The bigger picture on logistics hub
Marshall Hall, Contributor
The Goat Islands discussion has significantly muddied the water about logistics hubs, trans-shipment ports and port development in Jamaica. It is not fully appreciated that logistics hub development in Jamaica is not about the Goat Islands or another location.
Assuming the Goat Islands satisfy the environmental concerns and there is investor appetite, Jamaica can and should develop, at a minimum, hubs emanating from Goat Islands and Kingston Harbour.
What makes Jamaica special is our location. We are nicely positioned to serve the eastern seaboard of both North and South America and to receive cargo from China and Asia through the Panama Canal. It is this location, combined with good berthing options and acreage for land-based facilities within easy access of the port, that is driving the development of logistics hubs in Jamaica.
It is on this basis that Jamaica's location and existing port development in the Kingston Harbour allows for logistics hub development across Kingston Harbour with or without the realisation of the Goat Islands development. It is not one or the other. In other words, the Goat Islands push must not result in the slowing down of the Kingston Harbour development for Kingston Container Terminal (KCT) and Kingston Wharves.
Panama already has more than one logistics hub centre as is true for all the major logistic hub centres in the world, and we know that Cuba, the Dominican Republic, the Bahamas and ports along the eastern seaboard of the United States are investing and positioning themselves for logistics hub-type activity. We must not by default cede all the other logistic hub-type business to our neighbours.
We already, in Kingston Harbour, have the basics of what is required - a good location, berths, and significant investment in cranes and land-based facilities. We know the required infrastructure to get it up to speed for the expanded Panama Canal - dredging of Kingston Harbour with accompanying deepening of the docking areas and added investment in landside plant and equipment.
DEEP IN DEBT
The Port Authority is charged with making the Goat Islands and the Kingston Harbour Development a reality. KCT is wholly owned by the Port Authority and is heavily in debt and is slated for divestment.
The Chinese, we are told, will bring their own business to a Goat Islands harbour, and therefore, may be in a position to effectively create a hub exclusively from their business.
Kingston Harbour is different. The players there have to get the business from the large multi-nationals, and that is a process, not an occasion for ribbon cutting.
The dredging of the harbour will be the signal to investors both in Jamaica and the shipping world that Jamaica is serious about entering the logistics hub world post the expansion of the Panama Canal.
The dredging must be self-financed, and the Port Authority and the Government of Jamaica have it in their power to announce a cess for the use of the harbour that will allow for the recovery of the cost of the dredging over an extended period. The dredging cost depends on the depth and the use of the dredged material and is generally believed to be south of US$150 million. There is no doubt that funding is available from either multilateral agencies or a number of sovereign governments for this first phase as long as the repayment methodology is acceptable. We must immediately put in place all the requirements for the dredging to be completed by 2015 at the latest.
Primarily, because of the heavy debt in KCT that is the responsibility of the Port Authority and the Government, the Government decided to divest KCT. The divestment is supposed to release the Government from the debt of KCT and provide funds for the landside development of KCT.
Three qualified port operators have been shortlisted with the announcement of the preferred bidder expected by June 2014. The successful bidder is also expected to bring expertise in port management and the ability to bring in the business that will see the divested KCT get a jump-start in the process of establishing a logistics hub around Kingston Harbour. We suspect that it is the need to reduce or remove the debt from the Government's books that is driving the divestment process as identifying professional port managers/operators and funds for landside development is a simpler and more straightforward approach to begin the process to a logistic hub.
We must not, however, make the mistake in believing that the establishment of logistics hubs is accomplished by the construction of buildings in a designated economic zone such as Caymanas or Tinson Pen. Indeed, the governing criteria of timeliness and cost suggest that land directly adjacent to the port is the natural beginning for the required infrastructure development. As that land is exhausted, the expansion to Caymanas or Tinson Pen will follow. For now, we need zoning laws defining free-trade areas that will permit the natural expansion as companies put down roots in Jamaica.
As much as possible, any infrastructure development must be done in lockstep with the companies using the facility. We do not need Trelawny Stadium-type development where the plant is built without guaranteed users.
Establishing logistics hubs requires that the infrastructure of harbours and berths with appropriate plant be in place. That merely means, however, that we are ready to receive the ships and unload their cargo. The creation of logistics hubs is a process not an event. It requires the port manager/operator to ensure that the big shipping lines and the firms that ship with these shipping lines see Jamaica as a place from which supply chain management is possible.
Supply chain management requires a range of skills and efficiencies in loading, unloading, reloading, warehousing and repackaging to satisfy the just-in-time inventory requirements of the companies that chose to establish themselves in Jamaica. That, however, is just the beginning of what constitutes a genuine hub. As the companies that have set up their supply chain base in Jamaica become comfortable, then the next phase involving repairs and assembly of the commodities previously imported whole, becomes possible.
As the size and scale of the operations grow, opportunities for the location of regional headquarters and links with air cargo as well as specialised warehousing in areas such as refrigerated cargo, pharmaceuticals, chemicals, container repairs etc. will begin to emerge, and what is called a logistics hub will begin to take shape. We recognise, of course, that enterprising companies will chose, from the outset, to decide on what aspects of the supply chain they will outsource to Jamaica. We believe also that the playing field must be level, so as to encourage Jamaican firms to seek out business that conform to hub development.
BENEFICIAL BUT CHALLENGING
All of the above suggests that the divestment of KCT will not be easy, and that the Port Authority may find it difficult to achieve its goals in a one-time divestment.
The process of logistics hub creation for Kingston Harbour requires, therefore, that Government begins immediately to:
1. Remove the impediments to doing business in Jamaica and introduce regulation that will lead ultimately to a paperless and seamless movement of commodities in and out of Jamaica, not requiring approval from several different agencies;
2. Demonstrate that the dredging of Kingston Harbour and the attendant berth dredging will be ready by 2015;
3. Recognise that KCT divestment will not by itself establish a hub, and therefore, ensure that as we divest, we create a level playing field for new entrants to the process - both local and foreign;
4. Identify the approved free-zone areas along with all the details for how development will take place in the free-zone areas;
5. Begin the education of the private sector, government employees and our educational institutions to understand that they must embrace the concept of service and efficiency as routine.
Our educational institutions must produce students with the right work ethic as well as knowledge in the required skills and technologies.
The prize for successful hub development is great. Singapore, for example, estimates that over 100,000 are employed directly in its various logistics hubs, and that logistics hubs account for about seven per cent of its gross domestic product (GDP) and their GDP is 18 times that of Jamaica's.
All Jamaica must be ready to show the investor that we understand what is needed in a service industry. We have done it for tourism, which, after all, is a service industry, and we can do it for logistics hubs.
Marshall Hall is a member of the board of Jamaica Producers Group who are major shareholders of Kingston Wharves Ltd. Send feedback to email@example.com.