__”_._. I .._._.._ .. .I _ I ‘ttilvtl.._ .._ St ;tlvs I. l_l_. .“_. (;c*~rchral ._._. _.__ ._.-... “l_.l_ Accwrtttl.ittg Of’l’iw l__l-...-_._-_-----~~-- Sq,l Pttltw1’ 1!)!)O PANAMA CANAL COMMISSION Revenue Forecasting and Marketing Efforts 9 lllllIllllllll 142431 RELEASED RESTRICTED--Not to be released outside the General Accounting OBlce unless specifically approved by the Offlce of Congressional Belationt3. .I ----.--.- “.-_ I-- -.--- (;AO/NSIAI)-!)O-~7~l~I~ United States CiAO General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-240763 September 14,199O The Honorable Roy Dyson Chairman, Subcommittee on Panama Canal and Outer Continental Shelf Committee on Merchant Marine and Fisheries House of Representatives Dear Mr. Chairman: On March 15, 1990, you requested that we review the Panama Canal Commission’s recently developed revenue forecasting methodology and the Commission’s marketing efforts to promote the Canal. Also, at your request, we evaluated the Commission’s procedures for collecting and maintaining data on Canal traffic to determine whether the amount of cargo originating from, or destined to, a specific port could be identified. On June 28, 1990, we briefed your staff on the results of our review. This report summarizes and updates the information provided in that briefing. The Panama Canal Commission, established by the Panama Canal Act of Background 1979 (Public Law 96-70), is an agency of the executive branch of the United States government. The Commission manages, operates, and maintains the Canal on a self-financing basis and is expected to collect tolls and other revenues to cover all operating and maintenance costs, as well as obtain capital for plant replacement, expansion, and improve- ments. To comply with the Panama Canal Act’s requirement to recover such costs, the Commission prepares forecasts of Canal traffic and toll revenue. Over the years, these forecasts have been prepared by Com- mission staff and, on occasion, by consulting firms under contract with the Commission. The Commission’s methodology for forecasting short-range revenue and cargo flows produced reasonably accurate figures during fiscal years 1980 through 1988. These figures fell within 5 percent of actual amounts. For each of those years, consistent with the Panama Canal Act, we reviewed and certified that the underlying assumptions used to Page 1 GAO/NSIAD-90-278BB Panama Canal Chmmhion B-240762 estimate cargo flows provided a reasonable basis for estimating reve- nues for the forthcoming fiscal year.* In 1988 the Commission contracted with Temple, Barker, & Sloane, Inc. (TBS) who, in association with Data Resources, Incorporated (DRI), was to develop an improved short- and long-range forecasting model. Inputs into the model are still being refined, and Commission officials stated that they are planning to consult with their contractors about other adjustments to the model. We believe that the methodology developed by TBS and DRI and now Results in Brief being used by the Commission to forecast revenues is sound and compre- hensive. It provides sufficient flexibility for the Commission to adjust its revenue forecasting as conditions dictate. However, this model has been in use for less than 2 years, and only time will tell if it is a more accurate predictor of future revenue than the previous methodology, which proved quite accurate. We found that the Commission’s primary marketing emphasis is on keeping existing clients rather than on expanding its client base. Com- mission officials acknowledge that developing new business is extremely difficult because (1) other transportation modes are becoming increas- ingly competitive and (2) new trade routes that would be served by the Canal are only slowly developing. The Commission does not maintain data on the specific ports of origin or destination of cargo passing through the Canal. Instead, information on where cargo comes from and goes to is maintained by the Commission on a more aggregated basis. For example, data would be available on areas served, such as the East Coast of the United States, the West Coast of South America, or Asia. Therefore, we were unable to identify the amount of cargo passing through the Canal destined for, or originating from, a specific port. ‘On December 22,1987, the Congress amended the Panama Canal Act, changing the Panama Canal