FIXING THE TOLLS
Long before the Panama Canal was finished shipping interests in every
part of the world began inquiring minutely as to probable rates of
toll, stating that it would be necessary for them to have this
information before making plans to meet the changed conditions. Some
wanted to plan construction of new ships, while others desired
principally to readjust their transportation lines in accordance with
the new conditions.
With this in mind, President Taft in 1912 recommended to Congress the
passage of a law fixing the tolls and providing for the permanent
operation of the canal. Congress, acting upon this recommendation,
passed what is known as the Permanent Canal Law. In this law are
stated the terms under which the canal may be used by the shipping
world. It authorizes the President to prescribe, and from time to time
to change, the tolls that shall be levied by the Government of the
United States for the use of the canal. No tolls may be levied on
vessels passing through the canal from one United States port to
another. Provision was also made that tolls might be based upon gross
or net registered tonnage, displacement tonnage, or otherwise, and
that they might be lower on vessels in ballast than upon vessels
carrying cargo. When based upon net registered tonnage, for ships of
commerce, the tolls can not exceed $1.25 per ton, nor be less, other
than for vessels of the United States and its citizens, than the
estimated proportional cost of the actual maintenance and operation of
the canal. The toll for each passenger was fixed at not more than
$1.50.
Acting under the law authorizing him to fix the rates within the
limitations stated by the law itself, President Taft issued a
proclamation fixing the toll at $1.20 per net registered ton on all
ships of commerce, other than those carrying cargo from one United
States port to another. The net registered ton is the unit of
measuring a ship's cargo-carrying capacity, used throughout the world
in general, and by British shipping in particular. It consists of 100
cubic feet of space, so that when a ship is measured its net
registered tonnage is determined by the number of these units of space
it contains. A ton of cargo seldom fills a hundred cubic feet of
space; frequently it will not fill more than 40 cubic feet. The charge
per ton of actual freight under this toll of $1.20 per net registered
ton ranges from 44 to 80 cents a long ton upon the freight carried,
depending upon the class of cargo. Such a toll adds from 2 to 4 cents
per hundredweight to the freight rate between two points through the
canal. It might cost 5 cents to take a barrel of flour from Colon to
Panama, or vice versa.
While ships will be charged tolls on the basis of net registered
tonnage, not all ships carry freight upon that basis. In the majority
of cases cargo is taken on at "ship's option"--either by weight or
space. Forty cubic feet is estimated as the space occupied by an
ordinary ton of freight, and ships usually carry cargo at rates based
on that amount of space for each ton. The 40 cubic feet method of
determining the amount of cargo carried is adopted by maritime
interests because a long ton of wheat occupies about that amount of
space. From this it will be seen that for the purpose of collecting
tolls the United States allows 100 cubic feet of space for a ton,
while the ordinary shipping firm allows only 40 feet per ton. Thus it
happens that a shipowner charges the shipper for carrying 2-1/2 tons
where the United States charges the shipowner for carrying 1 ton.
Notwithstanding the fact that the shipowner collects for the carrying
of 2-1/2 tons where he pays toll on 1 ton, he still has to pay what
seems, in the aggregate, a large sum of money each time his ship
passes through the canal. An ordinary 5,000-ton ship will be charged
$6,000 for passing from one ocean to the other. A ship like the
_Cleveland_, the first around the world tourist steamer advertised to
pass through the canal, will have to pay $14,000 for the 12-hour trip
from Colon to Panama. A steamship like the _Lusitania_ will have to
put up some $30,000 for a single passage. The average ship will pay
from $5,000 to $10,000 for its passage. This seems like a high rate,
even though it does amount to only 2 or 4 cents per hundredweight of
cargo, but when one takes into consideration the time saved in passing
through the canal, and the cost of maintaining a ship on the high
seas, the rate becomes a reasonable one.
The average ship costs about 10 cents per net registered ton per day
for keeping it in operation. Thus a 10,000-ton ship will save about a
thousand dollars for each day its voyage is shortened. If this voyage
be shortened by 20 days, the shipowner makes a net saving of $8,000
when he selects the Panama route over some other route. In fact, he
may save even more than this, for the other route might involve the
giving of additional space for bunker coal, which otherwise would be
used for cargo. Convenient coaling stations mean a minimum of space
required for the operation of the ship and a maximum of cargo-carrying
capacity. In this way a merchant ship might save several thousand
dollars additional by choosing the Panama route over the Strait of
Magellan.
