There was widespread opposition from the shipping industry about plans by the Panama Canal Authority (ACP) to increase waterway tolls by 15% this year. However, ambitious plans to build a third set of locks which would double the Canal's capacity must be paid for somehow. ACP vice president of market research and analysis Rodolfo Sabonge talks to www.freshfruitportal.com about future projects.

Sabonge is unapologetic about the toll hikes, insisting that ACP is one of the few organizations to consult clients about price increases. Tolls are to be adjusted for container and general cargo, dry bulk, tankers, chemical tankers, car carriers and roll-on or roll-off vessels.

"It stands to reason that no-one likes to raise their costs and that any opportunity to express opinions would result in a rejection. None of us think about being given the opportunity to express our opinion each time there is an increase in gas, energy or other basic commodities."

He goes on to argue that the canal provides an essential shortcut for the shipping industry and therefore has its own intrinsic value.

"The thing to understand is that the canal is a small, but a valuable logistics and supply chain link. This is because the channel is a 'shortcut', which reduces time and transportation costs, to the extent that alternatives are expensive and that increases the value of service offered by Panama."

He maintains the value of the canal varies depending on other factors that affect transportation costs, but the ACP is aware of the commercial reality of its clients.

"The main main message to exporting and importing countries that use the canal, is that the fee structure of the channel is going to stay competitive and that any changes will always take into consideration the micro and macroeconomic factors of transportation that affect product prices."

Sabonge is robust in defending the ACP management of price increases despite criticisms from the shipping industry that they were being implemented in an "excessive and hasty" manner.

"In January we held a meeting with the International Chamber of Shipping (ICS), where we discussed the issue rate of the canal. In April we published the proposed changes and conducted a hearing in May. We think the consultation process has been sufficiently long for carriers to take the necessary steps."

In fact, Sabonge takes a tough line over shipping companies' complaints about price rises pointing out the canal's value is linked to general transporation costs and not the profit margins of individual enterprises.

"It is important to understand the nature of this industry. International shipping is governed by free supply and demand. Demand defines the load and supply the international shipping fleet."

Sabonge acknowledges shipping demand has still not recovered to levels prior to the worldwide economic crisis that started in 2007, prompting a U.S. recession the following year which peaked in mid-2009.

"Even so, the shipping industry has continued to expand the supply by building more ships, that are bigger and bigger. This has caused a growing imbalance between the available capacity of the fleet and demand, which has resulted in freight and hire vessels left on dry land."

This isn't the first time this situation has occurred for the industry, maintains Sobange who describes them as "repeat offenders" on this point.

"We are a cost item for shipping and we understand their views, but the price of the canal does not vary depending on the shipping market, if so, the canal would be charging much more at a time when the market was rising, and it would not be acceptable to the industry."

While Sabonge believes the ACP is ripe for expansion he is sceptical about a Nicaraguan proposal to build a US$30 billion interoceanic canal.

"Not even the Suez Canal, with the largest traffic of petroleum in the world has sufficient demand to justify an investment of this magnitude.

"In our opinion, there is insufficient demand to justify an investment of this magnitude. The ACP market research unit continually analyzes demand, which generates traffic and revenue projections over the short, medium and long-term."

He says these projections support the ACP US$5.25 billion canal expansion project, which includes extensive dredging of canal access points from both the Pacific and Atlantic entrances as well as design and construction of new locks.

"The main effect of the project is it will allow international trade, including fruit and vegetables, to continue to grow along this route. The project ensures that countries whose foreign trade depends heavily on the Canal, remain competitive with their export products."

Despite the financial crisis that depressed traffic levels in 2009 and 2010, last year saw was record-breaking year for tonnage exceeding the previous all-time high recorded in 2008.

"This year we will end up with a higher tonnage than last year. The future projections are of moderate growth. One factor that has favored the Canal traffic is the decline in container traffic which has been offset by significant growth in traffic of commodities such as grains and coal."

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