A must read if you are coming to Panama is David McCullough’s 1977 book “The Path Between the Seas: The Creation of the Panama Canal 1870-1914” is the story of larger-than-life characters pursuing the largest, most costly single effort ever before mounted by humankind, outside of war.

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It is told in three sections: 1) the colossal French attempt to build a sea-level Panama Canal that ended in total failure; 2) the political drama that led the U.S. to try again in Panama; and 3) the heroic story of medical and engineering successes that led to the opening of the Panama Canal in August 1914.

The story starts with Ferdinand de Lesseps, a French entrepreneur extraordinaire who was like a modern-day Steve Jobs. De Lesseps gained global fame in 1869 as he almost single-handedly led the privately funded effort that created the Suez Canal, a sea-level waterway that connected the Mediterranean Sea to the Red Sea. On the heels of this triumph, de Lesseps was the obvious person to lead the world’s next major canal construction project, and in 1879 he agreed to lead the project to build a Panama Canal.

Over the next 10 years, de Lesseps and his organization spent over a billion francs (estimated to be US$8 billion in 2020 dollars) in the pursuit of a waterway to connect the Atlantic and Pacific oceans. Unfortunately, the effort was doomed by deadly conditions in Panama and continual underestimation of the scope of work required. It turned out that the Suez Canal was not a useful example for the Panama project.

The French lost more than 20,000 workers and managers to yellow fever, malaria and other maladies.  This is an astonishing loss of life in the pursuit of a heroic objective. They spent all of their available capital but were only able to dig about 30% of the eventual canal. It even turned out that a sea-level canal was not technically feasible. The project declared bankruptcy in 1889 and work effectively stopped for 15 years.

During the hiatus, there was much debate in the U.S. about where an isthmus-crossing canal should be placed and whether a sea-level canal was possible or necessary. President Teddy Roosevelt finally led a decision process that settled on building a U.S. government-funded lock-based canal in Panama across the same stretch of land where the French had previously failed.

The 10-year American project (1904-1914) ultimately succeeded because of medical and technology advances not available to the French. The discovery of the causes of yellow fever and malaria and strategies for effective elimination of both was a vital improvement from the conditions of 15 years prior.  Also, the advancement of excavation, railroad and construction technology dramatically accelerated progress for the Americans versus what was possible for the French.

All told, the Panama Canal cost $639 million (an estimated $18 billion in 2020 dollars) and took as many as 25,000 lives during its construction. The effort drove innovations in machinery, medicine and management. The finished work was a key step in shrinking the world by simplifying global trade.

Three lessons for sea freight

1. Proper scope definition is critical. In 1879, de Lesseps organized an international convention of leading technical people from 22 countries to define the optimal plan for an “interocean canal” and to provide an initial estimate of the work involved. The final report and its later revisions were dramatically wrong in projections of the amount of excavation required and of the difficulties in operating in Panama. This massive underestimation of the required work led to undercapitalization of the French company and a lack of resources to finish the job. It directly led to the complete failure of the project.

   The same risk exists for a major sea freight initiative like the proposed International Maritime Research and Development Board. It is vital that effort and cost estimates include input from many parties and be seen as reasonable by all players. Leadership must take every step possible to avoid an underestimation of the project scope.

2. Optimism-driven leadership needs a backup plan. The leadership philosophy of de Lesseps was that he simply moved forward with confidence while not knowing a solution to every technical or physical challenge. He believed that “it will work itself out.” In the Suez Canal project, he succeeded because he literally willed his way through various money shortages. He benefited from new technology that delivered capabilities never available before. In this case, capital and capability were available simply by believing in their future arrival.

   This is the mantra of every current-day entrepreneur — we will figure it out. In the case of de Lesseps, it worked 50% of the time. For the Suez Canal, it was a great leadership strategy. But in Panama, it led to failure. Sea freight leaders should be aware that not every project can be bailed out by new technology or external assistance. They should be sure to have a backup plan to protect against a project failure.

3. Epic failure can lead to later success. At the time of the bankruptcy of the French effort in Panama, it appeared that there never would be a Panama Canal. The loss of life and money was so great that the task seemed impossible. If a canal could be built, it would be done elsewhere and by someone else.

   But the passage of time and the effort to learn from a failure led to an eventual success. The U.S. government provided financial backing to eliminate the problem of financial resources. Extensive design efforts were conducted to evaluate different canal options before deciding on a lock-based Panama crossing. And technical breakthroughs in medicine and machinery came to the rescue.

   Sea freight leaders can apply these lessons in 2020. The sea freight industry should work with the IMO to get adequate IMRB funding via the International Maritime Research Fund (IMRF). Multiple different technology options should be evaluated and piloted. The industry should actively solicit technology breakthroughs through various open innovation platforms and processes. Applying the lessons of the Panama Canal to today’s challenges can greatly increase the chances for future success.