It is estimated that the tolls it will be necessary to collect to make
the canal self-supporting will be $15,500,000 a year, since that
amount will be required to meet the expense of operation and return 3
per cent interest on the investment. The $15,500,000 is made up of
$3,500,000 for operations, $250,000 for sanitation and government and
$11,250,000 for interest on the $375,000,000 the canal cost. This
takes no account of approximately $10,000,000 which will be required
for the support of the troops on the Isthmus. Should this be
considered, the total annual charges to be made would approximate
$25,000,000, but this, in the view of those who have considered the
matter, is not a proper charge against the cost of operation.
[Illustration: THE ANCON BASEBALL PARK]
[Illustration: CALEB M. SAVILLE
GATUN SPILLWAY FROM ABOVE AND BELOW]
It has been stated that a proper system of finances would provide
for the repayment of the cost of constructing the canal in a hundred
years. This would mean an annual charge of $3,750,000, and would bring
the total annual outlay, exclusive of the cost of protection, up to
$19,250,000. From this viewpoint the canal will not be self-sustaining
until the total traffic approximates 17,000,000 tons a year, which it
will reach about 1925.
It has been estimated by Prof. Emory R. Johnson, the Government expert
on canal traffic, that the total tonnage which will pass through the
canal during the first year of its operation will approximate
10,500,000 net registered tons. Since the shipping of the United
States is permitted to pass through without paying tolls, the tonnage
upon which toll will be collected will yield a gross revenue of
approximately $10,000,000. This will afford the United States an
income of a little less than 2 per cent on the money invested, after
paying the actual cost of operation. On this basis it probably will be
four or five years from the opening of the canal before the returns
will yield 3 per cent on the investment.
The ships of the world use approximately 75,000,000 tons of coal
annually. The opening of the Panama Canal will save several million
tons a year and the money thus saved will, in part, fall into the
coffers of Uncle Sam. A vessel en route from Chile to Europe can save
nearly enough in the cost of coal alone to pay the tolls that will be
exacted at Panama.
When the United States came to frame its system of toll charges and
collections, it was found that there was a wide difference of opinion
as to the right of the United States Government to exempt coastwise
shipping from the payment of tolls. Under the Hay-Pauncefote treaty
with Great Britain there was also a wide variance of opinion as to the
question of whether the United States, as a matter of national policy,
ought to exempt from the payment of tolls, ships trading between its
own ports on the two coasts. These questions were argued pro and con,
and Congress finally decided by a very close vote that the United
States ought to allow ships trading between its own ports to use the
canal free of charge. No foreign ships are permitted under any
circumstances to engage in such traffic.
Those who advocated the exemption of ships trading exclusively between
United States ports from the payment of tolls, did so on the ground
that it would build up a wealthy American merchant marine which would
be invaluable to the United States in time of war, and also that it
would tend to reduce freight rates between Atlantic and Pacific
points. They argued that every cent added to the cost of
transportation through the canal would be reflected in freight rates
between the East and the West.
Those who opposed the exemption of American coastwise shipping from
the payment of tolls, asserted that the coastwise shipowners already
had a monopoly on the handling of cargo between American ports, and
that no further encouragement was needed. They argued that it would
make little or no difference in rates whether tolls were charged or
not, and that the only people who would benefit would be the
shipowners. They contended that the United States ought to charge
everybody alike and use the tolls collected for the purpose of
repaying the money it spent in building the canal. Some of them also
contended that the Hay-Pauncefote treaty bound the United States to
treat all shippers alike, and that the United States could not
discriminate in favor of the American coastwise traffic without
contravening the treaty with Great Britain. This view, however, did
not prevail, and the law, as enacted, exempted coastwise shipping.
England immediately protested against this exemption on the ground
that it was in contravention of the treaty between the two countries.
