By Mike Jarrett

For many reasons, the Caribbean can claim to be at the centre of world shipping. And, the Caribbean Shipping Association (CSA) is "the voice the Caribbean shipping industry."

The Caribbean Sea is the Southern gateway to the world’s largest single marketplace. It facilitates all ships using the Panama Canal. It is the cruise ship capital of the world.  The United States of America and its neighbour to the north, Canada, present a formidable market for world trade. In fact, the US has over 240 trading partners around the world the largest of which ship cargo through the Panama Canal. Each year more than 14,000 ships, carrying more than 203 million tons of cargo pass through the Canal.

Perhaps more than any other facility on the face of the Earth, the Panama Canal is central to world trade. Indeed, world trade expanded rapidly with the opening of the Panama Canal in 1914.

In 2006, the single largest project in the history of the Panama Canal received the total approval of the government and people of that country. The project will effectively double the capacity of this important cross-land waterway thus allowing more seaborne traffic to transit. On completion therefore, more than 40 ships a day will be transiting the Canal.

The expansion project, expected to take up to eight years to complete, involves the construction of two lock complexes, one on the Caribbean side of the isthmus and the other on the Pacific side. Each of the lock complexes will have three chambers, including three water-saving basins. New access channels to the (new) locks will have to be excavated and existing navigation channels will have to be widened and deepened so as to accommodate the larger ships which will be facilitated. In this regard, the project calls for the elevation of Gatún Lake's maximum operating level.

The Panama Canal expansion project is estimated to cost US$5.25 billion. It will be self-financed through an increase in transit tolls.

On July 14, 2006, the National Assembly unanimously approved the proposal to expand the Canal. The Assembly then passed a law that a national referendum be held so as to allow the Panamanian people the opportunity to decide on whether the expansion should take place. The referendum was held on Sunday October 22, 2006, a few days after delegates of the Caribbean Shipping Association completed the Association’s 36^th Annual General Meeting in Panama City.

During that meeting of the CSA, over 200 members and delegates made a partial transit and had an opportunity to see the Canal in operation. CSA Vice President, Carlos Urriola Tam, General Manager of Panama’s Manzanillo International Terminal, hosted CSA delegates on that trip. He had to field many questions relating to the expansion project and the implications for Caribbean shipping.

"A country (Panama) with a population of just 3.3 million took a major decision that will change the shipping business in all the regions of the World, including, of course, the Caribbean," said the CSA Vice President, in reference to the referendum. "By the people voting their approval, Panama can now begin the work of expanding the Canal to allow post-Panamax vessels to transit by a new set of locks."

He said: "The new sets of locks will be ready for the year 2014 and then post-Panamax vessels will transit our (Caribbean) region. For the first time in our history of regional port development, there is a definitive date. It is 2014.

"So, every port in the Caribbean region must plan accordingly."

The questions Caribbean governments and ports must consider, he said, is, given this new reality: do we expand so we can accommodate these monster vessels? Or, do we continue being feeder ports?

"Economies of scale will dictate that these vessel call at fewer ports, but with more cargo. Efficiency and reliability will be key. But before we operate we must build it or improve our facilities. Do we have the funds to build 16-metre depth berths? Do we have the capital to buy post-Panamax cranes?

"Also we must understand that the actual Canal is already close to full capacity. While Panama is building the new locks, there will be more pressure in the terminal to provide a faster and reliable service. Are we ready?"

According to the CSA Vice President, the implications for the Caribbean are "incredible"; not only once Panama finishes the project, but while is being built.

"It is time for decisions and we cannot afford to make a mistake...." he added.

The fact that the CSA is the voice of the Region’s shipping industry, as the Association’s President Fernando Rivera reminded the 30^th Caribbean Central American Action Conference on the Caribbean in Miami, Florida last December (2006) , means that there is a single organization in which these implications can be discussed and debated. The collective wisdom of the Region’s shipping industry virtually ensures that mistakes are not made. Indeed, for the 36 years that the CSA has been in the forefront of development of the Caribbean’s shipping industry, very few member territories have made the kinds of catastrophic errors Mr. Urriola warns about.

Conferences of the CSA have been a place of learning. "We have brought to the Caribbean shipping industry information and advice about development. Carriers and port management have been working together in the CSA. In our membership and at our conferences we accommodate the public and private sector and in fact, there is time set aside at our October meetings for a panel discussion involving representatives of the trade sector," Mr. Rivera said to leaders and decision-makers in government and private sector gathered at the Miami conference.

