More overcapacity ahead for Caribbean transhipment ports

Panama’s MIT will face increased competition. Credit: MIT
Panama’s MIT will face increased competition. Credit: MIT

The good news for container lines considering hub options in the Caribbean Basin – and the bad news for terminal operators seeking to entice them – is that there is more than enough port capacity to go around and it is about to get even more excessive.

APM Terminals has a major new facility set to debut in Moín, Costa Rica. APM Terminals’ Latin America regional media relations manager, Freddy Serrano, confirmed to IHS Markit that the first of three phases will begin operations in February 2019 with 6 ship-to-shore cranes, 29 rubber-tyre gantry cranes, 2,500 reefer plugs, a 14.5 m draught, and 1.5 million/year in capacity.

Moín is a domestic facility with a heavy focus on the nation’s fruit exports, not a transhipment facility. “Moín Container Terminal [MCT] will handle more domestic cargo instead of transhipment cargo,” Serrano said. However, regional executives have long expressed concern in the medium and long term [and] transhipment business will be added.

“Moín will have major implications for the Caribbean,” said Carlos Urriola, president of SSA International, which operates the Manzanillo International Terminal (MIT) in Panama. “For the first three years, yes, they will be doing gateway cargo, but after that, they will probably try to do some transhipment,” he predicted.

Michael Kristiansen, president of consultancy CK Americas, believes that Moín’s domestic business could have a negative effect on regional transhipment. “Simply because it will be able to take bigger ships, it may favour direct shipments to there over transhipment [to and from Costa Rica] from elsewhere. The same thing happened on the Pacific side at Port Quetzal in Guatemala, where you now have Asian and European services coming in directly because of the 14 m draught.”

Asked about this possibility, Serrano said Costa Rica currently has almost 12,000 container moves per week and the terminal is expected to boost trade by 23%. He said Moín’s direct business could supplant Caribbean transhipment “only if shipping lines berth at MCT with bigger vessels”.

A second major APM Terminals project in the region is the Compas SA Cartagena Terminal Operator (CCTO) facility in Colombia. In 2015, APM Terminals purchased a 51% stake in the multipurpose terminal, with local partner Compas SA retaining 49%. The facility has an initial capacity of 250,000 teu/year and a USD200 million expansion plan was announced.

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Asked about the project’s status, Serrano told IHS Markit, “The environmental licence [for the expansion] was issued on 12 March 2018. After the licence was issued, the Ministry of the Interior requested a public consultation. To go forward, we need to first close the public consultation. The duration of this process in normal conditions is between six and nine months.”

In light of the takeover of Hamburg Süd by AP Moller-Maersk (APM), there is market speculation that a decision by APM Terminals to proceed with the CCTO expansion would be a major blow to SPRC, which operates two terminals in Cartagena – Contecar and Manga – and counts Hamburg Süd as one of its largest clients.

One source told IHS Markit that if CCTO was developed, it could handle all of the domestic Colombian business of Hamburg Süd and Maersk, but due to space limitations, it could not accommodate the carriers’ transhipment needs. He speculated that if domestic cargo goes to CCTO, Hamburg Süd and Maersk would move their transhipment business from SPRC to a Panamanian port.

Asked about CCTO space limitations, Serrano replied, “Based on 2017 stats, the total volume of domestic cargo in Cartagena is about 550,000 teu. After Phase 1, the capacity of CCTO will be 600,000 teu, enough capacity to handle an important share of all domestic cargo and part of the transhipment in the Cartagena market. Phase 2, subject to volumes and approval, will increase the capacity to 750,000 teu.”

Beyond the two APM Terminals projects, capacity is also being added by Chinese interests in Panama. The new transhipment project, Panama Colón Container Port (PCCP), which has been under construction since last year, is being developed by Shandong Landbridge Group and partners, with piers designed by Port Design Institute, based in Beijing, China. Including all phases, capacity would be 2.5 million teu/year.

Despite scepticism towards PCCP – which has yet to secure liner clients – Panamanian sources confirmed that construction is well under way and the first phase is expected to be operational by the end of 2019. Kristiansen said PCCP’s arrival will render the Caribbean transhipment outlook increasingly “chaotic”. According to Giovanni Benedetti, vice-president of SPRC, the emergence of PCCP “may bring some turmoil for Panama and us”.

Even more capacity is being built elsewhere in the Caribbean. In the Dominican Republic, DP World Caucedo is moving ahead with a long-discussed expansion. In an interview with IHS Markit, DP World Caucedo chief executive officer Morten Johansen confirmed, “We are adding another 400 m of mainliner berth, which is already dredging to 17 m, bringing the total to 1 km of mainliner berth. We have already ordered three additional cranes, which will be delivered at the end of 2019, and we will start [operations at the new berth] in early 2020. Capacity would go from 1.4 million [teu/year currently] to about 2 million.”

Capacity is also rising at CMA CGM-operated Kingston Freeport Terminal Ltd (KFTL) in Kingston, Jamaica. The first 600 m of new berth at KFTL’s South Terminal was completed in February, allowing the terminal to accommodate ships of up to 14,000 teu. The remaining two 300 m sections were scheduled to be completed by the end of this year. IHS Markit was previously told that the work would increase KFTL’s capacity from 2.1 million teu/year to 3.2 million teu/year.

On top of all of these capacity additions, there is more space now available at Hutchison’s Freeport Container Port (FCP) in the Bahamas. FCP’s facilities were devastated by Hurricane Matthew in 2016, but it has since been rebuilt to its pre-hurricane capacity, bringing three new super-post-Panamax cranes online in July. But even though capacity is back online and FCP recently serviced its largest-ever arrival, the 12,000 teu MSC Shreya B, IHS Markit was told by a port source that “it is still awaiting the return of business” to bring it back to pre-hurricane throughput. In other words, FCP reconstruction has effectively led to more free capacity in the Caribbean hub sector.

