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Determining Optimal Transit Charges: The Kiel Canal in Germany

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  • Nadine Heitmann
  • Katrin Rehdanz
  • Ulrich Schmidt

Abstract

The Kiel Canal in Germany connects ports on the Baltic Sea with the rest of the world and is the most-used artificial waterway in the world. Despite this fact, it generates a balance sheet loss. Revenues, which are mainly generated by the transit charge, do not cover its operating expenses. This situation raises the question: What reforms could be made to make the canal generate a balance sheet profit? In this paper, we focus solely on the canal’s revenue. Because the canal is a monopoly that allows, in principle, for perfect price discrimination, we contrast the current charging system with an optimal charging system based on the willingness-to-pay (WTP) approach. We devise a general approach to calculate optimal transit charges and apply it in a case study that includes four different ship types. We conclude that much higher revenues could be generated, on the order of between $5 and $45 million more per year and ship type if the transit charge were based not only on ship size but also on a ship’s departure and destination ports

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1741.

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Length: 28 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:kie:kieliw:1741

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Keywords: optimal transit charge; Kiel Canal; shipping cost; Germany; price discrimination;

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  1. Saran Somanathan & Peter C Flynn & Jozef K Szymanski, 2007. "Feasibility of a Sea Route through the Canadian Arctic," Maritime Economics and Logistics, Palgrave Macmillan, vol. 9(4), pages 324-334, December.
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