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Panama Canal and Suez Canal - pricing policies

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In engineering terms, the two are at opposite extremes.

The Panama Canal is a titanic feat of engineering, which cost $9 billion to build (in today’s money). It requires constant maintenance, the locks are very complicated, and enlarging or improving the canal is very expensive.

In contrast, the Suez Canal is just a 101-mile long groove scraped out of the sand, it is full of sea water from end to end and has no locks. All it requires is a bit of dredging every now and then to stop it silting up.
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In economic terms, they are almost identical. The USP of either canal is to shorten journey times by three weeks. So if it costs $10,000 a day to have your container ship or oil tanker at sea, you are happy to pay $200,000 to use the canal.

So how much do the canals charge..?

The Panama Canal charges about $200,000 for an oil tanker or large container ship, see also here.

The Suez Canal had average income per larger oil tanker of $325,000 (in 2008).

In economic terms, the value of the two canals is pretty much the same, so the prices they charge are pretty much the same. So the uninitiated observer who does not understand economics might think that the tolls for using the Panama Canal would be a lot higher than for the Suez Canal.

Nope. Because these are not “cost-plus” businesses, they are not in a competitive market*, their income is actually rent, and is entirely down to the location and nothing do do with their costs (unless the costs were so high they exceeded the potential income, in which case they shut down).
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* One of the linked articles says that the two canals are to some extent in competition, i.e. if your journey takes you half way round the world, you might be pretty indifferent which one you use, so you’ll choose the cheaper one. Interestingly, the number of ships using either canal each year is very similar, around 20,000 each. Whether this is a technical limitation at either end or the result of the limited competition between the two is unknown.

It’ll be interesting to see what happens if and when the North West passage is navigable again. Let’s assume it’s only navigable six months of the year and the journey from China/Japan to Europe is quicker than using the Panama or Suez Canals. In that case, the canals will lose a huge chunk of income.

Or let’s imagine an intermediate journey from X to Y using a ship which costs $10,000 a day to run, with the following possible journey times…

Via North West Passage – 20 days (when it’s open)
Via Suez Canal – 14 days
Via Panama Canal – 17 days
Via Cape of Good Hope – 35 days
Via Cape Horn – 38 days.

The shipping company is only prepared to pay $60,000 to use the Suez Canal and $30,000 to use the Panama Canal during the summer months when it can use the North West Passage. When it freezes over again, the shipping company will be prepared to pay the old price of $200,000 for the Suez Canal.



Source: http://markwadsworth.blogspot.com/2013/05/panama-canal-and-suez-canal-pricing.html


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