Panama Canal Debuts Revised Measurement, Pricing

Following a recommendation from the Board of Directors of the Panama Canal Authority (ACP), the Cabinet Council of the Republic of Panama today approved a new measurement and pricing system for full container vessels and other vessel types with on-deck container carrying capacity.

“The bottom line is that we simply closed a loophole that prevented us from charging for containers carried on-deck,” said Administrator/CEO Alberto Alemán Zubieta. “Today, with some ships carrying more containers on-deck than in the ship’s belly, this new system is more equitable, more transparent and will provide the Canal with a fair price. Considering other shipping options, the Canal is still the best deal in the industry.”

The ACP included in the revised system several recommendations from informal and formal consultations with representatives from maritime associations, shipping lines, foreign governments and Panamanian citizens. These include simplifying the pricing system and developing a single rate per TEU in accordance with industry standards; adjusting the on-deck TEU capacity to reflect ACP visibility restrictions; phasing-in implementation over three years; beginning the new system in May 2005 (instead of January 2005); and modifying the toll structure so container vessels in ballast (not carrying containers or any other cargo above or below deck) are charged less.

The new system will reflect international standards for measuring a container – the Twenty-Foot Equivalent Unit (TEU), which is 20’x 8’x 8.5’ in size. Taking into account the visibility restrictions imposed by the Canal that limits the height of on-deck containers, full container vessels will be charged based on the total number of TEUs the vessel can carry fully loaded, replacing the current Panama Canal/Universal Measurement System (PC/UMS) tonnage. The $54 per TEU charge is equivalent to the ACP’s initial proposal to charge $40 per TEU for the on-deck capacity plus the under-deck PC/UMS tonnage. For other vessel types with on-deck container carrying capacity, the current PC/UMS system will be used to measure spaces below-deck and the TEU toll will be applied to the actual number of containers on-deck. The new system will bring the ACP on par with international standards held by the container industry and enable it to receive a fair value for its services. It will also provide a more accurate measurement and offer increased transparency to Canal users and their customers.

Along with this revised system comes a new booking rate for full container vessels. The new rate is now $5.30 per TEU, which is equivalent to the total number of tons of a container (13.6) multiplied by the current booking fee of $0.39 per PC/UMS tons. The present booking fee will be maintained for vessels that reserve prior to May 1, 2005, for transits that take place up until April 30, 2006.

The difference between the average price per container transiting the Canal now and the price by May 1, 2007, of $54 is approximately $20. This increase should not have a significant impact on the cost of any product that is transported in containers, particularly when compared to the increases in freight rates that the shipping industry has recently implemented, which range from $200 to $300 per TEU. Furthermore, because of the phased implementation, the rate increase in May 2005 amounts to less than $10 per TEU.

The revenues generated by the new system will help fund initiatives under the permanent modernization program.

Q&A on New Canal Fees

1. Why has the ACP decided on a new measurement system?

The ACP is closing a loophole that prevented the Canal from charging for containers carried on-deck. More and more containers today are being carried on-deck and shipping lines have been transporting these containers almost for free. Under the current system, the ACP charges full container vessels for a very small portion (8.78%) of the cargo carried on-deck and it applies the standard PC/UMS tonnage to enclosed and under-deck spaces. The conversion of these charges results in a TEU charge that ranges from $60 to $80 per TEU for under-deck containers and approximately $3 per TEU for on-deck containers. In August 2004, the ACP informed the shipping industry of its intent to charge for the maximum number of containers that the vessel could carry on-deck at $40 per TEU and maintain the PC/UMS tonnage for spaces below deck. Following the industry’s recommendation, the ACP formally proposed a toll per TEU that would be applied to the whole vessel, regardless of the location of the container, and that would allow the ACP to bring its system up to par with international standards and use the industry-wide measurement of the TEU.

2. What will the revenues be used for?

We are strongly committed to customer service, and the ACP continues to invest in improving and modernizing the existing Canal. Currently, there are many Canal improvement initiatives underway. We are deepening Gatun Lake, the principal water reservoir of the Canal to minimize the risks of having to implement draft restrictions during draughts and other natural phenomena, such as El Niño. We are also deepening the Atlantic and Pacific entrances of the Canal; redesigning the Pedro Miguel and Miraflores Locks sills to allow for one additional foot of vessel draft, thus permitting more cargo and increasing the value of each voyage; straightening additional sections of the Gaillard Cut, the narrowest part of the Canal; designing a new lighting system at the locks to enable the transit of vessels beyond daylight hours and increasing the number of slots available for transit reservations; and we are continuing with the replacement of the locomotive tow track and acquiring new and more powerful locomotives and tugs. In general terms, the Panama Canal has a full plate of improvements and investments currently in progress to ensure the quality and reliability of the service it provides.

3. What are the elements of the new, revised measurement and pricing system?

The new system will reflect international standards for measuring a container – the Twenty-Foot Equivalent Unit (TEU), which is 20’x 8’x 8.5’ in size. Full container vessels will be charged based on the total number of TEUs the vessel can carry fully loaded adjusted to the visibility restrictions imposed by the Canal that limits the height of on-deck containers, and replacing the current Panama Canal/Universal Measurement System (PC/UMS) tonnage. The $54 per TEU charge is equivalent to the ACP’s initial proposal to charge $40 per TEU for the on-deck capacity plus the under-deck PC/UMS tonnage. The ACP also included a modification in the new toll structure so container vessels in ballast (not carrying containers or any other cargo above or below deck) are charged less - $43.20 after final implementation in May 2007. As a result of the implementation of a new TEU toll rate, the booking rate for full container vessels is now set at $5.30 per TEU, which is equivalent to the total number of tons of a container (13.6) multiplied by the current booking fee of $0.39 per PC/UMS. Nevertheless the present booking amount will be maintained for all vessels that book prior to May 1, 2005 for transits that may take place up until April 30, 2006. For other vessel types with on-deck container carrying capacity, the current PC/UMS system will be used to measure spaces below-deck and the TEU will be applied to the actual number of containers on-deck. The impact of the change to the most price-sensitive commodities, like Ecuadorian bananas, was carefully evaluated and amounts only to $0.108 per 42 lb. box.

4. Is the $54 per TEU by 2007 a significant increase?

No, not really. The difference between the current average price per container transiting the Canal and the proposed price of $54 by May 1, 2007, will only be $20. This increase will not have a significant impact on the cost of any product that is transported in containers, especially when compared to the increases in freight rates, which the industry has implemented in the recent past, and that are in the range of $200 to $300 for the West Coast of South America to the East Coast of the United States, and to Europe routes. Furthermore, the first increase which goes into effect on May 1, 2005, amounts to less than $10 per TEU.