A sea level canal would eliminate present transit delays but doubt that this improvement would increase usage of the canal. Six member companies felt that a sea level canal would materially change the usage as compared with the present lock canal. Four of the companies answering in the affirmative are operators of tankers and other bulk carriers, and the other two are operators of dry cargo vessels, The following reasons were given for their position: Additional usage of the canal would result if it was constructed to accommodate tankers up to 150,000 DWT transporting Alaskan crude oil to U.S. east coast in excess of west coast requirements. A sea level canal having greater depth and width than present lock canal and with no ship length restrictions would result in increased usage by bulk carriers. Large crude oil carriers designed for the Alaska to U.S. east coast trade would be special beneficiaries of a sea level canal. Appreciable saving in time would result and expenses of tugs and lock line handlers would be eliminated. You asked us to explain the effect of toll increase of 50 percent on usage of existing canal. From the standpoint of our member companies and all other owners and operators of vessels transiting the Panama Canal, this is by far the most serious question propounded in the subcommittee's questionnaire. Our member companies have replied to the question in the following manner: An increase of 50 percent in the toll rate for vessels transiting the canal would (1) perhaps place railroads in a better competitive position than our intercoastal shipping operations in which event the railroads would get the business, thereby displacing intercoastal ship operations; (2) have substantial impact on intercoastal shipments by water of chemicals and possibly result in shift to unit-train operation concept for transportation of chemicals; (3) result in passing of toll increase to cargo shippers in form of higher freight rates, thereby adversely affecting competitive position in U.S. and foreign markets of products and commodities shipped through Panama Canal; (4) cause substantial reduction in number of vessels and cargo tonnage transiting the canal, resulting in considerable reduction in toll revenue which would probably offset any anticipated revenue increase from 50-percent increase in tolls; (5) enhance economics of a pipeline across Panama Zone or Panama for trans-shipment of petroleum, rather than by tankers through the canal. One of our member companies has explained the situation as follows: A toll increase of 50 percent would cause us to give serious consideration to servicing the Australian and New Zealand area on an around-the-world route via the Cape of Good Hope, inasmuch as the voyage days saved by utilizing the Canal both Eastbound and Westbound might be more than offset by the increased toll for transiting the Canal. If a decision were made to service the Australian and New Zealand area on an around-the-world route via the Cape of Good Hope, it would mean that the ships in the trade would transit the Panama Canal only once on each voyage instead of twice, thereby reducing our usage of the Canal by 50 percent. You may recall, Mr. Chairman, that at the hearing held by the Panama Canal Subcommittee on April 22, 1970, General Leber of the Canal Zone stated that if the tolls were increased by 50 percent "the sensitivity point of numerous commodities is exceeded." He further stated that, The average annual revenue over the 20-year period would be about 64 million greater than that produced by the 25 percent increase, and that, If we were to limit our evaluation to revenue alone, a 50 percent increase is better. But when we look at the effect on traffic, a different picture emerges. General Leber pointed out that if the toll rate is increased by 50 percent, We lose about 21 percent of our traffic. A 21 percent loss in traffic is probably unacceptable. As an international utility serving world commerce, it would be difficult to justify pushing away customers when capacity is available to serve them, thus placing the burden on the customers who remain to pay much higher tolls. These sensitivity determinations were developed by Stanford Research Institute and, as you remember, were discussed with this Committee at your hearings in 1967. AIMS agrees with the above position taken by General Leber as being in the best interests of the Panama Canal and the shipowners and operators. You asked us to comment on the effect of toll increase of 50 percent on usage of proposed sea level canal. The answers of our member companies to this question are, for the most part, the same as their answers to the last question. The point has again been stressed that a 50-percent increase in the toll rate would probably make an oil pipeline across the Canal Zone or Panama, including terminals, marginally more economic, although that would depend, to a large extent, on dimensions and draft of tankers that would be permitted to operate through a sea level canal. Mr. Chairman, in responding to our inquiries in anticipation of this hearing, some of our member companies urgently requested that we bring to your attention a matter, while not immediately germane to the subject before you, is nevertheless of great importance to the relationship between the U.S.