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CANAL COMPANY
tRD OF DIRECTORS






Report of Panel on


CHANGES IN RATES OF

for the Panama Canal








AN ADDENDUM


TOLL


Concerning Effect on U. S. Economy of
Proposed Increase in Tolls
October 20, 1976



September 13,
: i. :.. September 13, 1976




















Gift of the Panama Canal Museum




e:?3-- 3 3


PANAMA CANAL COT 1 PANY
Board of Directors

Report of Panel on
Proposed Changes in Rates of Tolls
for the Panama Canal


AN ADDENDUM

CONCERNING EFFECT ON U.S. ECONOMY OF PROPOSED INCREASE IN TOLLS



At the hearing on the proposed tolls increase, AIMS suggested that the
fact that U.S. carriers represent only eight percent of the traffic does not
mean that the benefit of maintaining lower tolls primarily benefits foreign
maritime interests because "the real burden of toll rate increases is ultimately
borne in very substantial measure by the American exporter and importer whose
goods represent about two thirds of your /Panama Canajf traffic" and because
much of the cargo through the canal is carried on container vessels, "over 50%
of which transiting the Canal do fly the United States flag. 1/

The facts in regard to U.S. flag participation in containership traffic as
shown by the table attached to the Panel Report in Appendix G (p. 293g) may
be summarized as follows:

Table 1
Containership Traffic through the Panama Canal
by Flag of Vessel
(FY 1976)

Transits % of Total Tolls % of Total

U.S. Flag 347 30 $ 5,371,480 25

Other 819 70 16,339,525 75

Total container 1,169 100 $ 21,711,005 100

The relationship of U.S. flag containership traffic to all traffic through
the canal is shown by comparison of the figures shown above to total Panama
Canal traffic in fiscal year 1976.


1/ AIMS, Tr., p. 7 (Panel Report, Appendix B, p. 63b)






































Digitized by the Internet Archive
in 2011 with funding from
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Table 2
Relation of Container Traffic to Total Traffic
FY 1976

Transits Tolls

All traffic 12,157 $ 134,212,000

U.S. container traffic 347 $ 5,371,480

U.S. container traffic
as percent of total 2.85% 4.0%

The initial impact of operation of the canal at rates of tolls less than
necessary to recover costs clearly favors the foreign flag operators.

Data in regard to operating costs of containerships operated through
the Panama Canal by Sea Land Service, Inc., summarized at pages 23-25 of
the panel report show that voyage operating costs of the SAN PEDRO (18,421
registered gross tons) were about $285,277, including Panama Canal tolls of
$16,947, representing about 6% of the voyage operating costs of the vessel
(excluding capital costs). The proposed increase in rates of tolls will increase
tolls paid by the SAN PEDRO by $3,296 to $20,243, after which tolls will
represent 7% of the ship's total voyage operating costs of $288,573, adjusted
to reflect the proposed tolls increase but not to show other cost increases
such as fuel and crew costs.

The allocation of the economic effects of an increase in tolls as between
the economies of the United States and foreign countries is a more complicated
problem. The AIMS statement suggests that the allocation should be on a basis
of two thirds to the United States and one third to foreign countries because
combined American exports and imports represent about two thirds of Panama
Canal traffic. However, studies of the economics of international trade show
that increases in transportation and other costs, including canal tolls may
be (1) included in the price paid by the buyer; (2) absorbed by the seller;
(3) divided between the buyer and the seller; or (4) avoided by alternative ar-
rangements, eliminating the payment of the increased costs altogether or sub-
stituting other, presumably lesser, costs. Determination of which of these
arrangements will be adopted as a result of an increase in tolls requires exami-
nation of the markets in each of the commodities that move through the canal
and analysis of the economics involved in the trade in such commodities. Such
examination and analysis have been made for the Company in a series of studies








of the economic effect of Panama Canal tolls increases on the international
trade of the various regions involved in the movement of cargo through the
canal. 2/