The CSA has created the forum for carriers, port management, port and terminal operators and the shippers to work together to facilitate trade. Two annual conferences and the interaction between its three constituent groups allow the Association to play a pivotal role in getting all players ‘on the same page’ with respect to development. The groups comprising the CSA are: Group A – Shipping Agencies, private stevedore operators and national shipping associations; Group B – port, wharf and terminal owners and operators, including national port authorities; Group C – ship owners and operators. There has also been growth in a fourth area of CSA membership -- the non-vessel operators and freight consolidators. In addition, the recently formed CSA Cruise Committee has been bringing regional focus to bear on the cruise industry, a pillar of Caribbean national economies.

The CSA President expressed the opinion that despite the tremendous role of facilitating development that the CSA has performed in its 36 year history, in a constantly changing and rapidly expanding industry, much more has to be done.

"Through the relentless work of the Caribbean Shipping Association, a lot has been done and great improvement in efficiency has been achieved, especially with respect to port operations. However, I don’t think we can yet claim that we have done enough. Economic realities have prevented us doing as much as we want to do. We know what is to be done. We discuss these matters in the conferences of the Caribbean Shipping Association. However, there are problems. Most of these problems are related to economies of scale and scarcity of capital resources.

"For example, the smaller ports in the Caribbean were forced to comply with the ISPS regulations and all the WTO (i.e. World Trade Organization) and FTAA (i.e. Free Trade Area of the Americas) security measures at tremendous expense in order to continue doing business into the USA. However, these poor, debt-ridden countries had little or no significant support from the real beneficiaries of these security measures – the more developed countries.

"And while these small territories struggle with the tremendous cost of developing efficient and dependable port operations and having to purchase expensive security technologies from the developed countries; we are faced with the damaging effects of overweight containers being landed on our wharves. Not only does this damage the ports that we have only just recently spent large sums building," he said "but they do untold damage to the road network of our countries – the same roads that we must use to get our exports to the ports."

"We need the carriers that call on our ports to understand the great social and economic problems that this causes," he said

Through the work and coordination of the CSA and its member National Associations, the Caribbean Region has made tremendous strides in working with the users of shipping to develop trade; and, together, have promoted and facilitated improvement, expansion and modernization of our ports. The CSA has been able to coordinate the upgrading of security at the dozens of seaports across the region and all but two had met the July 1, 2004 deadline placed on international shipping by the International Maritime Organization under the International Ship and Port Facility Security (ISPS) Code

Regarding the implications of development such as the expansion of the Panama Canal, CSA President Fernando Rivera argues that "…it is imperative that there is total cooperation of all the stakeholders – not just the port owners and operators in the Caribbean but the carriers which serve the ports and the exporters and importers which use these ports."

For the next seven years Caribbean territories will continue to grapple with the implications of the expansion of the Panama Canal. The Chairman of the CSA’s Group A, Robert Foster feels that as shipping lines continue to pursue cost reductions they will do so through creating better economies of scale. Vessels are going to get bigger and bigger, he predicted.

"There is already a limit to what size ships the smaller Caribbean island ports can accommodate, hence, it is necessary for the transshipment hubs to develop as efficiently as possible. Every time a container is loaded and discharged costs are incurred. In order that costs to the importer and then to the ultimate consumer are contained, it is necessary to handle cargo as few times as possible. Multiple handling of containers also makes them and their contents susceptible to damage.

"The challenge for the major lines is to create the economies of scale necessary (for efficiency) yet have the ability to transport cargo quickly and efficiently to the small outlying markets across the Region. I think the key then is the selection of the appropriate vessel to service these smaller territories. The vessel cannot be so big that it cannot enter the smallest port; yet it has to be large and fast enough to service the route within an acceptable schedule."

The Caribbean may be at the centre of world shipping. It certainly is at the centre of international cargo movement in the Western Hemisphere. The expansion of the Panama Canal, for the fact that it will result in bigger and greater numbers of ships in the Caribbean, will change the industry and the changes contemplated and planned will certainly be aired in the conferences and, informally, in the corridors of the Caribbean Shipping Association. However, the concerns with respect to ship size and their implications are not exclusive to the cargo side of the industry.

According to Jan Sierhuis, Chair of the CSA’s Cruise Committee, " … new players and new and ever larger cruise vessels trigger a new round of investments in ships and, consequently, will lead to new investments in port facilities and, generally, in the cruise destinations."

The cruise industry is once again on a growth path, both in the US and in Europe. The big question, as Mr. Sierhuis sees it, is: what role MSC Cruises (owned by container operator Mediterranean Shipping Company) will play in the market in the coming years?