Commission Fund from an appropriated fund to a revolving fund. This amendment eliminated the requirement that we annually certify the Commission’s estimated revenues. Page 2 GAO/NSLW4O-278BR Panama Canal Commission In 1988, the Commission contracted with TBS to develop a new long- Panama Canal range Canal forecast. As part of the forecast contract, TBS was also Commission Revenue requested to develop an econometric forecasting model that could be Forecasting used on the Commission’s microcomputer system. This software mod- eling package was designed to provide Commission economists greater Methodology capability to revise forecasts and to test the impact of possible varia- tions in certain key elements of Canal traffic. In April 1989, the first forecast using the new model produced cargo traffic and revenue esti- mates through fiscal year 2010. A second and, according to the Commis- sion, more accurate forecast was produced in March 1990. The model ultimately contained two components-one to forecast cargo flows and another to forecast toll revenues. To prepare commodity forecasts, TBS subcontracted with DRI, and together they adapted their jointly owned World Sea Trade Service to the trade routes and commodities serviced by the Canal. The Service is an econometric system of ocean trade forecasting and combines a histor- ical trade database, commodity-specific forecasts, forecasts of interna- tional economic activity, and trade industry analyses to produce a commodity-specific trade forecast. The base forecast provided by the Service is updated every 3 months, and the data can be used to provide a Canal-specific forecast upon request by the Commission. This enables the Commission to monitor the amount of each commodity expected to go through the Canal during the forecast period and to revise the esti- mates quickly if there are indications that actual trade patterns are varying significantly from forecast targets. The commodity forecast is reviewed by the Canal Commission; adjusted, if necessary, to account for recent Canal traffic data and developments affecting Canal trade; and then used as input into the revenue-fore- casting model. A program then converts each commodity-specific fore- cast into the numbers, sizes, and types of ships expected to transit the Canal. Toll revenue is then calculated based on the projected Canal vessel traffic, with a goal of having the Canal meet all costs on a self- financing basis. Our evaluation indicates that the forecasting methodology currently in use by the Canal Commission is sound and thorough. It overcame the Commission’s problems with the previous methodology, allowing data to be manipulated quickly and easily, and thereby permitting the Commis- sion to react to emerging economic conditions. Data are available by region, commodity, and trade route. The forecasting methodology (1) considers the market for and the shipping technology associated with Page 3 GAO/NSIAIMO-278BR Panama Canal Commission B240763 each commodity, (2) predicts changes in the level of economic activity and trade in the regions most used by the Canal, and (3) considers changes in the shipping industry, such as the use of larger vessels. The methodology is flexible enough to allow quick adjustments to forecasts for each commodity. If, over time, forecasts prove to be unreliable, the Commission can easily readjust. Inputs used in the model are still being refined. The initial April 1989 forecast was optimistic and overstated projected Canal traffic. The second forecast, developed in March 1990, took into account lower cargo flow expectations. Estimates of future ship sizes were overstated and the anticipated number of transits were understated in the initial fore- cast and will also need refinement. These two factors balanced each other out and had no effect on revenue projections, but the Commission desires greater accuracy in these factors. Commission officials told us that they are planning to contract with TBSto address these and other issues. Because the revenue-forecasting model currently used by the Commis- sion is less than 2 years old, we do not know whether it will consistently produce more accurate forecasts than the prior methodology. Commis- sion officials stated that the Commission’s revenue-forecasting track record was very good and that improvements would be hard to