The determination of the question of who pays the increased tolls charges
is also a necessary part of analysis of the effect of the increased toll rates
on the Gross National Product (GNP) and Balance of Payments of the United
States. 3/

Based on detailed analysis of the market conditions affecting trade in
the 21 major commodities moving through the canal, the economic studies
found that over a ten-year period, the effect of a 50% increase in Panama
Canal rates of tolls over the rates in effect prior to July 8, 1974, would be
divided between the U.S. and foreign sources in the proportions shown in the
following table: 4/
Table 3
Increased Toll Payments Resulting from 50% Increase
(Dollars in Thousands)

Total U.S. % of Foreign Foreign %
Increase U.S. Sources Total Sources of Total

1st year $ 48,657 $ 12,993 26.7 $ 35,664 73.3

5th year 53,967 15,133 28.0 38,834 72.0

10th year 62,781 19,962 31.8 42,819 68.2

A different method of economic analysis in another study by other econo-
mists estimated that the share of increased tolls payments paid by U.S. buyers
and sellers would be approximately 34% of the total increase. 5



j2/ Brandes & Houston, International Research Associates, Palo Alto, Calif.
(IRA), Panama Canal Toll Rate Increases: Effect on the U.S. Economy,
pp. 3-17, 18; Brandes & Samuel (IRA), Panama Canal Tolls Increases:
Effect on Canada and the Caribbean Region, pp. 19, 42; Effect on Central
America, Mexico, and Panama, p. 18; Effect on Europe, p. 21; Effect
on the Far East, p. 30; Effect on Oceania, p. 20; Effect on South America,
p. 20.
3/ Brandes & Houston (IRA), Panama Canal Toll Rate Increases, Effect on the
U.S. Economy, p. 2-4. See Also, Howell & Solomon (IRA), The Economic
Value of the Panama Canal, p. 14.
4_/ IRA, Effect on the U.S. Economy, p. 2-1. See also series of reports
cited in footnote 2, above.
5/ Howell & Solomon (IRA), Economic Value of the Panama Canal, p. 32.







The studies also estimated that division of the ultimate payment of the
increased tolls as between U.S. and foreign sources shcwn in Table 3, above,
would result in increases in the real GNP of the United States by $35 million
at the end of the first year of the increase, rising to $42. million at the end
of the tenth year. Improvement in U.S. balance of payments resulting from
the increase was estimated in about the same amounts. 6/

Although the studies briefly summarized above were made before the
1974 increase in Panama Canal tolls, the cumulative effect of the 1974 increase,
the recent change in measurement rules, and the current proposal amount to
just under 50%, 7/and the estimates of division of the amount of the increase
as between U.S. and foreign sources is still valid. Updated projections of
Panama Canal traffic made earlier this year analyze the same basic group of
.commodities involved in cargo movement through the Panama Canal and pro-
vide a new estimate of sensitivity of tolls increases of 25%, 50%, and 75% over
the rates and under the measurement rules now in effect. 8/

The 1976 report estimates that a 25% increase in rates of tolls in 1976
would result in increased tolls payments in the amount of $36,628,000 in 1979,
the third year of the increase. The earlier analysis of division of increased
tolls payments as between U.S. and foreign sources estimated that the U.S.
share of the increased tolls payment would rise from 26.7% to 31.8% over a
ten-year period following the increase, a difference of 5.1%, or about 0.5%
a year. On that basis, the U.S. share of the increased tolls payments in the
third year after the effective date of the increase would be 28.2%. Applying
that percentage to the projected amount of increased tolls payments as a re-
sult of a 25% increase (the current proposal is for a 19.5% increase), it is
estimated that of the $36,628,000 increased payment resulting from a 25%
increase, $10,329,096 would be paid by U.S. sources and $26,298,000 would
be paid from foreign sources. This result is substantially confirmed by a
commodity by commodity analysis using data from the 1976 and earlier studies,
and adjusting the total U.S. portion of the increased payment for the difference
between an increase of 19.5% as proposed and 25% used in the 1976 studies.
(See Table 4, following page 5 of this Addendum)



