When a simplification is too much
21 April 2022
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Toll increases for the Panama Canal and Suez were recently announced – under different names with various rationales but increases nonetheless. So, what does this mean for ship owners and operators using the Canal?
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Let’s consider the current market status. Container carriers are able to charge customers rates that offer good margins while also vertically integrating their vendor network due to their logistics chain. On the LNG side, recent political disruptions resulted in an unusual increased demand for LNG from US to Europe which has led to positive returns for the sector. The tanker and chemical segments are often caught in market swings allowing them to move product “to and from” with their volumes and profits remaining on the positive side.
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One of the key considerations in deciding whether to use the Panama Canal and in determining the value of this route is fuel prices. Most of the common fuel source prices are high, and in some cases still increasing in cost. Using the Canal as a transit point would mitigate the cost of daily consumption by the days saved. Draft restrictions would be another factor. The Canal draft is currently at a sufficient level as such the Panama Canal Authorities (ACP) has postponed, until further notice, the draft restrictions of the NeoPanamax Lock.
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But when the cost of moving goods is thrown into the equation, Price Elasticity comes into play. Product price elasticity calculations consider the substitute of goods or services available in relation to a change in price which, in this case, relates to the proposed toll increases.
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The New Panama Canal Tolls Proposal (Advisory No. A12-2022) led to several discussions with customers where the consensus was that the fees are too high. Notwithstanding the rationale that they “reflect the growing value of the waterway,” it is likely to have a negative impact on the overall commercial operation of vessels. This could mean that owners and operators would consider using alternative routes e.g. moving LNG from US to Europe direct ?and United States East Coast (USEC) container traffic moving through rail instead of using the Panama Canal.
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Alexei’s Personal Tip?
There are various means and ways to raise your concerns. Use Zoom, Teams, WeChat or WhatsApp to speak to your ship agent or write to them. You can also email the ACP directly at [email protected] where they will receive comments in writing until 17 May 2022 16:15 (GMT -5) or present your views in person in Panama City (location TBC) on 20 May 2022 at 09:00 local Panama time.
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About GAC Panama
GAC Panama is well versed with the local Panamanian port authority rules and regulations regarding Panama Canal transits. Our management team is experienced in working on all the aspects of the Panama Canal and can provide you with expert assistance prior to your arrival, and when your vessel is ready to set sail. ?
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For more information about how we can provide you with the support you need for a smooth transit, contact us at [email protected]. ?
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