attain, Nevertheless, our evaluation of the current forecasting methodology indicates that it is more comprehensive and flexible than the Commis- sion’s earlier model (see app. I and II for cargo flow and traffic and toll revenue forecasts). The Director of the Office of Executive Planning is the focal point Panama Canal within the Commission for market relations and trade development pro- Commission’s grams. A Marketing Policy Steering Committee composed of five senior Marketing Program level Commission executives makes policy for the overall marketing pro- gram, coordinates marketing plans and efforts, and ensures responsive- ness to the needs of Canal customers. In 1983, an Economic Research and Market Development Division was established in the Office of Executive Planning to strengthen ties with existing Canal customers, to explore and develop new market sources, and to help gain recognition for the Canal as an efficient and economi- cally advantageous transportation alternative for world trade. The mar- keting section within the division is staffed by two marketing specialists, with one additional position currently vacant. However, Page 4 GAO/NSL4D-9O-278B& Panama canal canmissioll other Commission officials, including both the Director and Deputy Director of the Office of Executive Planning, also perform marketing functions during the normal course of their work. The marketing group’s primary mission is to maintain existing clients. Some examples of the Commission’s past marketing activities include l publishing articles concerning the Canal in trade journals, periodicals, and shipping industry magazines; sending current information about the Canal to maritime organizations; contacting port authorities and attending board meetings at key U.S. ports; and briefing visiting dignita- ries and Canal customers, . sending messages to Canal customers immediately following “Operation Just Cause”2 to assure them that they would encounter no problems when transiting the Canal, and l conducting face-to-face market surveys and maintaining communication with shippers and exporters in the Far East, Europe, Latin America, and the United States to tell Canal customers about the Canal’s capabilities, toll rates, and costs and to discuss with users any problems they have encountered with Canal service. The Commission’s marketing plan for fiscal years 1989 through 1991 consists of the following four steps: (1) to enhance the database by greater use of automated resources for collecting and analyzing transit- related data, customer profiles, and other information; (2) to expand the lines of communication with customers through increased participation in conferences, symposiums, personal visits, and larger direct mailings; (3) to promote the Canal through trade journals and other periodicals as a preferred route for world shipping; and (4) to strengthen internal coor- dination efforts to promote the usefulness of the Canal. Commission officials told us it is extremely difficult to attract new busi- ness to the Canal because of competition from other transportation sources, changes in world trade patterns, and slow development of new trade routes that could use the Canal. We were told by Commission sources that using differential toll rates for various commodities or types of shipping could possibly improve the Canal’s competitive posi- tion in certain areas, but that the Commission is prohibited by law from having a multiple rate schedule. ‘“Operation Just Cause” was the name of the American action in Panama on December 20,198Q. Page 6 GAO/NSIAD9O-278Blt Panama Canal Canmidon The Commission’s current procedures for collecting and maintaining Data on Vessels data on Canal traffic do not readily identify the amount and type of Transiting the Canal cargo originating from or destined for a specific port. We found that the Commission maintains these types of data only on a country-to-country basis or, in the case of the United and Canada, by coastal region. We attempted to disaggregate these data to show the port of origin, the des- tination, and the cargo carried; however, we found that developing data beyond those maintained in the Commission’s automated database could only be done by intensively reviewing individual ship documents for a given period. The Commission collects 240 pieces of information on each of the esti- mated 