The story of how the United States came to be bound by a treaty with
Great Britain in the building of an Isthmian canal goes back for more
than half a century. The year 1850 found the North American continent,
north of the Rio Grande, in the possession of the United States,
England, and Russia. The United States had only recently finished its
continental expansion, and each of the two countries needed a canal to
connect their east and west coasts. England had long possessed a west
coast in Canada, but the United States had only recently come into
possession of a Pacific seaboard. When it came to consider the
question of connecting its two coasts the United States found that
Great Britain was holding the position of advantage in the Isthmian
region. It held the Bahamas, Bermuda, Jamaica, the Barbados, Trinidad,
the Windward and Leeward Islands, British Guiana and British
Honduras; and held a protectorate over the "Mosquito Coast," now the
east coast of Nicaragua. That protectorate covered the eastern
terminus of the only ship canal then deemed possible.
Under these conditions the United States concluded that it was
necessary for the support of the Monroe doctrine that some sort of an
understanding should be reached between the two countries. England
assented to such an understanding only after Nicaragua and Costa Rica
had given to the United States its consent to the building of a canal
across its territory. These treaties with Nicaragua and Costa Rica
were negotiated but never ratified, and were used as a club to force
Great Britain to make a treaty. The result was the Clayton-Bulwer
treaty, which provided that neither Government should ever obtain or
maintain for itself any exclusive control over an Isthmian canal, and
that neither Government should ever secure for itself any rights or
advantages not enjoyed by the other in such a canal. The proposed
canal was to be entirely neutral, and the treaty set forth that the
two countries agreed jointly to protect the entire Isthmian region
from Tehauntepec to South America, and that the canal always should be
open to both countries on equal terms. The canal under this treaty was
intended to be entirely neutral with reference to defense, with
reference to tolls, and with reference to such other nations as might
join in maintaining neutrality.
When the United States decided to build the Panama Canal, it found the
Clayton-Bulwer treaty wholly unsuited to its aims and desires. It
therefore asked England to enter into a new convention; the
Hay-Pauncefote treaty was the result. This document declared that its
purpose was to remove any objections that might arise under the
Clayton-Bulwer treaty to the construction of an Isthmian canal under
the auspices of the Government of the United States without impairing
the general principle of neutralization.
Under this treaty the Government of Great Britain made a protest
against the decision of the United States to exempt its coastwise
traffic from the payment of tolls, claiming such exemption to be a
violation of the neutrality agreement. This protest came in the form
of two notes to the American Government. The first was written as a
warning to Congress that the British Government would regard the
exemption of American coastwise traffic from the payment of tolls as a
discrimination against British shipping, and a violation of the
neutrality agreement between the two countries. It admitted that if
the United States were to refund or to remit the tolls charged, it
would not be a violation of the letter of the treaty, and acknowledged
that if the exemption of coastwise American shipping from toll charges
were so regulated as to make it certain that only bona fide coastwise
traffic, which is reserved for American vessels, would be benefited by
this agreement, then Great Britain could have no objection. But it
declared that England did not believe that such regulation was
possible.
After Congress, with this note in mind, had passed the canal toll law
with an exemption to ships carrying goods between the two coasts of
the United States, President Taft, in approving the measure, declared
that the canal was built wholly at the cost of the United States on
territory ceded to it by a nation that had the indisputable right to
make the cession, and that, therefore, it was nobody else's business
how we managed it. He contended that for many years American law had
given to American ships the exclusive right to handle cargo between
American ports, and that, therefore, England was not hurt at all when
that shipping was exempted from toll charges.
England responded, in a second note, that the clear obligation of the
United States under the treaty was to keep the canal open to the
citizens and subjects of the United States and Great Britain on equal
terms, and to allow the ships of all nations to use it on terms of
entire equality. It also contended that the United States is embraced
in this term of "all nations"; that the British Government would
scarcely have entered into the Hay-Pauncefote treaty if it had
understood that England was to be denied the equal use of the Panama
Canal with America. The three direct objections urged by the British
against the American canal law were: That it gives the President the
right to discriminate against foreign shipping; that it exempts
coastwise traffic from paying tolls; and that it gives the
Government-owned vessels of the Republic of Panama the right to use
the canal free. The answer of the United States to the first of these
objections was that the right of the President to fix tolls in a way
that would be discriminatory against British shipping was a question
that could be considered only when the President should exercise such
action.
