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ACP backs down just a bit on Panama Canal toll hike

by Eric Jackson

In the wake of public hearings in which virtually the entire world shipping industry and a number of Latin American countries that make use of the Panama Canal complained that ship toll increases proposed by the Panama Canal Authority (ACP, by its Spanish initials) were excessive, the authority has announced that the rise will be scaled back a bit.

As the ACP put it in its press releases --- which are no longer sent directly to The Panama News because we did not support the "yes" campaign in last year's referendum --- what they had proposed was to "move toward a charge that accurately reflects the commercial value of the service and route," but that "at the request of the [shipping] industry, implementation of the new charges has been postponed from May 2007 to July 2007" and that "proposal... has been slightly modified."

In accord with procedures, the ACP said that it would allow another 15 days for public comments on the revised toll schedule. "Moreover," the authority claimed, "with this proposal, the ACP is providing its customers with guaranteed pricing to 2009 --- something it said no one else in the industry does."

But what someone else in the industry did was of great importance to this process, which came front and center in the shipping world in February, when the ACP announced its toll hike proposal.

The new set of tolls announced in February would have, according to the type of vessel, beginning on October 1 of this year, increased the cost of going through the canal by 26 to 34 percent over a three-year period. During the canal expansion referendum campaign, for which the ACP got some shipping industry endorsements, the ACP said that tolls would go up by 3.5 percent per year over 20 years.

In reaction to the ACP increase, someone else in the industry --- the Suez Canal --- cut its tolls for ships sailing between eastern Asian ports and Europe or North America. For some shippers who are not sensitive to a slightly longer time at sea, it would make the Suez route more attractive that Panama, and were fuel prices to go down a bit so as to mitigate that cost of a little longer voyage even more shippers would be more inclined to a route switch. By the March 14 ACP public hearing on its original toll increase proposal, the Suez toll cutback was part of the equation. A thread that ran through most of the shipping industry presentations was that there are options to the Panama Canal, which could price itself out of the market.

According to the ACP, the "significant elements in the revised proposal" include:

Maximum Displacement Draft vs. Arrival Draft:

The ACP is proposing a change for vessels charged based on their displacement to simplify and streamline the process. The Canal proposes that the charge is based upon the maximum displacement draft instead of the arrival draft to assess tolls according to the specified tonnage rate.

Administrative Changes:

Some administrative changes have been made, but these changes will have no economic impact whatsoever. These revisions provide necessary linguistic and grammatical clarifications to the document or reinsert missing words to processes and procedures.

Passenger Vessels:

Regarding passenger vessels, the ACP is proposing an assessment of tolls based on maximum passenger capacity. In general, under this change, large vessels will be charged tolls on a per berth basis, and smaller ships will continue under the Canal tonnage tolls system. These changes are largely due to suggestions from industry representatives and evidence another example of the ACP listening to the industry.

Tolls:

The adjustments and implementation dates of proposed tolls depend on each segment that transits the Canal: container vessels, passenger vessels, general cargo, refrigerated cargo, dry bulk, tankers and vehicle carriers. The proposal calls for an average increase of 10 percent per year over three years. Of note, tolls for non-container segments have not increased in the last four years.

University of Panama economist Roberto N. Méndez, who was one of the leaders of the defeated "no" campaign in last year's referendum, puts a different spin on what's happening. He predicted then and still predicts that the expansion proposal is not economically viable and takes the ACP's larger than advertised toll hike as a sign of that. "In reality they'll need more," Méndez said. "They're projecting for a shortfall," and he thinks that the shortfall caused immediately by competition with Suez will be minor compared with that longer term competition caused by global warming and the opening of summertime routes around the tops of North America and Eurasia.

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