Freight fight: Caribbean cargo hubs expand rapidly, but there aren't enough boxes to go around. (Trade Lanes).

About five years ago, Hutchinson Port Holdings began developing Freeport, Bahamas, for cargo. With virtually no domestic freight, the Hong Kong-based company bet millions of dollars that the traditional cruise port could become a major hub for cargo distribution. "We were aware that Freeport was a risky venture," says Michael Sandpearl, general manager of Freeport Container Port.

Freeport now ranks in the top five of the Latin American container port leagues. But an explosion of competing cargo hubs in the Caribbean could sink the transshipment business. At least six major facilities centers now compete for freight that will sustain, at best, three operations. "There are too many players," says Sandpearl.

Puerto Rico has announced ambitious plans to build a US$1 billion mega-port complex extending from Ponce to Guayanilla. Venezuela's Puerto Cabello will seek once again to interest investors in a $320 million project to double the port's size in the next three years. CSX World Terminals and its Dominican partners are investing $200 million to build a new port in Caucedo, near Santo Domingo, by the second quarter of 2003. In Jamaica, Kingston port authorities have already plowed more than $100 million into their operations to raise capacity by almost a third.

If all of these and other planned projects are completed, the Caribbean Basin will have a half dozen ports with combined capacity exceeding 6 million 20-foot equivalent units (TEUs) per year, compared to Latin America's estimated total container traffic of 9 million TEUs in 2001. According to research company DRI-WEFA, the region's container traffic will grow 7% to almost 9.7 million TEUs in 2002. That's not enough to put cargo on the docks of all the ports.

To date, independent terminal operators are winning the battle for boxes. Manzanillo International Terminal has helped transform Colon, Panama, into Latin America's leading container port. Operating company Stevedoring Services of America and its Panamanian partners plan to pump an additional $30 million into the highly successful terminal. Manzanillo Marketing Vice President Carlos Urriola says the company is not losing sight of market conditions. "It's easy to spend the money to build facilities, but the ability to get prices [for services] to make economic sense is the challenge," he adds.

Cutthroat shipping. Curtis Foltz, general manager of the Americas region for CSX, is also concerned a capacity glut could bring rates down. Although CSX remains committed to its $200 million port project in the Dominican Republic, "we want to stay away from an environment of rate competition," Foltz says.

Excess cargo handling options mean shipping lines will be able to play ports against each for the best prices. "There is tremendous pressure from shipping lines to reduce rates," says Freeport's Sandpearl. "Shipping lines threaten to move from one place to another to get reduced rates."

To survive, terminal operators will need more than cargo for redistribution to other destinations, many analysts say Transshipment centers will have to offer well-located, low-cost operations as well as large domestic freight flows and a shipping-line partner, says Hans Peter, president of Baltic Maritime Advisers and former principal transport adviser for the World Bank. "Transshipment is the icing on the cake."

Many independent terminal operators disagree. Foltz, of CSX World Terminals -- which used to be the terminal operations arm of shipping line Maersk -- says that while a shipping line partner helps reduce the initial risk of investment, it also lowers the return on the investment.

Hutchinson's success at Freeport seems to fly in the face of the requirement that a terminal cannot survive solely as a cargo hub. Port exec Sandpearl makes no bones about what the Bahamian terminal is trying to do. "We are looking for opportunities to take market share from other ports," he says.

That goal may get more complicated as increasing numbers of ports join the fray. As far south as Suape in Brazil's Pernambuco state and as far north as Norfolk, Virginia, in the United States, ports are seeking to become cargo hubs. "What is the range of transshipment?" asks Freeport's Sandpearl "A hunch of second-tier ports would like to get involved."

Making matters still more complicated is Puerto Rico's proposed entry into the market. While financing for the Port of the Americas project remains sketchy, the port of San Juan already boasts 2 million TEUs of container traffic a year. "We are envisioning the Port of the Americas as much more than a transshipment enter," says Hector Jimenez Juarbe, general manager of the project. He says, in addition to cargo handling, it will offer manufacturing facilities' warehousing, distribution and logistics centers.

Not everybody is convinced that the Puerto Rican project will get off the ground, but many believe competition among ports will shape them into more than just places to pick up and drop off cargo. "Visionary ports will focus on being logistics centers," says Giovanni Benedetti, a senior manager at Colombia's Sociedad Portuaria Regional de Cartagena.

That seems to imply that the stakes for terminal operators are poised to rise again, something they apparently I have grown used to. "I would be the last one to argue that we are not in a risky business," says Freeport's Sandpearl.

CARGO OUTLOOK

Twenty-foot equivalents units

                            1999       2000   2001 (e)   2002 (f)

Brazil                 2,053,595  2,210,830  2,221,306  2,382,775
Caribbean              1,100,197  1,163,722  1,157,187  1,223,210
Mexico                   938,821  1,054,975  1,092,273  1,193,958
Central America          973,422  1,042,300  1,063,351  1,143,946
Argentina                823,943    862,807    860,304    917,995
Chile                    774,434    838,028    845,583    905,227
Venezuela                577,504    599,933    597,564    627,624
Colombia                 468,931    500,645    505,619    543,958
Peru                     233,072    246,402    248,459    263,791
Rest of South America    405,356    425,387    427,093    453,730
Total                  8,349,275  8,945,029  9,018,739  9,656,214

SOURCE: DRI-WEFA

e=estimate

f=forecast
MAJOR PORT DEVELOPMENTS

Location                               Financing

Ponce and Guayanilla      Puerto Rico  Pending

Puerto Cabello            Venezuela    Pending


Caucedo                   Dominican    CSX World Terminals, Caucedo

                          Republic     Development Corp.
Kingston                  Jamaica      Ports Authority

Colon Container Terminal  Panama       Evergreen

Manzanillo Int. Terminal  Panama       Stevedoring Services of
                                       America and local investors

Location                  US$ millions  Status

Ponce and Guayanilla        1,000       Proposals to be accepted in
                                        first half of 2002
Puerto Cabello                320       Proposals to double capacity
                                        in three years by
                                        February 2002
Caucedo                       200       New port to be completed by
                                        June 2003

Kingston                      102       Done, Increased capacity 30% to
                                        1.2 million TEJs
Colon Container Terminal       80       Increase capacity to 1 million
                                        TEUs by end of 2002
Manzanillo Int. Terminal       30       Build new 400 meter-long berth