Despite objections, ACP appears set to enact record toll increase
by Eric Jackson
Despite objections posed at a January 7 public hearing by the world shipping industry and the governments of Ecuador, Peru, Chile and South Korea, it appears that the Panama Canal Authority (ACP) is set to enact a toll increase of about two-thirds for container ships, to be phased in over three years.
The proposed toll hike includes not only a change in the way that the tonnage that forms the basis for canal transit fees is measured, but also charges for on-deck container carrying capacity whether or not it is used and a surcharge for extra pilot services whenever containers on a ship’s deck obstruct the view of the pilot on the bridge. Thus, although at first glance the increase would amount to some 65 percent, in many cases it would be more.
Since control of the Panama Canal passed into Panamanian hands at the end of 1999, the waterway has been ruled under an organic law that makes the ACP a for-profit state-owned corporation, and the authority and its supporters have backed the proposed toll hike with arguments that the ACP owes the Panamanian people the best returns that the market will bear.
For example, at the hearing Carlos Ernesto González De La Lastra, the secretary general of the Panama Maritime Authority, argued that during the decades of US management the canal didn’t charge shippers enough for use of the canal, and at the end the Americans handed Panama a technologically obsolete waterway that requires great investments to modernize. He pointed particularly to the billion-dollar widening of Culebra Cut to accommodate the needs of container ships and the need to build a second bridge over the canal due to American era restrictions that prevented the Panama City metro area from expanding to the north and channeled urban growth along an awkward east-west axis instead.
But on behalf of the International Chamber of Shipping, J.C.S. Horrocks called the increases “quite unsustainable” and argued that given the facts of the world market it’s unrealistic to presume that the canal’s modernization can be paid for with higher tolls.
(Some four percent of world maritime shipping passes through the Panama Canal, and in most cases shippers have alternatives. For example, to send something from Yokohama to New York it might be routed through our canal, but it also might be sent by sea to the west coast of the United States and then forwarded the rest of the way by land. For another example, it is increasingly common for Chilean goods to be shipped to Europe around Cape Horn rather than through the canal. The decisions about whether or not to use the canal involve a complex calculus that includes, among other things, the merchandise’s fragility or perishability, land shipping costs and the location of production facilities. At the moment the major growth sector in canal usage is commerce between China and Brazil, but the construction of better ports on the Pacific coast of South America and better road or rail links to connect them with Brazil would change many of the equations in that trade route as well.)
Speaking for the World Shipping Council, Lars Kjaer commended the ACP for consulting with its customers but complained of “logical shortcomings” and needless complications in the proposal. Urging the authority to stretch the series of increases over five years instead of the contemplated three years, Kjaer concluded that “we must express disappointment” with the proposal.
The foreign governments that commented on the proposed toll hikes echoed the shipping industry’s concerns, with Ecuador standing out as the most vehement of critics. Most of that country’s imports and exports pass through the canal, and as one of the poorest countries in the Americas it is one of the least able to absorb a general increase in the cost of doing business.
“The situation is drastic for our country,” complained Ecuadoran Navy Captain Iván Arias Rivera, who said that the ACP’s last toll increase in 2002 amounted to a 15 percent hike in Ecuador’s maritime industry costs. He added that nowhere in the ACP’s proposal was it indicated that the toll hike was necessary to maintain canal operations.
Dr. José Modesto Apolo Terán of the Maritime Chamber of Ecuador called the toll hike proposal an act of “commercial aggression” and warned that transit fees “have become a political issue” in Ecuadoran-Panamanian relations.
That latter point was emphasized by the Ecuadoran Foreign Ministry’s Dr. José Sandoval: “the Ecuadoran government does not share the notion that this increase is insignificant,” he said, arguing that it was moreover contrary to the Treaty of Permanent Neutrality and Panamanian domestic laws under which the canal operates. “The Ecuadoran government asks the Canal Authority to desist from this proposed increase,” he pleaded, adding that if the toll hike does go through, his country would likely enact retaliatory trade sanctions against Panama.
The final speaker at the public hearing, South Korean Ambassador Tae-young Moon, said that his country supports a change in the method of calculating container ship tonnage in principle, but doesn’t like the charge for unused capacity. Moreover, he said that the Koreans consider such a large increase over such a short period of time “too much,” especially given the low inflation rates prevailing in the world economy.
After the hearing the ACP issued a press release in which it said it would consider the comments made at the hearing and submit its recommendations to the Cabinet Council, which must approve any toll increase. The note reiterated the authority’s arguments in favor of the increased transit fees and was issued so quickly that it’s doubtful that the ACP board had time to discuss and reconsider the proposal.
(The ACP directors appear to be united behind the proposal, which means that the noteworthy absence from the hearing of board member Norberto Delgado, who is facing investigations for alleged tax evasion and inexplicable accumulation of wealth while he headed the Ministry of Economy and Finance, probably has no bearing on this issue. Veteran political and legal observers expect that either as a result of a criminal prosecution or as part of a negotiated settlement of his tax woes, Delgado will soon lose his place on the ACP board.)
