When most people think about the Caribbean, they see hammocks strung between rustling palm trees, rum and Coke with more rum than Coke, white-sand beaches, turquoise waters — relaxation.
When ocean shipping and terminal executives think about the Caribbean, they see a fierce battleground, a fight for customers among shifting alliances and a relentless struggle to secure razor-thin profit margins.
It’s easy to forget amid all the beach shacks, reggae bands and palm fronds, but what happens in the Caribbean is enormously important to the global container shipping sector.
The Caribbean is, after all, the crossroads of the Americas. Mainline east-west services from Asia to the U.S. East and Gulf coasts ply the Caribbean after transiting the Panama Canal, as do service strings connecting the west coast of South America (WCSA) to Europe and the north-south services linking the U.S. with Brazil.
And here’s where the chess game gets really interesting — there are nine major hubs all scrambling for the same liner customers within the so-called Caribbean “transshipment triangle.”
Top hubs are: Freeport, Bahamas, operated by Hong Kong’s Hutchison; Kingston, Jamaica, under concession to French liner CMA CGM; Caucedo, Dominican Republic, a joint venture between Dubai’s DP World and local interests; and Cartagena, Colombia terminals owned by SPRC. Along Panama’s Caribbean coast are Manzanillo International Terminal (MIT), owned by Carrix; CCT, owned by liner company Evergreen; and Cristobal, owned by Hutchison. Along Panama’s Pacific coast, which is not geographically in the Caribbean but is integral to the region’s network, are Balboa, run by Hutchison, and PSA Panama, run by Singapore’s PSA.
Some of these hubs are in bed with specific liners via equity deals. Others are playing the field. Each competes with the other on price per transshipment move and on efficiency of service.
The stakes are high for the terminals. A Caribbean hub can spend millions building out its facilities only to have its top liner customer switch to a competing port overnight, rendering its gantries idle.
To understand the current issues, trends and challenges within this vital corner of the world’s supply chain, FreightWaves interviewed Juan Carlos Croston, the president of the Caribbean Shipping Association and a vice president at Panama’s MIT.
Major changes on South America-Europe route. “Five or six years ago, before the [Panama] Canal expansion opened, people were saying that the vessels were going to get bigger so there would be fewer direct calls and more transshipment,” said Croston. “That didn’t come true [immediately after the larger canal opened in 2016]. We saw upsizing of vessels but we saw only minor reconfigurations of service networks.
“But now we are seeing it. It took longer than expected, but it’s happening. The new changes are creating between 300,000 and 400,000 TEU of additional transshipment in the market. That’s huge.”
As it turned out, the instigator of change was not the Panama Canal expansion. It was ownership consolidation, specifically the 2017 takeover of Germany’s Hamburg Süd by Denmark’s Maersk Line.
Hamburg Süd was previously a partner in the main WCSA-Europe service, known as Eurosal, together with CMA CGM, Hapag-Lloyd and COSCO. As part of the approval process of the Maersk deal, Hamburg Süd had to leave Eurosal.
These changes are leading to a significant increase in transshipment on the Caribbean side of the Panama Canal, and importantly, because of the WCSA’s focus on exports of fruits and seafood, it involves transshipment of more perishable products.
“Everyone has to be on their toes because most of this transshipment is perishable products,” said Croston. “You can’t afford to have service breakdowns, so the pressure is on the hubs. They have been praying for more transshipment, but this could be a case of ‘be careful what you wish for.’ With perishable products, especially, you have to perform. You have to make sure all the windows are aligned and all the protocols are followed. Keeping this [new transshipment business] all depends on providing reliable service. We [at MIT] have had visits from the shipping lines to make sure that everybody understands the importance of making all the connections.”
Diversification of hubs. When the Maersk-Hamburg Süd deal was announced, there was considerable speculation within Caribbean shipping circles about whether the combined group would opt for one hub, not two. Maersk traditionally transshipped at MIT in Panama and Hamburg Süd at SPRC’s Cartagena terminals.
Croston believes both MIT and SPRC will keep the business despite the takeover of Hamburg Süd by Maersk. “Why would they shut themselves out from having two options? There may eventually be some preference for one or the other, but we don’t see Maersk saying, ‘We’ll go 100% with one vendor,’” said Croston.
The same diversification logic applies for the big east-west alliances services that traverse the Caribbean. For example, in the 2M alliance between Maersk and Mediterranean Shipping Company (MSC), Maersk transships at MIT, but MSC tranships at PSA Panama and Freeport. In the Ocean Alliance, CMA CGM transships at Kingston, while alliance partner Evergreen transships at CCT.
According to Croston, “I don’t think carriers want to depend on just one vendor for their transshipment, and with alliances, I think it is very difficult to align all the partners, so I believe we will continue to see [alliance partners using different hubs in the Caribbean].”
Too much port capacity? Another key issue in the Caribbean transshipment sector is excess port capacity. Too much capacity at hubs lowers the rate for transshipment services and creates financial pressure on all of the hubs’ bottom lines.
Most of the hubs expanded capacity significantly coinciding with the Panama Canal project, bringing in cranes that can handle larger containerships, deepening drafts and bolstering yard space. Another wave of new capacity ensued in more recent years, with additions in Kingston and Caucedo, as well as the reconstruction of the Freeport terminal after the hurricane strike in 2016.
Meanwhile, an entirely new transshipment facility is under construction by Chinese interests on the Caribbean side of Panama — although construction reportedly is going slower than expected.
Asked by FreightWaves whether Caribbean transshipment capacity is unhealthily high, Croston replied, “Right now you’re looking at utilization levels [at Caribbean hubs] of between 50 and 55%. On one hand, you could argue that there is 45 to 50% overcapacity. But on the other hand, the sweet spot for productivity at transshipment hubs is 65 to 70%. Once you reach those thresholds, you have to be very careful, so you could also argue that overcapacity is only 10 to 20%.”
“The shipping lines are very clear. They say they’re not going to guarantee anything, but you have to make the investment to be ready. Financing-wise, it’s very difficult to say ‘build it and they will come,’ but that’s basically what we’re looking at now. You have to build it and you have to be ready for shipping lines to add transshipment volumes to your facility. For the shipping lines, it’s a buyer’s market.
Despite all of the capacity growth in the region over the past 10 years, Croston said, “I would not be surprised because of these new developments [increased transshipment volumes for WCSA-Europe cargoes], if some terminals in the Caribbean started moving forward with some new investment plans.”
The incentives for hubs to win new transshipment business is higher than ever in 2019.
A transshipment port can gain volume in two ways — first from incremental cargo flows due to higher economic activity among exporters and importers and second from an increased volume of containers that do not get delivered nonstop but instead are transshipped.