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 manpower intensive and enlarging or improving the canal is very expensive (the current enlargement project will cost another $5 billion).
In contrast, the Suez Canal is just a 101-mile long groove scraped out of the flat desert 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 two or three weeks. 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 if it means saving 21 days at sea @ $10,000 per day.
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).
The economic value of the two canals is pretty much the same, so the prices they charge are pretty much the same (adjusted for days journey saved and size of ship the canals can accommodate).
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 to reflect their much higher actual costs. Nope. These are not "cost-plus" businesses, they are not in a competitive market*, their potential income is actually rent, and is entirely down to the location and nothing do do with their costs.
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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 route and canal you use, so you'll choose whichever works out cheapest. Interestingly, the number of ships using each canal each year is very similar, around 20,000 each and each canal has similar total revenues. Whether this is a technical limitations 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 a hypothetical 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. The marginal cost of allowing a ship through the Suez Canal is more or less zero, so they can drop the prices as much as they like and stay profitable. There is a large marginal cost of getting a ship through all the locks in the Panama is quite high (let's guess $50,000, no idea really), which sets the lower limit for the tolls it has to charge.
When the North West Passage freezes over again in Autumn, the two canals will be able to reinstate their old prices of $200,000.
Hyperintelligent pandimensional beings
6 hours ago
12 comments:
The French used to have the Canal de Garonne and the Canal du Midi as a trade route connecting the Atlantic with the Mediterranean. You could get goods from elsewhere to the med without going around Spain.
Once the railways came along, it got finished off, but apparantly, it's lovely to travel on.
TS, that is impressive. Who'd have thought there was a short cut there?
You can hire a boat and pay around a 50 euro toll and do it. With stops, I think it's about a couple of weeks.
I might be tempted when I'm a little older.
In re french canal thing, hasn't rick Stein done it and cooked along it? Anyway I digress...
There you go again MW, showing up my idleness. I sort of figured out the Suez/Panama thing by was too idle to work it all out...
Nice dinner party conversation killer though...
L, I like watching TV documentaries like "Extreme Engineering" or "Strip The City" and while they think they are talking about engineering (in itself a fascinating topic) the whole time I am thinking about people creating or tapping into rental values.
..or How It's Made?. I am actually an Engineer - letters after my name and everything - and engineering remains an abiding passion. But, in pretty well every issue of New Civil Engineer there is another pro-subsidy, or pro-'construction drives economic growth' rant by some construction worthy or another. They are all just begging for subsidies or looking for more rent. Ou sont les construction entrepreneurs d'antan?
But I need to calm down. The nightingales are going Hell for leather outside which lifts the old heart, a lot.
L, "How it's made" is more about the awesome power of automated manufacturing. It's fascinating (albeit unnerving) to be reminded of this, but ultimately these people are creating wealth, not soaking it up.
As you say, major construction projects are equally fascinating, but you can easily trace the way in which they transfer wealth (i.e. rents) between non-participants.
MW, yep, that's one of the reasons why I like HIM, it's generally 'production' or 'wealth creation' in action. In my share club days my co-members always laughed at my preference for the shares of widget makers..
The Northwest Passage is operating. The 69,000 ton Crystal Serenity will be the largest ship ever to navigate the Northwest Passage. Starting on 10 August 2016, the ship will sail from Vancouver to New York City with 1,700 passengers, taking 28 days for the journey. It needs pilots on board to get through.
If large container ships use the passage in summer it will knock off a substantial time from China and Japan to the UK/Europe. From Shanghai to London Thamesport it is 11,866 nautical miles. From Shanghai to Liverpool via the Northwest Passage is approx 9,211 (using Google Earth). That 2,600 mile less is substantial. Liverpool is soon bringing on-line its container terminal extension capable of handling ships with 20,000 containers - average now is around 4,00 containers. So imported Far East goods may become cheaper.
http://www.cbc.ca/news/canada/british-columbia/vancouver-maritime-museum-northwest-passage-1.3709993
JB thanks for update!
Mark, the 73,000 DWT Nordic Orion bulk carrier used the Northwest Passage about 18 months ago. Fully laden it was too large for the Panama Canal. 20,000 container Post-Panamax ships are also too large for the Panama Canal. They could use the Northwest Passage. The Chinese are assembling a small fleet of ships with reinforced hulls to use the passage. The aim is to sail in convoy with a Canadian icebreaker leading as pilot and able to cut through ice if the need is there. One ship with one ice breaker is an expensive undertaking. It makes economic sense to sail very large ships through the passage in convoy. There is a move to prevent oil tankers using the passage preventing environmental disasters. Then there is the Northeast Passage controlled by the Russians which some German ships have used.
Shipping movements will change for sure, but not greatly as the passage will only be used by a few large ships. Liverpool looks to benefit being on the north west coast of England and in the large north of England population belt. As over 50% of containers docked at southern England ports are destined for the North of England it sort of makes sense.
JB, again thanks and good points, but I started a new thread here.
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