1,100 ships that transit the Canal monthly. Some of this informa- tion is coded and entered into the Commission’s Ship Data Bank system; however, specific ports of origin and destination are not entered. For example, a ship traveling from Baltimore to Tokyo would be recorded by its trade route-East Coast United States to Far East-rather than by specific ports. Furthermore, the system does not maintain information on commodities coming from or being delivered to specific ports. Data on all vessels calling at any U.S. port may be purchased from the Port Import/Export Reporting Service (PIERS).PIERS'information identi- fies the vessel name, shipping line, date of arrival and departure, and port of origin. It also provides a description of the cargo. However, PIERS does not provide information on the ship’s deployment route. For example, PIERSwould show that a vessel had traveled from Tokyo to Baltimore but would not indicate whether the ship had transited the Panama Canal or had arrived by another route. We interviewed and obtained records from Commission officials in the Scopeand offices of Executive Planning, Finance, and Marine Bureau in Balboa, Methodology Republic of Panama, to obtain information on revenue forecasts, mar- keting efforts, and data availability for the amount and type of cargo transiting the Canal originating from or destined for specific ports. We did not verify Commission-provided data. We reviewed the economic forecasts prepared by Temple, Barker, & Sloane, Inc., as well as those prepared by the Panama Canal Commis- sion Our review included assessments of the underlying assumptions of the model and the reasonableness of the data and analytical techniques used in developing the forecasts. We also interviewed a vice president of Page 0 GAO/NSIAD~278BB Panama Canal Commieeion 8,” B.240763 PIERSin New York to obtain information on the data available through its reporting service. We performed our review from May through August 1990 in accordance with generally accepted government auditing standards. We discussed the contents of this report with the Acting Director of Executive Planning, the Acting Administrator, and the Deputy Adminis- tratAJr of the Panama Canal Commission. Their comments have been incorporated where appropriate. However, as agreed with your office, we did not obtain written agency comments on this report. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days from the date of this letter. At that time, we will send copies to the Adminis- trator, Panama Canal Commission. We will also make copies available to others upon request. GAOstaff members who made major contributions to this report are listed in appendix III. A list of related GAOreports is provided on the last page of this report. If you or your staff have any questions concerning this report, please contact me on (202) 275-5790. Sincerely yours, Harold J. Johnson Director, Foreign Economic Assistance Issues Page 7 GAO/NSIAD-!KL278BR Panama Canal Commission Contenb Letter Appendix I Panama Canal Commission Cargo Forecasts by Commodity Group Appendix II Panama Canal Traffic and Toll Revenue Forecasts Appendix III Major Contributors to This Report Related GAO Products 16 Abbreviations GAO General Accounting Office DRI Data Resources, Incorporated PIERS Port Import/Export Reporting Service TESS Temple, Barker, & Sloane, Inc. Page 0 GAO/NSIADB&278BB Panama CanaI Commidon Y Page 9 GAO/NSI.ADBO-278BR Panama Canal C4mmbsion h”, t Appendix I K Panama Canal CommissionCargo Forecastsby Commodity Group Longtonsinthousands Fiscal year 1989 Commodity group _____- (actual) 1990 1991 1992 1995 2000 2005 2010 Automobiles -.' 1.990 1.718 1.629 1.638 1.670 1.773 1.946 2.021 Alumina/bauxite 2,385 31077 33329 31508 4,367 4,537 5,351 6,048 Bananas . ~- 1,375 1,641 1,854 2,057 2,442 2,823 3,081 3,363 .___ Chemrcals -- .1 .--.. -.~- ---- 5,508 4,537 4,709 4,963 5,396 6,647 7,574 8,643 ___--- Coal& coke 8,934-.- 8,757 8,329 8,001 7,272 7,445 7,528 7,687 Fertilizers 5,601 4,890 5,099 5,176 5,871 6,598 7,175 -.-- 7,862 Food & agr& ~- 3,041 3,135 3,187 3,250 3,524 3,764 - 3,953 4,157 Grains, other - - 13,647 17,378 18,287 18,968 20,376 23,651 25,958 28,523 ---. -..___ Iron & steel 7,850 7,632 7,534 7,656 ____.