Volume grows at hub ports

In terms of volume, this year is shaping up to be a strong one for Caribbean transhipment hubs. In Panama, MIT’s throughput is 14% in January–July over the same period last year, while volume at Evergreen’s CCT is up by 12%, according to data from the Panama Maritime Authority.

In Cartagena, Benedetti said throughput at SPRC’s Contecar and Manga terminals is on track to increase by 10–11% in 2018 over 2017. “Domestic cargo is growing – the Colombian economy is doing better – and transhipment is also growing,” he asserted, adding that SPRC plans “to expand our business more into the logistics side and warehousing to have a bigger domestic base, because we cannot focus only on transhipment”.

In the Dominican Republic, Johansen estimated that DP World Caucedo should handle about 1.31–1.32 million teu in 2018, up from 1.2 million last year.

It is also aggressively expanding its logistics park, with Johansen noting that an additional 80 ha has recently been purchased for development beyond the original 37 ha. As of early September, construction of three 10,000 m² warehouses had been completed, the fourth was set to be done in October, and work on the fifth was under way. “It’s going very well. We believe in this concept,” Johansen said.

Economies driven by storm recovery, fuel costs

For multiple Caribbean islands, this year’s cargo volume trend has been driven by recoveries from the hurricanes of 2017, which left crippling damage in Puerto Rico, the US and British Virgin Islands, St Maarten/St Martin, Dominica, and Barbuda.

Island economies are enormously reliant on tourism and the storm damage on some islands was so severe that the tourism industry was effectively shut down, causing the traditional flow of hospitality and retail cargoes to cease. But simultaneously, storm damage prompted a surge in emergency supplies and reconstruction materials as infrastructure was rebuilt.

From a cargo-volume perspective, the balance appears to be positive. Data from the Government Development Bank for Puerto Rico show that the value of the island’s imports fell from USD3.7 billion in August 2017 to almost zero the following month when Hurricane Maria struck, then rapidly rebounded to pre-storm levels by December 2017 – and kept rising. By January of this year, import values reached USD4.4 billion, peaking at USD4.9 billion in May, marking the highest monthly total ever recorded.

Despite climbing imports, Puerto Rico’s near-term economic outlook is challenging. IHS Markit forecasts that GDP will fall by 4.3% this year, by 1.2% next year, and by 1.9% in 2020, then finally turn positive with a slim gain of 0.9% in 2021.

Other islands – albeit with far smaller economies than that of Puerto Rico – are expected to see a more rapid post-hurricane recovery. For Dominica, IHS Markit predicts a GDP plunge of 15.7% this year, followed by a rebound to 11.4% growth next year and 6.5% in 2020. The GDP in St Maarten is expected to fall by 9% this year before seeing growth of 1.4% in 2019 and 1.2% in 2020.

For the Caribbean as a whole, a key aspect of the hurricane-recovery equation is that regional cargo volumes tied to tourism did not appear to decline region-wide as a result of certain islands temporarily losing their tourism product. Instead, tourism (and tourism-related cargoes) flowed to undamaged islands.

John Price, co-founder of consultancy Americas Market Intelligence, told IHS Markit, “The demand coming out of the US for Caribbean travel continues to grow. The US economy is doing very well and the other islands that were not affected [by hurricanes] are also doing very well. There was also some displacement beyond the Caribbean, to Florida and Mexico.”

According to Juan Carlos Croston, vice-president of the Caribbean Shipping Association, “What we have seen is that the cruise industry has been a lifeline for the islands. The cruise lines have to continue serving their customers who want to go to the Caribbean, so the fact is that economic activity in the islands is continuing, just not on the same islands.”

Another important issue that affects Caribbean economies – and thus shipping volumes – is energy pricing. The higher the price, the more pressure on consumers and the lower their discretionary spending on imports. “Every market in the Caribbean, except for [oil- and gas-producing] Trinidad, is very sensitive to oil prices,” Price explained. “The fact that we had relatively low oil prices from the end of 2014 until last year was really helpful to the Caribbean and Central America, and the creeping up of prices [in 2018] will hurt. The Caribbean has some of the highest electricity rates in the world because they’ve done a very poor job of converting to more energy-saving technologies and to non-oil sources.”

In addition, the region faces a looming challenge from the International Maritime Organization’s (IMO’s) 0.5% cap on sulphur in marine fuel, which takes effect on 1 January 2020. The islands are served by small freighters and container ships that are unlikely to be equipped with scrubbers. As such, that regional carriers will be forced to shift from heavy fuel oil to the significantly more expensive low-sulphur fuel. For regional carriers to remain in business, those costs would have to be passed along in the form of fuel surcharges, leading to inflation for locally consumed goods, almost all of which are imported by sea.

According to SSA International’s Urriola, “A lot of people feel that this [the IMO enforcement date] may be extended because nobody is going to be ready, but I think it’s going to happen and I think the Caribbean people should be concerned. They are not paying enough attention to this situation. Also, who in the Caribbean will be selling this [fuel] product?”

Croston believes there will be volatility in fuel pricing, but he is not particularly concerned about regional inflation from shipping fuel surcharges. “In the Caribbean, transportation is probably only 10% of the cost of goods and maritime is a third of that, so if that 3% increases if you have a spike in freight costs [due to higher fuel surcharges], the effect on the price of goods shouldn’t be that bad, although it is a situation we’re following closely.”