The Singapore Shipping Association has formally prepared a submission to the Panama Canal Authority (ACP) concerning its proposal to modify the rules and pricing system for vessels passing through the Panama Canal.

The background to this issue stems from a Panamanian referendum in October 2006, where approval was granted for the Panama Canal Authority to expand the Panama Canal through the construction of a third set of locks. Work on the new locks is expected to start in 2007 at an estimated cost of US$5.25 billion, to be funded by graduated toll increases. The ACP had assured the maritime industry that the project – which is expected to conclude by 2014 – will not disrupt traffic through the present Canal.

In February 2007, the ACP published the new toll proposals to finance the expansion of the Canal.

According to the ACP proposals, new, separate tonnage based toll rates would be introduced for general cargo, dry bulk, tankers and vehicle carriers from 1 May 2007 and for refrigerated vessels and passenger vessels from 1 October 2007. The new toll rates are an increase ranging from 26% - 34% over a three-year period, according to the type of vessel.

The impact on container carrying ships will be higher. Tolls are expected to increase by around 47% across the three-year period, with effect from 1 May 2007. This is on top of the previous increases which were part of the phasing in of the new basis of TEU charging.

The Singapore Shipping Association, which represents close to 300 members of Singapore’s shipowning and wider shipping community, objects to the timing and amount of the ACP’s proposed tolls, as they represent an unreasonable increase over the next three years, with an inequitable distribution of costs between existing and future users.

SSA President, S. S. Teo said today, “The SSA strongly urges the ACP to explore the extent to which the increases in tolls could be spread over a more realistic timeframe. Such an increase will only exacerbate the current economic pressure which the shipping industry is currently facing and could have negative and unacceptable consequences on the world economy.”

In addition, said the SSA, given that the ACP has previously stated its intention to double tolls over the next twenty years, these proposals would suggest some serious front loading of increases. Not only does this appear to ignore concerns about customer expectations of increases in dues being matched by concrete improvements in service, it also fails to answer industry concerns about an equitable distribution of costs between current and future users, and raises questions about the direction of toll increases in the longer term.

Mr Teo added that the SSA hopes that ACP will present a clearer and more transparent picture of its longer term strategy for toll levels, to enable shipowners to make their long term plans with greater confidence.

“We also hope for a commitment on the part of the ACP to provide regular status reports during the construction period that will also help alleviate our concerns about the project completing on time and on budget,” he added.