- 7,891 ~- 9,070 9,957 10,373 Lumber products 6,361 6,375 6,811 7,194 7,973 F 756 9,535 10,294 Metals, other 1.658 1.786 1.800 1.813 1.832 -is857 1,897 -~--- 1.938 Minerals, misc. 4,389 6,084 6,044 6,027 6,043 6,191 6,384 6,670 Ores, other 4,448 5,147 5,194 5,220 5,367 5,466 5,638 5,836 Paper 1,419 -- 1,407 1,460 1,541 1,767 2,283 2,661 3,111 - Petroleum, them. 2,117 1,493 1,468 1,472 1,487 1,396 1,353 1,325 Petroleum, coke ----- 3,184 3,375 3,455 3,528 3,847 4,176 4,407 4,653 Petroleum,crude 7.873 7.517 7.982 7.978 7.910 7.430 7.249 7,137 -- Petroleum, prod. 7,003 7,491 7,238 71169 7,277 7,556 7,702 _~._..,.-__-.-- _____-- 7,856 Petroleum, resid. 4,174 5,003 5,072 5,234 5,633 6,011 6,390 6,795 Phosphates. 8,603 8,514 8,358 8,347 8,452 9,997 11,176 12,518 Pulpwood 3,084 3,154 3,213 3,300 3,482 4,213 4,772 5,464 Refrigerated~arqo,other 3,377 3,648 3,929 4,196 4,757 5,416 5,878 6,388 Scrap metal 2,019 --_-~.-- 1,517 1,579 1,628 1,527 1,622 - 1,689 1,760 Sovbeans 5,243 6.021 5.999 6.187 6.787 7,889 9.137 L-L.- 10.603 Sugar 3,364 2,785 21640 21533 21371 2,504 2,674 -...___- 2,901 Wheat 11,027- 6,295 6,439 6,602 6,908 7,842 __________-... 8,487 9,191 All other 2,049 1,830 1,895 1,958 2,239 2,565 2,817 -___________ 3,097 Containerized 19,913 19,901 20,422 21,021 22,052 24,035 -____ 25,460 27,553 Total 151,636 152,108 154,955 158,165 166,520 183,615 197,829 214,367 Source: Data provided by the Panama Canal Commission Page 10 GAO/NSIAD-90-278BR Panama Canal Commimion , Appendix II Panama Canal Traffic and Toll RevenueForecasts Oceanmoinm tnnrltrr Toll revenue Net tonnage Small vessel Fiscal year -.-. _-._-.----- TOM Dally average (Dollars in millions) (Tons In milllons)e transits 1989(actuai~ , 2,075 33.1 $329.8 187.0 1,314 1990_. . -- .._---~- --.._ - 11,950 32.7 357.0 184.8 1,300 1991 -.-.---^-- 12,osO 33.0 364.0 188.4 1,300 199i . - ..._ 12,150 33.2 374.0 193.6 1,300 i~5 -.--_ 12.295 33.7 394.0 203.9 1,300 2000 ------ 121665 34.7 436.5 225.9 1,300 2005_. .-_..-.-._.-.__-__ 13,140 36.0 472.5 244.6 1,300 2010 13,580 37.2 510.0 264.0 1,300 BNet tonnage is calculated by converting cargo tons by commodity into Panama Canal net tons based on a conversion matrix by vessel type and selected trade route. The resulting Panama Canal net ton- nage for each commodity varies depending on the type of vessel carrying the commodity and on load factors, For example, the Panama Canal net ton/cargo ton ratio for automobile shipments is higher than other commodities because of the configuration of the ships used to transport automobiles. Source: Data provided by the Panama Canal Commission. Page 11 GAO/NSIAJM@=278BR Panama Canal C4mmbsion c * Appendix III J Major Contributors to This Report National Security and Thomas Melito, Senior Economist International Affairs Division, Washington, DC. Oliver G. Harter, Evaluator-in-Charge Dal1as Re@ona1 Office Penney M. Harwell Site Senior Rita F. Oliver, Evaluator Page 12 GAO/NSlAIMO-278BR Panama Canal Commieeion Page 13 GAO/NSIAD4@27SBit Panama Canal Ckmminsion .* Page 14 GAO/NSIAD-90.278BR Panama Cd Cmnmission Y Page 15 GAO/NSIAIWO-278BR Panama Canal Co&ion Related GAO Products Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1980 (ID-SO-~, Oct. 26, 1979). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1981 (ID-80-19, Mar. 6, 1980). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1982 (ID-81-34, Feb. 24, 1981). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1983 (ID-82-26, Mar. 19, 1982). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1984 (GAO/ID-83-29, Mar. 21, 1983). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1985 (GAO/NSIAD-84-96, June 19, 1984). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1986 (GAOIAFMD-86-42, Feb. 25, 1985). Certification of Panama Canal Commission Estimated Revenues for Fiscal Year 1987 (GAO/AFMD-~~-~~, Apr. 15, 1986). Revenue Estimate: Panama Canal Commission Estimated Revenue for Fiscal Year 1988 (GA~/AFMD-~~-~~, May 1, 1987). (472221) Page 10 GAO/NSLALMO-278BR Panama Canal Commission .__ ..” .-.I. _. .__.. . .__---____._________ -__.__---- .- : _._.- _..__...____...........--.....-_-. .“... -......_.. . _... - .-.___...-.._.....__. __ ..._--“- _.._.__-l___.--l Ordt~rirlg 1 ufi~ru~;~l.iou Orclvrs rnuy also t)ch ptac*cvl by catting (202) 275W4 I.
Panama Canal Commission: Revenue Forecasting and Marketing Efforts
Published by the Government Accountability Office on 1990-09-14.
Below is a raw (and likely hideous) rendition of the original report. (PDF)