The new deep-water seaport at Chancay, north of Lima, is open for business, signaling the start of a new era of efficient, high-capacity shipping between China and Peru, with a connection to Brazil across the Andes. This is driving US military and strategic planners up the wall, but they have nothing comparable to offer and no way to stop it.
Meanwhile, Caltrain, the railway service operating between San Jose and San Francisco, has sold its old diesel trains to the city of Lima. Caltrain itself has gone electric.
Chinese President Xi Jinping joined Peruvian President Dina Boluarte for the seaport’s inauguration ceremony on November 14, participating via video link from the Government Palace in Lima. Xi was also there to attend the annual APEC (Asia-Pacific Economic Cooperation) summit meetings, which began the following day.
Waxing poetic, Xi called the Chancay project “a starting point to forge a new maritime-land corridor between China and Latin America and connect the Great Inca Trail.”
Built by COSCO (China Ocean Shipping Company) and Peruvian mining company Volcan over the past three years, Chancay port has a maximum depth of 17.8 meters, deeper than Peru’s main port of Callao. This will allow it to handle the world’s largest container ships.
Financed by Chinese banks, with total investment exceeding $3.5 billion, Chancay is 60%-owned by COSCO. More than 8,000 jobs are expected to be created. Annual revenue is projected to reach $4.5 billion.
Starting at 1 million TEUs (twenty-foot equivalent units), the port’s annual throughput is scheduled to rise to 3.5 million TEUs when all the facilities are completed, making it the premier deep-water port on the west coast of South America.
A warehousing, industrial and commercial park next to the port will serve both foreign investors and overspill from the crowded Lima-Callao area. BYD is said to be interested in building an auto assembly plant there.
By eliminating trans-shipment via Manzanilla, Mexico, or Long Beach, California, Chancay should reduce transport time to and from China by more than a third, from 35 to 23 days, while reducing total logistics costs by an estimated 20%. Chancay is more than 4,500 km from Manzanilla and more than 6,600 km from Long Beach.
Chancay port is fully-automated, equipped with unmanned cranes fabricated by Shanghai Zhenhua Heavy Industries (also known as ZPMC), driverless electric container trucks made by SAIC Motor, and 5G wireless control equipment from Huawei. All of the important equipment is from China. Engineers travel around the port in BYD pickups.
The port is connected to the north-south Pan American Highway and from there to Brazil via the Southern Interoceanic Highway, which runs through Cuzco, Porto Velho in the upper Amazon basin, and all the way to Sao Paulo and Porto de Santos on the Atlantic coast.
According to Xi, “We are witnessing not only the solid and successful joint implementation of the Belt and Road Initiative in Peru, but also the birth of a new land-maritime corridor between Asia and Latin America and the Caribbean in a new era,”
Boluarte declared, “With this mega project, we are beginning a transformation that will consolidate the country as a world-class technological and industrial logistics center that will strategically project us in the Asia Pacific region.”
This bothers the Americans. Not only was Chancay built by the Chinese in what they regard as their “back yard,” it also is more advanced than any seaport in the US. From their perspective, it could turn out to be a strategic nightmare.
General Laura J. Richardson, until recently head of the US Southern Command, has warned that the Chinese navy might use Chancay at some time in the future. Professor Evan Ellis of the US Army War College told the Financial Times that “The risks to Peru are at multiple levels. Risk number one is the country not reaping the benefits of its abundant resources and geographic position, but rather the Chinese getting those benefits.”
The Peruvian government has granted COSCO the exclusive right to operate Chancay for 30 years. Ellis calls this “previously unthinkable and against the very essence of Peru’s assertion of sovereignty over its own ports,” but Peru’s minister of transport says that Peruvian customs and port authority officials will play their usual role at Chancay, and that Chinese capital is no different than American or British capital.
In any case, Peru acquires a port that it could not build by itself and that should lead to a substantial increase in its trade with China and Brazil. Ecuadorian and Chilean vessels are also expected to transport goods to Chancay for onward shipment to Asia. And there are plans for a Brazil-Peru Transcontinental Railway that would run to Chancay, bypassing the Panama Canal.
China is already Peru’s largest trading partner, ranking first in both exports and imports, and Chancay should expand its lead. The US ranks second, with Canada, India, South Korea, Japan, Chile, Spain, the Netherlands and Brazil well behind individually but ahead of the US in the aggregate. In 2023, Peru’s exports to China were 2.5 times its exports to the US.
