a logistic center also include an aggressive strategy to attract foreign investment. According to Pedro Escalón, an Investment Advisor at El Salvador’s Investment Promotion Agency (PROESA), the goal is to turn El Salvador into a hub for goods distribution in Central America. “Panama is able to easily supply Costa Rica and the north of South America, but supplying the rest of Central America is easier from here,” says Escalón. PROESA’s plans also include marketing the new port to shipping companies and couriers; creating a free trade zone similar to Colon in the Panama Canal; creating special free trade zones for pharmaceutical companies; investing in refrigerated holds; and turning the port into a distribution hub for cars imported from Asia. El Salvador has already built a 58 km (36 mile) road linking Puerto La Unión with El Amatillo, located at the border between El Salvador and Honduras.

On the Honduran side, the Dry Canal provides the country with an exit to the Pacific for its exports. Until now, Honduras has never had the resources to develop efficient ports on the Pacific coast; the current Honduran port on the Pacific works only for fuel import.

The project also provides an opportunity for Honduras to improve its main highway between the capital city of Tegucigalpa and the industrial center of the country, the city of San Pedro Sula, while at the same time, opening up an economically depressed area through the construction of the new section in Comayagua.

The government is managing an investment of approximate ly $320 million to improve already existing sections of the route and to build the new part of the Corridor that bypasses the capital. The funds for these improvements come from several sources, including the Inter-American Development Bank, the World Bank, the Central American Bank for Economic Integration, and the Millennium Challenge Account. 

“The intention of the Honduran government is to finish the Logistic Corridor in 2009, before the end of the current administration” says Marcio Sierra, Director of the Honduran Government’s Unit of Technical Support (UNAT), which is entrusted to do the follow-up of all the public investments.

Next stages

A number of steps remain to complete the building of a “Dry Canal.”  In the case of El Salvador, Puerto La Unión must be finished by December 2008 and a number of operational details must be finalized. La Unión, together with the Acajutla port will be given in concession through an international bid process scheduled for September through November 2007. The concession would start on January 2008, and according to Pedro Escalón, would provide an income of $500 to $600 million to the country. In addition, a free trade zone law needs to be created to establish competitive tariffs for the port and for cargo transportation (by land). Currently, it is very expensive to move cargo from El Salvador to Honduras. This situation should improve once the port is operating, because an increase in cargo will allow for renegotiation of transportation prices. However, there are many details that still need to be determined, such as the port and transportation tariffs.

If projections are met, within five years, when Puerto La Unión will be handling an estimated 350,000 TEUs, the Dry Canal will be a faster conduit than the Panama Canal for destinations such as Miami and Louisiana (albeit more expensive because of economies of scale). Currently, vessels require three days to cross the Panama Canal, and “sometimes queues might take up to eight days” says UNAT’s Sierra, resulting in up to eleven days to complete the crossing from one ocean to another. Through the Dry Canal, cargo can be moved in four to five days, a time savings that might appeal to some companies despite the higher cost of transportation. According to ECLAC (United Nations Economic Commission for Latin America and the Caribbean) in 2006 Puerto Cortés handled 507,980 TEU.

Addressing custom issues is another important step for the success of the Logistic Corridor. Customs are already in the process of being integrated under a project called “Modernization of Customs and Border Crossings,” supervised by the PPP. This project aims to design and implement a standardized, computerized border crossing procedure that addresses immigration, customs and quarantine. “The objective is to computerize all procedures so that the papers will be sent with anticipation. With this advance… we estimate that the border crossing time will be reduced by 50 percent,” says de Rendón of PPP. The procedure is already being tested at the El Amatillo checkpoint between Honduras and El Salvador. De Rendón predicts that the project will be finished some time in 2008, although there is some concern that this goal of unification is unrealistic. In a statement to La Prensa Gráfica Arturo Condo, Chancellor of the INCAE Business School, noted that eliminating customs in 18 months seems unrealistic and this is an area where unification of the region is much at a standstill.

Customs are one of the greatest challenges that the region will have to override in order to reduce significantly the cost of doing business in Central America. In addition, in order for the Dry Canal to succeed, both countries will have to show that they are able to operate their ports efficiently and make the route a viable option to the Panama Canal.