The CEO of APD Limited is defending the new tariff structure imposed at the new Nassau Container Port (NCP), asserting that more "perspective" is needed before voicing concerns on costs. Michael Maura Jr. acknowledged that costs on an individual carrier basis are slightly higher with all shipping operations now centralized at Arawak Cay.
The comments come amid persistent rumbles from Bahamian businesses that consumer prices could go up due to the increase. But to place the increase in context, the top executive went back in time to explain how the industry got to this point. "Beginning about six years ago, Mediterranean Shipping Company (MSC) introduced a service from South Florida which directly competed with Seaboard, Tropical and Crowley," he explained. "The market welcomed the new service, which resulted in many of the other carriers reducing their rates in an effort to protect their market share."
Over a period of two years, Maura told Guardian Business that rates fell by a few hundred dollars per container. In the Northeast U.S., he added that the rates declined by as much as $1,000. And then came the recession. With several carriers per week running mostly empty, utilizing as low as just 30 percent of their capacity, companies were forced to offer "steep discounts". "The biggest thing that scares a shipping company is empty ships," Maura noted. "Most of them dropped rates even more, because they can't have a ship coming in half full.
Additionally the fees charged by the various dock owners in most cases haven't increased in over seven years. Even with the impact of NCP costs on carriers, the market is still paying much less than it was paying six years ago with freight." The carrier's plight was made worse by the fact that local businesses took advantage of the bidding war between shipping companies, he said. Oversupply set the stage for this dramatic drop in rates, as the carriers continued to chase container volume. New Providence imported around 60,000 containers in 2011, and the average utilization of all ocean cargo vessels carrying international cargo was in the range of 50 percent. This poor vessel utilization also translated into weak terminal demand. The decline in freight rates and terminal utilization resulted in a perfect storm as oil prices drove operating costs to unprecedented levels, he explained. "Over the last few years, the shipping Industry has attempted to recover these cost increases by way of general rate increases," Maura told Guardian Business. "The majority of the import market, however, has rejected their pleas and rates have remained painfully low.
The opening of the NCP offers an opportunity for the carriers to once again ask the market to accept an increase in freight rates. I believe the increases being proposed to the market exceed the actual cost levied by NCP. It is worthwhile to note that while port costs have varied depending on where the carrier has historically operated, each carrier has, in fact, incurred port charges all along. The introduction of NCP fees are not in addition to historic fees but in place of." To illustrate his point, Maura explained how a container load of corned beef or tuna generally runs $70,000, and a 40-foot container of grits has a product cost of $12,000.
The approximate incremental cost per 20-foot and 40-foot container is $125 and $250 respectively. "The impact on every dollar of corn beef or tuna and grits would be $0.0045, or less than half a penny per dollar," Maura calculated. "Let's assume that the average container of groceries has a product cost of $30,000 per 40-foot container. This translates to an incremental cost of less than one penny per dollar of groceries. That's an impact of less than one percent." Meanwhile, the APD Limited chief emphasized the impact of the new $83 million port. He felt that Bahamian businesses and shipping companies should factor in the benefits NCP offers when considering any increase in cost associated with the port. Maura told Guardian Business that old docks in New Providence offered cramped and often run-down conditions. As a result, carriers incurred considerable expense to serve customers and discharge their ships.
Additionally, the poor conditions of the docks provided "terrible conditions" for very expensive freight equipment to operate, with the carrier routinely investing hundreds of thousands of dollars to keep the equipment operating in the harsh environment. The operators on Arawak Cay have also been susceptible to inefficiencies resulting from poor conditions and the absence of state of the art port technology. Truckers regularly exited their rigs in the search for an import container, he added, costing the truckers significant expense in fuel and time. He argued increased efficiencies, such as NCP's new NAZIS terminal operating system and specialized cranes, have introduced real opportunities for elevated productivity, which subsequently has the potential to save money.
Equally important, he said, is the new port security and surveillance infrastructure, which significantly reduces the risk associated with possible disruption in trade. Maura conceded that each carrier has a unique port and cost structure, making it difficult to quantify the exact cost and benefit for each stakeholder. But at the end of the day, he remained confident that net impact on cost will be "negligible", if anything at all.
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