-flag merchant marine and the Panama Canal Company I refer to the continued operation by the Canal Company of the SS Cristobal for the carriage between New Orleans and the zone of all supplies required by both the company and the Military Establishment. This direct competition between an agency of our Government and a long-established private industry in the particular trade is a matter of grave concern to the industry. It is our conviction that, in addition to being a violation of basic Government policy, it results in a cost for the carriage of needed supplies considerably higher than that which is already available from private carriers. I request permission to insert into the record at a later date data substantiating this latter point. Mr. MURPHY. Without objection, so ordered. (The material follows:) Note: Number of transits-Increase of 157 percent from 1950 to 1971. Panama Canal net tonnage Increase of 296 percent from 1950 to 1971. Tolls revenue-Increase of 298 percent from 1950 to 1971. Long tons of cargo-Increase of 310 percent from 1950 to 1971. Source: Annual Reports of Panama Canal Company for fiscal years 1920 to 1960, advance report for fiscal year 1971. Source: Advance Annual Report of Panama Canal Company for fiscal year ended June 30, 1971. Source: Annual Report of Panama Canal Company for fiscal year ended June 30, 1960. Source: Annual Report of Panama Canal Company for fiscal year ended June 30, 1950. EXHIBIT E COMMERCIAL CARGO VIA PANAMA CANAL FROM ATLANTIC TO PACIFIC DURING FISCAL YEAR ENDED JUNE 30, 1971 Note: 61.2 percent of all commercial cargo transported through Panama Canal during fiscal year ended June 30, 1971, Source: Advance annual report of Panama Canal Company for fiscal year ended June 30, 1971, EXHIBIT F COMMERCIAL CARGO VIA PANAMA CANAL FROM PACIFIC TO ATLANTIC DURING FISCAL YEAR ENDED JUNE 30, Note: 61.2 percent of all commercial cargo transported through Panama Canal during fiscal year ended June 30, 1971, Source: Advance annual report of Panama Canal Company for fiscal year ended June 30, 1971. Mr. REYNOLDS. Finally, Mr. Chairman, let me assure you that the U.S.-flag shipping companies are not insensitive to the problems, very serious problems, involved in maintaining a cooperative and useful relationship between our Government and that of the Republic of Panama. We fully recognize the needs of responding realistically to the reasonable aspirations of a less developed nation in which we maintain a critically essential artery of marine travel. We urge, however, that responsiveness to these aspirations should not and need not be at the cost of impairing the efficient operations of the Panama Canal nor its prudent protection in times of both peace and war. It seems to us that useful areas of exploration of meeting the needs of this situation are to be found, among others, in (1) the transfer to Panama of substantial land areas presently within the Canal Zone but which are not essential to either the operation nor the defense of the canal; (2) the increased employment within the zone of Panamanian nationale wherever possible, and a constant campaign of upgrading where competence and qualification justify such action; (3) a renegotiation of the annual annuity to reflect the increase in usage of the canal since 1955, when it was last increased, but with assurance that the total amount will remain within the contemplated revenue to be realized under the existing toll structure. We are grateful for this opportunity to have appeared before you. Mr. Chairman, the problems of our relationships with the canal are of the highest sensitivity, and we appreciate the grave responsibilities which you and your colleagues have here. They are not to be dismissed lightly. They are not to be ignored. There are problems of illiteracy. There are problems of a low level of income, and yet we are aware of the fact that the canal and its employment opportunities and the purchasing which it does in the Republic contributed last year the amount of $161 million to the economy of Panama. We recognize that 11,000 Panamanians are employed in the zone, but all of these facts just point up the need possibly to do more. Panama is the host nation for a great facility which is essential to the welfare of this country, and it seems to us that we must respond and we must respond quickly and orderly and fully to the needs of an aspiring nation which is in that particular role. As I said it is not going to be done by ignoring the problem. It has got to be met. And when I think of the manner in which our Nation has met somewhat similar problems in other parts of the world where our direct interests are possibly not as great, it seems to me we could respond more generously in Panama. Thank you very much, Mr. Chairman. Mr. MURPHY. Thank you, Mr. Reynolds, for a very realistic and informative statement. You said, on page 3, that "AIMS takes the position that the United States should retain exclusive control and sovereignty over the Panama Canal and the Canal Zone." Just how do you understand the term "sovereignty"? Mr. REYNOLDS. At the present time, as I understand it, the United States does exercise sovereignty over the zone. |