Focus on Panama

Tolls & water supply on Panama Canal agenda

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On April 1, 2022, the Panama Canal Authority (ACP) released a proposal to change the toll structure and fees for the next three years.

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The proposal aimed at simplifying the structure and providing price stability for customers with a long term-plan for tolls. In addition, the Canal plans to introduce in the future avariable, demand-based structure for the value-added services known as other marine services (OMS).

Canal authorities held virtual meetings and visited main clients in late 2021, to explain how the waterway wanted to change the existing system, make it simpler and convenient for liners’ long-term programming.

‘The proposed changes will not only modify the Panama Canal’s toll structure. Instead, they will recalibrate our overall business structure to line up with customers’ and industry’s goals,’ said ACP administrator Ricaurte Vasquez in an April LinkedIn message. ‘This proposal marks the start of a new era for the Panama Canal – one focused on maximising the value the waterway creates, captures, and renders to customers in today’s new trade landscape and moving forward,’ he added.

Its gradual implementation will begin in January 2023 until 2025, ‘giving customers time to sign their contracts considering the structure,’ Vasquez told Seatrade at the time. ‘By making these changes, we recognise the value of extending greater predictability today, while renewing our commitment to improving customer experience.’

The new structure is an invitation to customers to consolidate cargo in bigger ships through the Neopanamax locks, which will release capacity and use less water. ‘From all the global maritime routes, Panama is the only one using freshwater, any of the Canal’s decisions today are geared towards improving fresh-water utilisation,’ explained Vasquez.

The proposed toll structure will reduce the number of tariffs from 430 to less than 60. The new pricing system has three components: A fixed price, the vessel’s capacity, and dynamic pricing for other marine services.

The proposal also modifies the loyalty programme created in 2021 for container vessels. The ACP wants to make it simple by reducing the number of categories from six to one. The plan is to have one loyalty level applicable to customers deploying more than 1.5m teu per year; the programme will be eliminated in 2025.

‘Our ability to maintain a safe, reliable route amid rising climate and supply chain challenges hinges on making strategic investments and adjustments to our business structure today,’ said Panama Canal’s Vice President of Finance, Victor Vial. ‘Groundbreaking investments are already underway to capitalise on these changes and strengthen the Panama Canal’s role in connecting smarter, more sustainable supply chains.’

Customers have responded with enthusiasm to the dynamic programme started in FY2021 which gives a ‘real market value to the route,’ Vasquez told Seatrade. ‘We are going to review the booking system for more simplification, transparency and market responsiveness,’ he said.

The allocation of booking slots through the auction process, which began in 2006 in the Panamax locks, was complemented by Extraordinary Auctions for Neopanamaxes in December 2020, offered if any booking slot becomes available 96 hours prior to the booking date. In April 2021, the Canal implemented the special auctioned slot (or Fast Pass) for the Neopanamax locks and in November of the same year, it made available another slot under auction slot every Tuesday for Neopanamaxes transiting in the southbound direction, including LNGs when the vessel mix allows it. In November 2021, an LNG vessel paid $1.1m at the auction – the highest amount so far-in addition to its transit fee. The final cost was ‘the real value of the route for one specific customer.’ By March 31, 2022, the Panama Canal has sold a total of 461 booking slots through the auction process, 261 extraordinary auctions, 187 special auctions and 13 Tuesday auctions.

Last year there were 13,342 transits, a decrease of 0.1% compared to FY2020, while tonnage increased to 516.7 m tonnes PC/UMS, up from 475.2m tonnes PC/UMS in FY2020. Over the past five years, there has been an increasing trend in the tonnage through the Neopanamax locks, which account for 55% of the total.

The third set of locks – Neopanamax locks – inaugurated in 2016 has largely contributed to the increase of cargo volumes in American ports but the effect of the Russia-Ukraine conflict remains to be seen.

The Panama Canal is planning to invest an estimated $2bn in water projects, and will pursue additional investments in digital transformation, infrastructure maintenance, as well as new infrastructure and equipment to become carbon neutral by 2030.

Last November, the ACP signed a consulting contract with the US Army Corps of Engineers (USACE) to advise the waterway on the water project. The scheme should be ready by 2024 and the Canal plans to call bids for the different designs. The ACP and the Corps of Engineering will be analysing alternatives to manage the water issue. Solutions to be considered will include, amongst others: improvements in the integration of water management tools; means to reduce the freshwater quantities currently used to avoid saltwater migration; segmenting the Gatun Lake to increase the storage capacity; deepening the Gatun Lake Navigational Channel; offsetting water extractions for Municipal & Industrial (M&I) use to other sources out of the Panama Canal watershed; introduce water from places beyond the Panama Canal Watershed. The analysis will aim at selecting a set of complementing solutions maximising economic impact with due consideration for social and environmental issues.

The latest Special Report on Panama features a comprehensive market briefing on Panama’s development as a cluster and how the region continues to thrive as an integral part of the global supply chain – as well as operational information, maritime services and market reports in Panama. Read the full report here.

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