Follow us: Entypo-facebook Entypo-twitter

CM-web-Banner-2014-b

Kingston container terminal

CMA CGM takes charge in Kingston

CF115439

Following an announcement in April, operations at Kingston Container Terminal, the one-time jewel in the crown of the Port Authority of Jamaica, are now to be managed by the CMA CGM Group

It was a long time coming. And when it did come, the outcome was, perhaps, a surprise to some.

This was the much-anticipated privatization of Kingston Container Terminal (KCT), one of the big Caribbean success stories of recent times and in many ways the dreamchild of Noel Hylton, the former chairman and chief executive of the Port Authority of Jamaica (PAJ).

The winner of the 30-year concession is the French company Terminal Link, part of the CMA CGM group. The agreement was signed on 7 April by Dr Omar Davies, Minister of Transport, Works & Housing; Farid Salem, president of Terminal Link and executive officer of CMA CGM; and Prof Gordon Shirley, president and chief executive of the PAJ.

The Jamaican Prime Minister, Portia Simpson-Miller, hailed the agreement as another example of the significant growth in foreign direct investment (FDI) in Jamaica.

Location

It was Jamaica’s ideal position that seems to have won over the new concessionaires. Mr Salem says his company chose Jamaica as a place to invest because of its strategic location in the Caribbean and its great potential for development. “We like Jamaica because there is governance in the country, there is security and it is an equitable environment for employees and employers,” he said. “This is a long-term strategy which we salute.”

Committed

CMA CGM is renaming KCT as Kingston Freeport Terminal Ltd (KFTL) and the new operator is committed to upgrading the Kingston facility in various stages over the coming years.

Phase 1 will cost an estimated US$ 259 million and will require KFTL to:

• Complete dredging to accept vessels of up to 14.2 metres draft. This has to be completed within five years.

• Invest in new terminal equipment within a six-year period.

• Increase the terminal’s annual throughput capacity from its present level to 3.2 million teu.

After this is in place, work on Phase 2 is expected to commence in year 12. It will comprise:

• Further capital dredging to accept vessels of up to 15.5 metres draft (sufficient to handle all vessels able to navigate the newly enlarged Panama Canal in early 2016).

• Increasing the terminal’s annual throughput capacity to 3.6 million teu.

Is this new arrangement with CMA CGM a good deal for Jamaica? As Mr Hylton said previously (in ‘CM’ issue 21), the Jamaican government was not in a position to fund the future expansion of the terminal, so it had little choice but to look for a party which could. 

As the PAJ also admits, the condition of the authority’s balance sheet meant there were insufficient internal reserves to support a new level of debt (needed for the upgrading work). And there are no new government guarantees for this particular deal.

Furthermore, Dr Davies more or less echoed Mr Hylton’s exact words when he alluded in April to this situation as a significant factor in the Jamaican government opting for the privatisation. He said the government was not in a position to afford an “additional debt of that magnitude” which would be required for the expansion of the facility.

Naturally enough, and noting the statement about the cost of the work, Dr Davies supported the deal with CMA CGM and said: “We have a global terminal operator linked with major container shipping lines which are leaders in their field. The Terminal Link portfolio currently consists of [an] interest in 14 terminals and handled over 12 million teu in 2014.”

Benefit

From the government’s point of view, there is an added benefit in terms of receiving regular payments from the concessionaire. These comprise a check for US$ 75 million within six months of contract signing and an annual fee of US$15 million as well as eight per cent of the terminal revenues. 

In the early stages of the process, the KCT privatization certainly attracted all the world’s top terminal operators. CMA Terminals Holdings in effect fought off rival bids from Singapore’s PSA International and DP World while, for a variety of reasons, others did not make the final shortlist, such as: 

• Ports America, the largest terminal operator and stevedore in the United States, chose not to pre-qualify.

• Stevedore Services of America (SSA), a consortium made up of KCT’s biggest customer, ZIM, and Kingston Wharves Ltd, also opted not to pre-qualify.

There is also the question of KCT’s workforce. One of Kingston’s key selling points in recent years has been its excellent labor relations, and neither the new operator nor the government wanted to see any unrest mar the privatization process. The Shipping Association of Jamaica’s General Manager Trevor Riley believes the status quo will be maintained here: “We see no reason for there to be change in the historically exceptional labor relations that have characterized the Port of Kingston,” he told ‘CM’. “This culture of good relations has been systematically developed between management and labor across the port and it is bolstered by ongoing dialogue and mutual respect. We expect that to continue to be deepened.” 

Contracts

In fact, KFTL is terminating the employment contracts of all KCT staff, but says that all personnel will be available for re-employment under the new company. It is unclear whether all former KCT workers will be offered new jobs and on the same terms. Prof Shirley is on record as saying: “Most of the current employees will be re-employed and will be exposed to the best technologies and techniques.” 

The end result of the concession is that PAJ finds itself as mainly a landlord authority, but with a vital interest in the cruise sector - an area in which the authority has been very successful in recent years – as well as in marine services, the outsourcing of business processing and near-port logistics. Nevertheless, the PAJ will retain its involvement in cargo operations in Montego Bay and these are likely to be expanded. So as one door closes in Kingston, another may be opening on the other side of the island.

Goat Island project still a possibility

KFTL is investing heavily in Kingston, but there is the possibility that the operator may see an even bigger, and perhaps better, container terminal being built just up the road at Goat Island/Portland Bight – a Chinese-funded mega project that surfaced in 2014 (as reported in ‘CM’ issue 22). Not much seems to have happened since last year’s news that Chinese investors were looking at Goat Island; but it does not seem to have gone away and, according to sources in Jamaica, due diligence is said to be under way. Nevertheless, the prospect of Goat Island, real or imaginary, may well have given some of its potential rivals second thoughts and left Terminal Link CMA CGM as the only bidder to submit a tender.