Paying the toll: A new toll system will accompany the completion of a third set of locks

Since the country took over administration of the Panama Canal in 1999, the canal has been an important source of revenue for the government, as Panama’s more business-like model has ensured a steadier stream of profits and revenues over the years. As a result, the government has increased tolls on several occasions and has worked to improve client satisfaction and profitability, according to the Panama Canal Authority (Autoridad del Canal de Panamá, ACP). Consequently, the impact caused by steadily rising direct revenues contributed through tolls – as well as the indirect revenues stemming from the economic benefits of operating the canal – has enabled the government to significantly reduce its national debt, spend heavily on expanding national infrastructure networks and create a sovereign wealth fund to act as a preventive measure to external shocks. The increased revenues from the canal were also one of the important long-term factors that made the expansion project economically and financially feasible.

By The Numbers

Revenues from the canal have continued increasing as it approaches its full capacity, which is set to be expanded with the addition of the third set of locks. In the past four years, total income generated by the canal has expanded 22.9% from $1.96bn in 2010 to $2.41bn in 2013, according to data published by the ACP. In 2013 toll collections of $1.85bn were responsible for 77.7% of the canal’s total income, with the remainder coming from transit-related services and other revenue streams. In terms of total government revenue the canal has traditionally been responsible for a significant portion. In 2012 the canal’s $2.41bn represented 26.6% of total government revenues of $9.06bn and 6.6% of national GDP of $36.25bn, according to data from the World Bank, the ACP and the Ministry of Finance. Since taking over control of the canal, direct contributions to the Panamanian national treasury amounted to $8.6bn through 2013, though a vast majority of that has come in recent years. Indeed, from 2007 to 2013 direct contribution to the national treasury from the canal reached $7.65bn, 40.4% higher than called for under the Panama Canal Master Plan for that time-frame, according to the ACP. Law 28 establishes that a minimum of $568m of the canal’s revenues are to be contributed directly to the national treasury each year, though in 2012 it was nearly double that, at $1.02bn.

Out With The Old

In the canal’s nearly century-long history, tolls have been increased a total of 14 times, most recently in October 2013. The last fundamental change to the system came in October 2002, when the ACP restructured the old system, which dated back to 1912 and charged all ships based on a rate per tonne structure that was applicable to all vessels. The ACP described the reform as “a more equitable system applied to the transit needs of each ship”.

The present system of tolls implements several fee structures to differentiate between bulk cargo, container and passenger vessels. While 2012 saw tolls raised across the board, the ACP also decided to more carefully evaluate route and cargo value in order to ensure appropriate tolls are charged. As a result, in 2012 the ACP broke the tanker category down into three segments: petroleum and petroleum product tankers, liquefied petroleum gas tankers and chemical vessels. The vehicle carrier segment was also expanded to include roll-on roll-off (ro-ro) vessels. The ACP currently breaks vessels down into 11 different categories.

The tonnage measurement system for cargo vessels transiting the canal is referred to as the Panama Canal Universal Measurement System (PC/UMS). A new system of tolls for container ships was introduced in 2005 as they are now calculated via container or twenty-foot equivalent unit (TEU) capacity, while bulk cargo vessels are split into various categories with decreasing fees applied to increasing tonnage ranges. For example in 2012 “laden”, or full, general cargo ships were charged $4.74 for the first 10,000 PC/UMS tonnes, $4.64 for the second 10,000 tonnes and $4.57 for rest of the weight. On the other hand “ballast” or empty, general cargo ships were charged $3.79 for the first 10,000 tonnes, $3.72 for the second and $3.66 for the rest.

Passenger ships are assessed tolls based on maximum passenger capacity, though vessels exceeding 30,000 gross tonnes and whose PC/UMS divided by passenger capacity ratio is equal to or less than 33 are charged on a per-berth basis, according to the ACP. Tolls per berth for laden passenger ships in 2012 were $134 per berth, while ballast ships were charged $108 per berth. While all other categories’ toll rates rose in 2012, container shipping tolls remained unchanged from 2011. Ballast container ships were assessed toll charges of $65.60 per container, laden ships $74 per container and $82 for all on-deck containers.

In With The New

Toll increases across the board took effect in October 2013, except in container and passenger vessels. However, the ACP is also considering making more structural changes to the toll system. The addition of the canal’s third set of locks and the post-Panamax capacity that comes with it will significantly increase economies of scale for transiting ships, which will in turn result in added benefits, such as lower fuel and per-unit toll costs, for ships transiting the canal. By adjusting the tolls system the ACP will be able to share in some of those added benefits.

Thus, the ACP has been fervently working to revise the current toll system and plans to announce the new fee structure in spring 2014. Implementation of the new toll system will then coincide with the completion of the canal’s third set of locks. In the meantime, the ACP is consulting private sector entities and associations of the shipping industry to discuss the proposed changes to the toll system, an important factor in ensuring tariff increases are not so great as to drastically reduce the competitiveness of the canal as a trade route. The ACP has shown a tendency to listen to industry and at the very least consider requests. In 2012 and 2013 the ACP deferred implementation of new tolls by three months at the behest of industry. Additionally, it continually holds open public meetings to garner feedback about proposed changes to tolls.

The new system is likely to differentiate between ships using the existing canal and those using the route established by the new set of locks. The ACP is also reportedly considering changing the fees assessed container ships from the current per-TEU setup in order to attract greater volumes of cargo.

Accurately predicting how much revenue derived from tolls will increase after the completion of the expansion is a difficult task before the ACP’s announcement of the new toll system in 2014. However, with cargo transiting the canal likely doubling in the medium to long term, revenues should be expected to swell by a similar magnitude. The ACP has routinely conferred with the private sector to ensure tariff increases are equitable and leave the canal competitive, while it will likely continue its work in further segmenting the market by vessel, cargo and route to the same end.