The first ship to sail from Chancay to China was loaded with fruit. Other Peruvian exports, including fish products, iron ore and copper, plus agricultural products from Brazil, will follow. Imports from China include autos and tires, computers and other electronic equipment, clothing and toys. How will Peru and its neighbors not benefit from this? It is the US that might not benefit.
Peru is a member of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), the free trade agreement put together after the US withdrew from the original TPP (Trans-Pacific Partnership) in 2017. The other members of the CPTPP are Japan, Vietnam, Malaysia, Singapore, Brunei Darussalam, Australia, New Zealand and, in the Americas, Chile, Mexico and Canada.
Peru also has a free trade agreement with China, which was upgraded during Xi’s visit. As a result, Peru’s foreign minister told Reuters, trade between the two countries should expand by at least 50%. Some 400 Chinese business representatives accompanied Xi to Lima. Like most of the Asia-Pacific, Peru is committed to expanding international trade and investment, while the US retreats into protectionism.
The US does have a free trade agreement with Peru, which incoming president Donald Trump might override if, as some commentators in China claim and US trade hawks fear, Chancay is used to dodge tariffs by assembling or repackaging Chinese goods for onward shipment to the US. The US is already doing this to Mexico and there is no reason to think that Peru would be any different. But focusing on it diverts attention from the purpose and significance of Chancay.
It should be noted that the US could not have built Chancay even if it had wanted to. It simply does not have the required expertise. None of the world’s most advanced ports are located in the US and the International Longshoremen’s Association (ILA) is fighting tooth and nail to keep it that way.
As reported by The Wall Street Journal, ILA President Harold Daggett and Executive Vice President (and son) Dennis Daggett told the union’s rank and file in September that “the ILA does not support any kind of automation, including semi-automation.”
As a result of this kind of thinking, “The Container Port Performance Index 2023: A Comparable Assessment of Performance Based on Vessel Time in Port,” produced by the World Bank, ranks the Yangshan Deep-Water Port in Hangzhou Bay south of Shanghai first, followed by the Port of Salalah in Oman, the Port of Cartagena in Colombia and many other ports around the world but outside the US. The most efficient US port, the Port of Charleston, South Carolina, ranks 53rd.
The US government is particularly leery of the automated ZPMC cranes, which it regards as a cyber threat. Last February, as reported by Material Handling & Logistics, Rear Admiral John Vann, head of the Coast Guard cyber command, noted that Chinese ship-to-shore cranes “account for nearly 80% of cranes at US ports. By design, these cranes may be controlled, serviced and programmed from remote locations.”
Admiral Zain and others are afraid the cranes could be turned off during wartime, paralyzing the US economy – but why were so many Chinese cranes installed before he pointed this out? Almost needless to say, the Chinese embassy in Washington, DC, called this paranoia.
Addressing the issue, the Biden Administration announced plans to spend more than $20 billion on port security, including the replacement of Chinese cranes with cranes made in the US – by Japanese engineering and shipbuilding company Mitsui E&S.
Efficient, computerized remote control is, of course, key to building a fully automated port. Commenting on the Smart Port Solution it created with China Mobile and the Port of Tianjin, Huawei wrote that it uses the latest technologies, including digital twins, autonomous vehicles, a dedicated 5G telecom network, cloud computing and IoT (internet of things), to optimize loading and unloading and manage each piece of equipment while reducing costs and saving energy.
This is what the Chinese are bringing to South America – and what the US would like to, but probably cannot, prevent. The US is, however, doing its bit for Peru.
On November 15, Caltrain announced that it had sold 19 diesel locomotives and 90 passenger cars built in the 1980s to the municipality of Lima for a little more than $6 million. “The retired trains,” it notes, “will enable thousands of riders to enjoy a new regional commuter rail line that provides significant environmental benefits by reducing automobile traffic and greenhouse gas emissions.”
Caltrain Executive Director Michelle Bouchard traveled to Lima to celebrate this deal at the APEC summit. Back in California, Caltrain was already operating what it calls a “100% renewable, zero-emission service with high-performance, state-of-the-art electric trains.”
This looks like a bargain for Lima and a good new home for the retired but still functional railway cars, which Caltrain Chair Dev Davis says “hold a special place in the heart of train enthusiasts.” Still, the juxtaposition with Chancay is unfortunate.
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