Panama Canal Railway
The Panama Railway also operated a significant shipping line, connecting its service with New York and San Francisco. It ran a Central American line of steamships linking Nicaragua, Costa Rica, San Salvador, and Guatemala to Panama City. The shipping service was greatly expanded when canal construction began. Ships included the SS "Salvador", SS "Guatemala", SS "Cristobel", and , which became the first of the ships to cross the completed canal in 1914.
In 1904 the United States took over the license to build and operate the canal. The choice to use locks and an artificial lake (Gatun) meant that the old railway route from 1855 had to be changed because it followed the Chagres River valley, which would be flooded by the lake. Also, the railway would be extended and altered continuously for the building process. The stock of the Panama Railway Company, vital in canal construction, was entirely controlled by the United States Secretary of War.
History of Panama
Less than three weeks later, on November 18, 1903, the Hay–Bunau-Varilla Treaty was signed between Frenchman Philippe Bunau-Varilla, who had promptly been appointed Panamanian ambassador to the United States, representing Panamanian interests, and the US Secretary of State John Hay. The treaty allowed for the construction of a canal and US sovereignty over a strip of land wide and long, (16 kilometers by 80 kilometers) on either side of the Panama Canal Zone. In that zone, the US would build a canal, then administer, fortify, and defend it "in perpetuity".