6/ Brandes & Houston (IRA), Panama Canal Toll Rate Increases: Effect on
the U.S. Economy, pp. 2-4 to 2-6
7/ See Environmental Assessment of Proposal to Increase Tolls, April 1976,
p. 3, attached as Annex II to the Panel Report (Sept. 13, 1976)
8/ Projections of Panama Canal Commodity Flows, Transits, and Tolls Through
FY 1979, Economics Research Associates, 1976. A summary of the report
is included in the Proposal at p. 59, attached ot the Panel Report as Annex I.
Some commodities included in the General Cargo category in the earlier
studies are separately analyzed in the 1976 report.








The average tolls per cargo ton or other unit of cargo moving through the
canal and the relationship of tolls charges to the cost of the cargo places the
economic effect of the proposed increase in a different perspective. Table 5
is based on an estimate of Panama Canal tolls per unit of cargo that tends to
be on the high side because the average tolls per ton of cargo is computed by
dividing the tolls revenues by tons of cargo. Because tolls are based on the
capacity of the ship, not the amount of cargo carried, the tolls per cargo ton
will increase when space utilization is low.

A more accurate picture of the effect of the proposed tolls increase per
cargo unit is provided by Table 6, based on toll charges for full loads of
commodities susceptible of bulk handling, so that the distortion resulting from
partial vessel space utilization is avoided.




























9/ See Projections of Panama Canal Commodity Flows, Transits, and Tolls
Through FY 1969 (ERA), p. II-11 to 11-15.




Table 4


Summary of Estimated Effects of Toll Increases
on U.S. Economy


FY 1979 _/
(Thousands of Dollars)


Tolls at
Oct. 76
Commodity Description Rates

Wheat.............. $ 3,051
Coarse grains....... 9,889
Bananas ............ 6,780
Sugar............... 3,245
Soybeans............ 3,879
Lumber.............. 4,638
Wood pulp, paper
& paper products.. 3,253
Phosphates.......... 3,419
Fertilizers, potash
& fishmeal........ 3,793
Iron ore........... 1,921
Miscellaneous ores.. 2,548
Scrap metal......... 1,623
Alumina & bauxite... 827
Miscellaneous metals.. 2,023
Coal............... 14,763
Crude petroleum..... 11,362
Petroleum products... 8,249
Chemicals........... 3,362
Sulfur .............. 626
Other non-metalic
minerals.......... 1,278
Iron & steel manufacturer 9,072
Autos & trucks ...... 12,889
Refrigerated food.... 3,729
Feed & other food... 3,710
Machinery & equipment 1,835
Misc. cargo &
containers ......... 29,342
General cargo........ 3,074


Total


Tolls with
25%
Increase

$ 3,733
11,974
8,188
3,914
4,802
5,795

4,079
4,188

4,649
2,402
3,185
2,030
1,033
2,528
18,453
14,208
10,311
4,202
782

1,568
11,339
16,111
4,560
4,555
2,294

36,104
3,821
$190,808


$ 154,180


Amount
of
Increase

$ 682
2,085
1,408
669
923
1,157

826
769

856
481
637
407
206
505
3,690
2,846
2,062
840
156

290
2,267
3,222
831
845
459

6,762
747
$ 36,628


Less difference between 19.5% increase proposed
and 25% used in table........................
Cost of 19.5% tolls increase paid by U.S.


Portion of Increase Paid
by U.S. buyers/sellers 2/
(Dollars) (% of Total)


264
29

659


-
-
18.7
4.3

56.9


3.5
3.9


108
202
198

152
134
1,781
704
594
289


15
1,273
907
233
230
70

2,373
75
$10,349


2,276
$ 8,073


12.6
42.0
31.0

73.7
26.5
48.2
24.7
28.8
34.4


5.1
56.1
28.1
28.0
27.2
15.2

35.0
10.0
28.2


J/ Assumes toll increase occurs in FY 1977
2/ Based on information in Panama Canal Toll Rate Increase: Effect on U.S. Economy,
International Research Associates














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