Great opportunities for Caribbean logistics expansion: Governments must be creative and proactive – Prof Gordon Shirley

Caribbean governments must act quickly to implement appropriate regulatory policies, offer more economic and legislative incentives, improve co-operation among their territories and be more pro-active, if they are not to miss out on current opportunities in the transshipment and logistics hub business.

That’s the perspective presented by President and CEO of the Port Authority of Jamaica, Professor Gordon Shirley as he delivered the 16th William G. Demas Memorial Lecture at the Eastern Caribbean Central Bank, Basseterre, St Kitts, Tuesday, May 19. The lecture is one of the highlights of the 45th Annual Meeting of the Board of Governors of the Caribbean Development Bank (CDB) taking place in St. Kitts this week.

Citing the examples of Singapore and Panama, which have well-developed transshipment hubs and are still expanding, he said while geography was important and a key attractive component to potential investors, equally important are the policies they have implemented and the economic environment they offer.

“Stable macroeconomic policies, sustained investment in logistics infrastructure and a globally competitive micro economic business environment are important. Also essential it seems, is the capacity of policy makers and firms to innovate and respond to the forces of change,” he added.

Specific examples cited from Panama include the government enacting laws to enhance the attractiveness of the country to companies moving their logistics operations and their administrative and headquarter function there. Also, a 2007 law exempts foreign companies from the cap on the number of expatriates employed, eliminates income tax on provision of service to affiliates abroad and facilitates work permits for workers coming into Panama.

An earlier 2004 law gave companies operating in special economic zones benefits such as streamlined co-ordination of all government functions and licenses, no indirect taxes and waivers of most direct taxes and long term work visas including family visas.

“More importantly, the 2004 law eased labour rules, facilitating a flexible work week, capping overtime charges and easing the termination of labour contracts. Most logistics parks in Panama have been classified as special economic areas. These efforts have borne fruit. By 2009, several multinational companies had anchored their Latin American logistics and related operations in Panama,” Professor Shirley told the audience.

Against that background, he noted that while there were great opportunities for growth in Caribbean Logistics, there were important challenges as well.

The major hub ports of the region are in the middle of the group of countries that were assessed by the World Bank on a number of factors including the quality of the trade and transport related infrastructure, the efficiency of the customs processes, the ease of arranging competitively priced shipments, the quality of the logistics services, the ability to track and trace consignments and the frequency with which shipments reach consignees within the scheduled time.

Regional ports were found to be considerably behind several other countries including Singapore.

“The ability to improve the logistics capacity of the countries of the region will require sustained investment in the trade and transport related infrastructure including the marine and air ports and the road infrastructure. It will also require investment in the automation of the trade facilitation systems,” Professor Shirley asserted.

Another important challenge for some of the Caribbean nations investing in logistics enhancing capabilities is the current state of their economies.

“In rethinking Caribbean Logistics, new paradigms for development must reflect the economic realities of the nation states even as they seek to respond to the driving forces of change in the global and regional logistics markets.”

Caribbean governments, he said, were in many instances challenged by economic realities of high debt levels which inhibit their ability to invest directly in the expanded, modernized and more efficient infrastructure required to facilitate Caribbean logistics.

“It is important that our creativity and capacity to respond to adverse conditions which has served us well in the centuries past not desert us at this point. The elements of this new paradigm include proactive governance to create a sound macroeconomic environment, with clear economic policies and legal frameworks; firmly managed financial regulations, a clearly articulated vision for development, clear guidelines and timetables for projects, transparency and predictability and the ability to creatively leverage state assets including land in order to achieve the objectives.”

Professor Shirley identified the driving forces in the change of global logistic as (1) an increase in vessel size driven by rapid advances in the engine technologies and hull design; (2) new alliances among shipping lines – the sixteen largest shipping lines have formed themselves into four major consortia, collectively controlling over 95% of the cargo volumes moving in the major east- west trades; and (3) the rise of Global Terminal Operators.

Additionally, with the improved economies of the larger ships, it is now possible to route cargo via the Suez Canal into the Atlantic Ocean and on to the Caribbean or directly to the East Coast terminals.

“These new developments offer an opportunity for the Caribbean ports as shippers realign the trade routes between the major production and consumption centers of the globe. Medium Term Container Market Forecasts indicate that the Caribbean and Central American markets are expected to experience a 7.7% annual growth to 2017 compared to 6.5% in global container volumes.”

According to Professor Shirley, with the migration of the flow of goods through the hubs in the Caribbean on their way to the major markets of the US Eastern Seaboard, there is the potential of other logistics-related services including warehousing and distribution also migrating to these hubs allowing them to develop into full-fledged logistics clusters.

There is also the opportunity to add value to the cargo transiting through the Caribbean hub ports while they wait to be transshipped. This, in turn, creates the opportunity for employment and a higher level of economic development, with opportunities for persons of varying skill levels.

He said combined with new investments in transportation and logistics infrastructure and systems, without guarantees from the Government for traffic flows or finance, and with improved capabilities at the microeconomic level, the foundations for productivity growth and economic development have been laid for the sectors able to take advantage of these capacities.

“The potential and opportunities for the development of Caribbean logistics is real, but with the forces of change still evolving, the window of opportunity is narrow. It is important that we continue to act without delay,” Professor Shirley concluded.