CMA CGM invests to turnaround Kingston transshipment hub
It took years longer than expected, but now that CMA CGM is controlling the container transshipment terminal in Kingston, Jamaica, the port is on its way to transforming from an underperforming hub into a regional powerhouse.
The French container line in August of 2011 signed a memorandum of understanding to invest in Kingston and five years later, July 1, 2016, the CMA CGM-led consortium known as Kingston Freeport Terminal Ltd. took over the property. Traffic at the terminal was falling in the months before KTFL took control and transshipment volume in the first half fell 9.4 percent year-over-year, but that trend is not expected to last for long.
The terminal is now juggling a dizzying array of objectives in the first few months of the 30-year concession. “We are now in a period where we are signing a lot of contracts to upgrade the terminal in many ways,” said KFTL CEO Olivier Tretout in an August 25 interview.
Phase one will increase capacity from 2.8 million twenty-foot-equivalent units to 3.2 million TEUs annually and is expected to be completed by the middle of next year. The contractor upgrading the quay walls of the south terminal will begin work by the end of September, Tretout said.
KFTL is also adding 1.2 kilometers (.75 miles) of new quay wall, construction of which will not impact operations at the terminal because work will begin on an unused 600-meter stretch, and work on the next 600 meters (1,968 feet) will take place in two 300-meter phases.
Dredging by a consortium comprised of Belgium’s Jan de Nul and France’s VINCI will begin in November and is slated for completion six months later. The work will bring the port to 14.5 meters to 14.7 meters from its current depth of 12.5 meters to 13 meters, and the port could one day go as deep as 17 meters.
KFTL has also ordered additional straddle carriers and two Liebherr ship-to-shore cranes, plus two options. The first pair of Liebherr cranes are due for delivery next year and the second pair will arrive in 2018.
Additionally, KTFL is updating its terminal operating system, with a new system from Navis set to come online in mid-2017, necessitating an overhaul of the terminal’s entire IT infrastructure. “We need a new network of fiber-optics, a new data room, a new everything,” said Tretout. A request for proposal went out in late August, with the contract to be signed by the end of October and the contractor to complete the work within eight months.
The changes at the terminal extend beyond infrastructure, with KTFL reaching a new agreement with labor. The deal kept salaries roughly unchanged but increased benefits and KFTL committed “to focus on improved working conditions, such as air conditioning in the equipment and more shelter to do maintenance work. It’s a full package of actions,” said Tretout. He added that an agreement had been reached to use three crane drivers per two cranes as opposed to two drivers per crane.
Before the privatization, the terminal was a subsidiary of the the Port Authority of Jamaica, which provided the terminal’s marketing, asset management, IT oversight and legal services. KFTL is now “handling this full scope of activities” in-house and is very focused on recruiting additional employees for a wide variety of port functions.
Yet another pressing issue during the months since the handover involved relations with shipping customers. Several sources have claimed that tariffs charged to some carriers had increased significantly following the shift in control to KFTL.
“Zim and CMA CGM have terminal service agreements. They are committed to bringing volumes and face penalties if they don’t reach their targets,” Tretout said. “As for the other lines, our approach was to have a single tariff for domestic imports and exports, which is close to the average of all of the tariffs that were enforced by the previous operator (the PAJ). For some lines this increased the tariff, but for others the tariff decreased.
“As for transshipment, it is very simple: the more volume, the lower the tariff,” he explained. When KTFL took over operations, it found that the PAJ had left volume deals in place for customers that no longer had those volumes. “We came up with a new approach from scratch, a more logical approach. For some it may be a bit more expensive, but if they want to bring more volume, they can lower the tariff.” KFTL has had multiple meetings with customers and as of late August, Tretout said that “we consider that this issue is stabilized”.
KFTL’s tariff decision “caused a big stink, but you can’t blame the new management for what they did. There has to be some relationship between rates and volumes,” one source, who declined to be identified, said.
“Some customers accepted the low productivity at Kingston because they were paying low rates,” said another source. “Now that Kingston wants a higher rate, customers are going to want to see higher productivity in return for that added expense.”
Productivity is yet another key focus for KFTL, and on August 25 the facility handled its first call by a neo-Panamax container ship, the CMA CGM Magdalena, which has a capacity of 9,288 TEUs. The ship is part of a CMA CGM/Hapag-Lloyd/Hamburg Sud/Cosco Asia-Caribbean service (known as JCS by Hapag-Lloyd and PEX2 by CMA CGM) that increased vessel sizes following the Panama Canal expansion. The terminal managed to achieve productivity of 40 moves per hour per crane. “The teams performed quite well,” said Tretout.
Kingston volumes should grow as CMA CGM “progressively concentrates its volumes in Kingston” by shifting throughput away other hubs such as Cartagena, Colombia, explained Tretout. In addition, “there are [service] moves expected by APL and others” and “the upgrade in the size of vessels for PEX2 will be an important factor for our future growth,” he said.
“I am personally very confident that we will experience a growth in volume — a very significant growth in volume — over the next six months to one year,” said Tretout, although he acknowledged that “if CMA CGM transferred its volumes too early, we would be facing challenges. It has to be quite gradual.”
After phase one of the KTFL expansion is complete, work will begin on phase two, which would increase capacity to 3.6 million TEUs annually, and the port will still have room for growth after that point.
“Kingston is quite large and it is quite empty today. You have a lot of space available,” said Tretout. “There is room in Kingston to add another 1.7 kilometers of berths. That would be a major investment, done step by step in different phases, and for that to happen we would need a new shipping line that would want to develop its transshipment here. The future development of the infrastructure in Kingston will need to match the needs of a new customer — a big one.”