Carnival and Royal Caribbean, the two largest cruise groups, are penetrating new markets, while embarking on a strategy of product improvement and changes in existing markets. Asia, Africa, the Middle East and South America are new "cruising grounds" that are seen as alternatives for the traditional markets in the Caribbean, Alaska, Mexico and Europe. Cruise lines do invest in several key markets, but traditionally limit themselves to long-term agreements and other forms of cooperation, instead of actual participation in port-related projects. Hence, new financing models are needed for these projects, as most governments are no longer in a position to finance such large infrastructure projects. At the same time, increasing competition between regions put pressure on port and tax revenues from cruise ships.

"On the other side of the coin, as cruise ships become larger and larger, cruise lines are depending more and more on a handful of large destinations that can handle their business. Congestion and declining destination experience are issues of concern but the operators expect these issues to be resolved through joint partnerships and programs," the CSA’s Cruise Committee chairman pointed out.

A recent FCCA study on the impact of the cruise industry in the Caribbean demonstrated that almost 75% of passenger spending in the Caribbean is concentrated in five to six destinations. Spreading cruise calls and passenger spending more evenly over the Caribbean would require massive investments and political leadership.

"Cruise lines are beginning to invest in new ports-of-call in an effort to escape congestion and offer a new, unique and fully controlled experience to their passengers. Recent examples are Costa Maya (Mexico), Belize and the Turks & Caicos Islands. Traditional cruise destinations in Jamaica, Sint Maarten, Barbados, Aruba and Curacao are investing in expansions and improvements to their infrastructure and product, in an effort to keep up with the market and with increased competition."

As Mr. Sierhuis sees it, " … the stakes are getting higher, competition is fierce and hence the risks are also improving."

Traditionally, the Caribbean is divided into the Western, Eastern and Southern markets, with the Western market showing strong growth. The Southern market has growth potential but is hampered by the relative distance to the home ports in the USA as well as the limited home-porting capacity of most Caribbean territories.

"Home-porting of European ships seems an attractive alternative for Southern Caribbean destinations. Aruba, Barbados, Dominican Republic and, to a lesser extent, Jamaica and Curacao are receiving turn-around operations for the European markets. For the time being, however, these seem to be winter operations only," he said.

Noting that, to some extent, there is some competition between cruise and cargo ships for berthing space and pilot assistance in some destinations, Mr. Sierhuis said that, increasingly these issues are being resolved or, at least, the negative effects are being brought back to "acceptable" levels.

"I always like to bring forward that a cruise ship also brings business to a port and, because it generates cargo and foreign currency, the country benefits. This also benefits the shipping and port industry. Furthermore, the past animosity between the cruise and the hotel industry in the Caribbean is quickly fading away, as both are starting to realize that they also have a common interest – get people to take a Caribbean vacation and market the Caribbean as a safe and attractive vacation option, whether it is a hotel or a cruise ship package … and, actually, people buy both.

As regards the implication of larger cruise ships in the Caribbean, Mr. Sierhuis concluded: "The arrival of more and bigger ships continues to pressure the cruise lines to seek for new home ports, new itineraries and new destinations. The Caribbean, by demand and by necessity, will remain the largest cruising ground for these vessels."

He said: "Currently, new developments are taking place all over the Caribbean, particularly in the Western and Southern Caribbean, where new ports and destinations are being created in Mexico, Guatemala, Belize, Honduras, Costa Rica, Panama, Colombia and Venezuela. In the Dominican Republic, Puerto Rico, Sint Maarten and Barbados, new port investments are also under way. And Curacao, my own destination, is in the process of investing in a second facility for the mega-ships.

"… the issue for the Caribbean is how to balance the positive impact of this vibrant industry against the obvious negatives of congestion and overcrowding. "Is there an optimum level, where volumes, investments, revenues and social & environmental costs level-out and guarantee the long-term sustainability of the destinations and the region? And if such an optimum exists, can it be increased through increased cooperation, planning and regulation? Who are responsible for this process and who are to be involved and how? These are issues that will have to be addressed on a regional level, sooner, rather than later. The cruise ships are in the Caribbean to stay, so we better make sure the region optimizes the way it is doing business with this industry."

Organizations like the Caribbean Tourism Organization, the Florida-Caribbean Cruise Association, Cruise Lines International Association, Caribbean Shipping Association, American Ports Authority Association and others will have to jointly set the agenda and increase their cooperation, he said.

"I believe the awareness and willingness are there, what we need now is someone taking the lead to make all this happen."

As both President Rivera and Mr. Sierhuis agree, the CSA is able and willing to continue its historical role of leadership and is quite prepared to "take the lead" in working with all organizations, governments and private interests in promoting development of the Caribbean region through the shipping industry. [end]

2007, February 23.

Michael S..L. Jarrett is Director of Information and Public Relations of the Caribbean Shipping Association.