The Price Of A Short Cut

AThe two waterways that halve the world's longest sea routes were built on opposite principles. The Suez Canal, opened in 1869, runs 193 kilometres across a desert isthmus at sea level, so that a vessel passes from the Mediterranean to the Red Sea without being lifted at all. The Panama Canal, opened in 1914, is barely 80 kilometres long, yet every ship crossing it must be raised some 26 metres to the surface of an artificial lake, held there by three flights of locks and lowered again on the far side. Both have since been enlarged, Suez gaining a second lane in 2015 and Panama a third set of locks in 2016, and both publish a transit register recording every ship, its tonnage and the toll it paid. What those registers prove is another matter. The question that divides the field is whether the traffic through a canal is governed by what the canal charges, or by conditions its operator does not control.

BAnneke Ravelli, a transport economist at the Institute for Shipping Economics in Rotterdam, argues that the answer is legible in what owners do when a toll moves. Working from the Suez transit register together with the charter papers of eleven bulk operators, she isolated the dry-bulk vessels sailing between the Arabian Gulf and northern Europe, ships on flexible charters that may change route at short notice. When the Suez toll for that class rose by 14 per cent in 2019, the proportion of such voyages routed instead around the Cape of Good Hope climbed from 6 per cent to 23 per cent within four quarters, although the longer passage adds some 3,500 nautical miles and about nine days at sea. When the increase was partly withdrawn the following year, the proportion settled back at 9 per cent. A canal, she concludes, is not a road but a shop: its traffic answers to its price, and the answer arrives quickly.

CThe finding carries a boundary, and Ravelli marks it herself. It holds for one class of vessel. Container ships on liner services, which account for the greater part of the value moving through Suez, run to published schedules agreed months ahead; across the same two years their transits varied by less than 2 per cent, and the toll rise left no visible mark on them. The register, moreover, records the voyages that were made and not those that were weighed, so an owner who priced the Cape route and rejected it leaves the same trace as one who never considered it. What she measures, finally, is a response to price and not to distance, and it says nothing about how the same owners would behave if the canal were shut rather than dear. Her claim, she writes, concerns tramp shipping under flexible charter, and concerns the years in which an alternative route remained open.

DRuben Salgado-Terrazas, who studies inland waterways at the Isthmus Institute in Panama City, accepts Ravelli's arithmetic and denies that it travels. At Panama, he observes, the binding constraint is water rather than money. Each transit discharges about 190 million litres of fresh water from Gatún Lake, which is replenished by rainfall alone; when the lake falls, the authority restricts the draught a ship may carry, and cargo is left ashore. He assembled 4,800 transits between 2015 and 2023 and found that in the drought of 2023 the daily booking slots were cut from 36 to 24, and that the queue outside the entrance lengthened while the toll stood unchanged. Two limits attach to that series, and Salgado-Terrazas states them himself. A draught restriction and a toll rise are not comparable instruments, the first capping quantity and the second raising cost; and his window holds only one severe drought, so the pattern rests on a single episode.

EThe quarrel is no longer confined to journals. Toll revenue funds a visible share of two national budgets, underwriters reprice the Red Sea whenever a hull is attacked there, and shipping lines cite whichever study supports the rate they hope to negotiate; meanwhile the record beneath the argument is thinner than either side would wish. The Suez Canal Company's ledgers for the years before the nationalisation of 1956 are divided between Paris and Ismailia and have never been reconciled, and the tonnage figures published in the 1950s follow three different rules of measurement. Ravelli concedes, awkwardly for her own case, that a transit register records a completed voyage and not the reason for it, so her series cannot separate an owner deterred by the toll from one whose cargo had simply disappeared. Salgado-Terrazas replies that the distinction dissolves at a booking desk where price and slot are quoted in the same breath. Both treat the round figures repeated in trade journals as the least reliable material in the field.

FWhat is taking shape is less a verdict than a division of labour, the two accounts answering different questions rather than competing for the same one. Asked how flexible operators respond to a change in price while a longer route remains open, the charter papers answer, and no rival reading of them has been published. Asked what governs the number of ships a lock canal can pass in a dry year, the Panama series answers, and it describes a ceiling that no toll can lift. What neither can settle is whether the diversions recorded after 2023 measured the cost of the canals themselves or the cost of insuring a hull through waters where vessels were being fired upon, since the freight rates quoted in those months fold both charges into a single number. Both reject the older habit of treating the two waterways as one institution merely because each shortens a voyage.