VZCZCXYZ0001
RR RUEHWEB

DE RUEHZP #0181/01 0371318
ZNR UUUUU ZZH
R 061318Z FEB 07
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 9762
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0160
RUEHEG/AMEMBASSY CAIRO 0025
RUEHCP/AMEMBASSY COPENHAGEN 0055
RUEHPE/AMEMBASSY LIMA 0676
RUEHQT/AMEMBASSY QUITO 0932
RUEHSG/AMEMBASSY SANTIAGO 0217
RUEHUL/AMEMBASSY SEOUL 0197
RUEHTV/AMEMBASSY TEL AVIV 0034
RUEHKO/AMEMBASSY TOKYO 0100
RHEHNSC/NSC WASHDC
RHMFISS/JOINT STAFF WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEKJCS/SECDEF WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUENAAA/SECNAV WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHGV/USMISSION GENEVA 0282
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL

UNCLAS PANAMA 000181 
 
SIPDIS 
 
SIPDIS 
 
FOR STATE WHA/CEN TELLO 
 
E.O. 12958: N/A 
TAGS: ECON FCSC EFTA ETRD EWWT PM
SUBJECT: PANAMA PROPOSES CANAL TOLL INCREASES 
 
REF: A. PANAMA 00047 
     ¶B. PANAMA 2374 
     ¶C. PANAMA 2375 
 
THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE 
ACCORDINGLY. 
 
¶1. (SBU) SUMMARY. On February, 2, 2007, the Panama Canal 
Authority (ACP) announced its proposed toll increases for the 
Panama Canal. The proposed toll increases run through 2009. 
The ACP is holding a public comment period through March 12, 
2007 and a public hearing on March 14, 2007.  The full text, 
in English and Spanish, of the proposed toll increases can be 
found on the ACP's website, www.pancanal.com.  Under the new 
proposal, tolls on containerized shipping will increase by 
33% by May 1, 2009. Tolls on passenger ships will be subject 
to a new regime based on berths. Tolls on other ships will 
increase by 16% to 24% by 2009. The ACP's rationale for the 
toll increases is based on the value of the Panama Canal to 
its users given the savings to the users and the better 
service to be provided as a result of the canal expansion 
project. The proposed toll increases are more than double the 
anticipated 8% increases the ACP had previously signaled. 
The Panama Canal continues to experience increasing demand 
for its services.  END SUMMARY. 
----------------------------------------- 
Toll Increase Announcement and Information 
------------------------------------------ 
 
¶2. (U) On February 2, 2007, the ACP announced its proposed 
toll increases for the Panama Canal. The proposed toll 
increases run through 2009. The ACP is holding a public 
comment period on the increases which ends at 4:15 pm (Panama 
time) on March 12, 2007.  All comments must be submitted in 
writing.  On March 14, 2007, the ACP will hold a public 
hearing at which any party who participated in the public 
comment period may appear.   The full text, in English and 
Spanish, of the proposed toll increases can be found on the 
ACP's website, www.pancanal.com. 
 
--------------------------------- 
ACP Proposes Hefty Toll Increases 
--------------------------------- 
 
¶3. (U)  Under the new proposal, tolls on containerized 
shipping will increase an additional 33% by May 1, 2009 over 
the May 1, 2007 rate. Pursuant to toll increases announced 
previously in 2003, tolls on containers are scheduled to 
increase from $49.00 to $54.00 per laden containers on May 1, 
¶2007.  Under the new proposal, toll will increase to $63.00 
per laden container on May 1, 2008 (a 16.67% year over year 
increase) and $72.00 per laden container on May 1, 2009 (a 
14.3% year over year increase).  Tolls on ballast containers 
will increase from $43.20 per ballast container as of May 1, 
2007 (under the previously announced 2003 increases) to 
$50.40 on May 1, 2008 and $57.60 on May 1, 2009. 
 
¶4. (U) Containerized shipping is the fastest growing segment 
of the ACP's market, having more than doubled over the past 
ten years.  During 2006, containerized ships accounted for 
38% of the total tonnage transited through the Panama Canal 
and 49% of total toll revenues. 
 
¶5. (U) The ACP proposes to charge passenger ships based on 
maximum berth capacity instead of the current tonnage system. 
 Under the new proposal, large vessels will be charged on a 
per berth basis and smaller vessels will continue to be 
charged under the current tonnage system.  This would mean 
that large passenger ships would be charged $100.00 per laden 
berth and $80.00 per empty berth as of October 1, 2007.  The 
tolls increase to $115.00 per laden berth and $92.00 per 
empty berth on October 1, 2008 (a 15% year over year 
increase) and $120.00 per laden berth and $96.00 per empty 
berth as of October 1, 2009 (a 4.3% year over year increase). 
 Passenger traffic through the Panama Canal represented only 
2.3% of the North American cruise market during the 2005/2006 
cruise season. 
 
