Policy Article

Economic benefit of the Kiel Canal

Kieler Beiträge zur Wirtschaftspolitik, 35 Download

The authors note that the number of ship passages through the Kiel Canal (NOK) declined during the observation period starting in 2014, although this was not exclusively due to declining market shares. According to their observation, the transit costs of the canal for all vessel types significantly reduce the probability of passing through the canal. On average, a doubling of the total cost would result in a 20 percent reduction in passages. An increase in bunker price, on the other hand, tends to favor passage through the NOK. Their analysis also reveals that passage through the NOK makes calls at the Port of Hamburg and German ports more likely compared to ports in the Netherlands and Belgium. Using the Kiel Institute Trade Policy Evaluation Model (KITE), they determine that, in particular by reducing trade costs, the NOK generates a positive welfare effect of 570 million Euros annually for Germany. Denmark and Sweden benefit with 87 and 88 million Euros, respectively. The authors suggest to make the passage more attractive for shipping companies by a flexible design of the canal dues. Coupling the canal dues with bunker prices using the ratio 1:4 and 1:5 depending on the ship type is justified by economic analysis.