The British Government expressed the fear that the United States, in
remitting tolls on coastwise business, would assess the entire charges
of maintenance of the canal upon the vessels of foreign trade and thus
cause them to bear an unequal burden. This, the second objection was
answered with the statement that, whereas the treaty gives the United
States the right to levy charges sufficient to meet the interest of
the capital expended and the cost of maintaining and operating the
canal, the early years of its operation will be at a loss and,
therefore, at a lower rate than Great Britain could ask under the
treaty. The third objection was considered insignificant.
The British Government, after laying down its objections to the
American canal toll law, requested that the matter be submitted to The
Hague tribunal for adjudication. The American Government declared that
this course would not be just to the United States, since the majority
of the court would be composed of men, the interests of whose
countries would be identical with those of England in such a
controversy. Before leaving office President Taft proposed that the
matter should be submitted to the Supreme Court of the United States.
The whole question was left in that situation when the change from the
Taft to the Wilson administration took place.
As to the merits of the controversy, there is no unanimity of opinion
on either side of the Atlantic. Some British authorities entirely
justify the American position, while some American authorities take
the British position. It is probable that the controversy will require
years for settlement.
Before the canal was open for traffic there was much speculation as to
what rate policies the railroads would adopt to meet the situation
caused by the competition of the Panama Canal. If the same classes of
goods are handled through the canal as across the United States, there
will be more than 3,000 different articles on the tariff books of
steamship lines using the canal. In his report on the effects of canal
tolls on railroad rates, Prof. Emory R. Johnson expressed the opinion
that the payment of tolls by ships engaged in coast trade would affect
neither the rates of the regular steamship lines nor the charges of
the transcontinental railroads.
[Illustration: AN ELECTRIC TOWING LOCOMOTIVE IN ACTION]
[Illustration: BLOWING UP THE SECOND DIKE SOUTH OF MIRAFLORES LOCKS]
A provision of the canal toll law forbids any railroad to be directly
or indirectly interested in any ship passing through the canal,
carrying freight in competition with that railroad. This provision was
inserted to prevent the railroads from controlling the steamship lines
using the canal, and through that control fixing rates between the two
coasts on such a basis as to prevent effective competition with the
railroads themselves. The result was that a number of railroads had to
dispose of their steamships engaged in coastwise trade. This provision
affects several Canadian railroads, and after it was made the British
Government served notice on the United States that it intended to take
up this question and consider whether or not the law in this
particular does not infringe upon British rights.
Nothing seems more certain than that, in the course of years, canal
tolls will be materially lowered from the $1.20 fixed by the
President. It seems inevitable that the Panama Canal and the Suez
Canal will enter into a lively battle for the great volume of trade
between eastern Asiatic and Australasian points and western European
ports. On this dividing line between the two great interoceanic
highways there originates many millions of tons of traffic, and this
will be largely clear gain to the canal which gets it. The
considerations which will draw this trade one way or the other are the
rates of toll, the convenience of coaling stations, the price of coal,
and the certainty of the ability to secure proper ship stores. This
spirit of competition will probably serve to lower rates more rapidly
than they otherwise might be reduced. With some 10,000,000 tons of
traffic on the great divide between the two canals, ready to be sent
forward by the route which offers the best inducements, it is certain
that good business policy will call for some hustling on the part of
both canals. As the business of the Panama Canal expands, it can
afford to reduce rates. With an ultimate capacity of 80,000,000 tons a
year, as the canal stands to-day, the rate of toll could be cut down
to 25 cents a ton when that capacity is reached, and still afford the
United States an income large enough to take care of the operation and
maintenance of the canal, and sanitation and government of the Canal
Zone, to meet the interest on the cost of building it, and to
amortize the entire debt in a hundred years.
It is certain that the United States made a good investment at Panama.
Assuming that the coastwise traffic is worth to the Government the
amount of the tolls it is exempted from paying, the canal becomes a
self-supporting institution from the day of its opening, leaving all
the military and trade advantages it affords the United States as
clear profit.