¶6. (U) General cargo ships, refrigerated cargo ships, dry 
bulk ships, small passenger vessels, and vehicle transport 
ships will continue to pay based on tonnage.  Tolls on 
general cargo ships will increase 19% by 2009.  Tolls on 
refrigerated cargo ships will increase 12% by 2009.  Tolls on 
dry bulk ships and small passenger vessels (less than 30,000 
registered tons) will increase by 16.5% by 2009.  Tolls on 
vehicle transports will increase by 19.4% by 2009.  Tolls on 
all other types of ships will increase by 24% by 2009. 
 
-------------------------------- 
Neutrality Treaty Considerations 
-------------------------------- 
 
¶7. (U) Article III, Section 1(c) of the Neutrality Treaty 
provides, in pertinent part, that tolls and other charges for 
transit and ancillary services will be fair, reasonable and 
equitable and consistent with the principles of international 
law.  In the Understanding to such treaty, it states that 
Article III, Section 1(c) of the Neutrality Treaty shall be 
construed as requiring, before any adjustment in tolls, that 
the effects of any such toll adjustment on the trade patterns 
of the U.S. and Panama shall be given full consideration. 
Among the factors requiring consideration are the costs of 
operating and maintaining the Panama Canal, the competitive 
position of the Panama Canal, the interest of the USG and GoP 
in maintaining domestic fleets, the impact of increased tolls 
on the various geographical areas of both parties and the 
interests of both parties in maximizing international 
commerce. 
 
---------------------------- 
Rationale for Toll Increases 
---------------------------- 
 
¶8. (SBU) The ACP's rationale for the toll increases focuses 
on the value of the route offered by the Panama Canal to each 
user market segment, the cost and benefits of the $5.25 
billion Panama Canal expansion project, the relative value of 
the route in comparison to the Suez Canal and other routes 
(such as the multimodal system in the U.S.), the effects of 
the toll increases adjusted for inflation, and greater 
transparency of tolls which will allow to user to more easily 
pass along costs.  The ACP maintains that higher fuel costs, 
higher shipping costs, the demands of just-in-time inventory 
management and increased international trade make the service 
offered by the Panama Canal more valuable than before.  The 
ACP believes that the time and distance savings offered by 
the Panama Canal and the improvement in service to be 
provided through the canal expansion project merit the 
proposed toll increases.  Valentine Lynch, the ACP's Tolls 
and Rates Manager, told Econ Chief on February 4, 2007, that 
even with the toll hikes, the Panama Canal is still a "great 
deal" for shippers. 
 
--------------------------------------- 
Proposed Increases Higher Than Expected 
--------------------------------------- 
 
¶9. (U)  The ACP has publicly stated that it wants to double 
tolls by 2025.  The proposed toll increases get them 30% of 
the way on containerized traffic and 20% of the way on all 
other transits.  The toll increases are more than double the 
anticipated 8% increases the ACP had previously signaled. See 
reftel A. 
 
--------------------------------------- 
Canal Demand Continues to Grow Strongly 
--------------------------------------- 
 
¶10. (U) The Panama Canal continues to experience increasing 
demand for its services.  During its first fiscal quarter 
ended December 31, 2006, the ACP reported quarter over 
quarter increases of 8% in total transits, 11.7% in tonnage 
transited, 14% in Panamax ship (the largest ships that can 
transit the Panama Canal) transits and 7% in refrigerated 
ship transits.  Additionally, the ACP reported an earlier 
start to the high season, indicating increased demand.  The 
historical high season runs March through May.  The ACP 
reported that during 2006, the high season began in February 
and that it appears the high season this year began in 
mid-January.  During the its first quarter, the ACP reported 
unseasonably long wait times to transit the Panama Canal of 
up to five days. 
 
------- 
Comment 
------- 
 
¶11. (SBU) The higher than anticipated proposed toll increases 
are likely to generate protests, especially among users from 
Japan, Chile, Peru and Ecuador (reftel A).  However, the ACP 
feels the toll increases are completely justified and, when 
confronted, will challenge the shipping industry to 
specifically demonstrate how they are adversely affected by 
these increased tolls.  To do so, the ACP believes the 
shipping industry will be required to reveal certain 
operating financial information the shipping industry has 
historically refused to disclose.  In the end, we expect 
there will be protests but no backing down by the ACP on the 
proposed toll increases.  The ACP is confident that they are 
providing a service whose value is increasing and which is in 
ever increasing demand.  The ACP is seeking to capitalize on 
its ability to exercise pricing power, knowing full well that 
demand is dependent on international trade and global 
economic growth, none of which is guaranteed in the future. 
Eaton