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Puerto Rico to develop transshipment port at Guayanilla
Journal of Commerce / October 5, 2000

By Larry Luxner

The economically depressed Puerto Rican town of Guayanilla could one day be transformed into a giant "megaport" transshipping cargo between the U.S. mainland and Latin America, Europe and Asia. But skeptics wonder whether enough business will ever be generated to justify the proposed $1 billion investment.

Puerto Rico Gov. Pedro Rossello announced in late July that Guayanilla, a municipality of 27,000 people perched on the island's south coast, had been selected as the site for the transshipment port, based on a feasibility study commissioned by the Government Development Bank (GDB). If it ever comes to pass, Guayanilla would vie with Kingston, Jamaica; Freeport, Bahamas, and even San Juan for transshipment business.

"The transshipment port will turn the island's southern region into a new focus for development, bringing a multiplier effect that will benefit the island," said GDB President Lourdes Rovira, explaining that the government will finance $360 million, or 35%, of the project's total cost. The remaining 65% would be financed by private investors to cover the cost of engineering services and infrastructure, though the Puerto Rican government would own the port facility's land and equipment.

Xavier Romeu, Puerto Rico's secretary of economic development and commerce, said interested parties have been invited to an Oct. 2-3 meeting in San Juan to discuss the project.

"This will be primarily driven by a private-public alliance where the government side will invest in the basic infrastructure necessary, but where the bulk of funds will come from private enterprise," he said. "Right now, there are three or four global transshipment ports. It is well-known that there's a need for another one or two value-added ports in the Western Hemisphere."

Proponents hope that at least half of all merchandise transported out of Guayanilla will acquire added value at local manufacturing facilities before it is shipped abroad, further encouraging the establishment of free-zone garment, electronics, medical-devices and other kinds of factories.

"What we aim to do is capture the volume that is now going through Long Beach and other mega-transhipment ports," said Romeu. "The way we'll do it is have components coming from the Far East go through the Panama Canal directly to Puerto Rico, where value will be added for reshipping back to Europe and other destinations. The present market will always be the U.S. mainland, but our futture market is Europe, and we need to capture that market."

Hector Rivera, executive director of the Puerto Rico Ports Authority, says San Juan -- long the island's leading port -- last year handled 1,990,275 TEUs. Less than 5% of that was transshipment cargo, a figure he says can be substantially improved given the right conditions.

"Strategically, Puerto Rico is a natural place to handle transshipment of cargo that comes east-west or north-south," Rivera told JoC Week. "But we have learned that for the port to be successful, you have to have a local economy. In Freeport, everything that goes in goes out. There is no local economy. They have been successful, but not in the way they first thought they'd be."

The government chose Guayanilla over a dozen other potential sites, including Mayaguez, Ponce, Guayama, Barceloneta, Aguadilla and Yabucoa -- following recommendations made by Ernst Frankel of MIT's Sloan School of Business Management.

"We're talking about a big drought port, and Guayanilla is a natural. Guayanilla hasn't been dredged in 30 years, and still has a depth of 64 feet. That makes a big difference in years to come," said Rivera. "Also, you have more than 1,000 acres of land available around the port of Guayanilla. There is no development. Right now, less than 5% of the port's capacity is being used."

The GDB claims its so-called "megaport" will create 50,000 jobs in Guayanilla, which suffers from a 16.3% unemployment rate. It also said that upon completion, the transshipment facility -- to be built in three phases over a 10-year period -- would contribute $6 billion to Puerto Rico's gross domestic product.

Meanwhile, the Ports Authority is conducting an "industry outreach program" to drum up interest among prospective investors. One possible contender is the Dutch Consortium, an investment group led by the Port of Rotterdam and including Dutch shipping companies, engineering firms, construction companies and two banks.

"On behalf of the Dutch Consortium, we are gladly willing to take the lead in investment. We are still very much in the race," Frank Haacke, the Netherlands' honorary consul in Puerto Rico, told The San Juan Star. Investors from Singapore are also said to be studying the project seriously.

The first phase of the Guayanilla megaport is set to be completed within three to five years at a cost of $395 million. The government plans to finance 40% of this phase, which could create 5,000 to 12,000 jobs. The second phase carries a $316 million price tag, while the third and final phase will cost another $316 million, and will be finished within 10 years.

"Our studies show all the transshipment that would be lured into Puerto Rico would be over and above we have today," said Rivera, who took over the Ports Authority's top job on May 1. "The government is committed to it. We have done several studies and outreach programs to see who the major players are, and if they are interested. This time, we have done our homework."

But David R. Segarra, president of San Juan-based Intership Inc., isn't convinced.

"The idea has a lot of merit, but I don't see anything happening within the next four or five years," says Segarra, whose company represents Trailer Bridge, APL, Evergreen, Tropical and C-Star, among other shipping lines.

"One of the most important things is being able to get the rates that'll make the transshipment port competitive. Number one, I don't know if that's reachable, and number two, I don't know if the authorities here have the caapbility to handle such a massive project. It can be done but you need a lot of hard work, a lot of knowledgeable people to pull it off."

Carl Fox, executive vice-president of planning and administration at NPR Inc., which operates the Navieras line, is another skeptic.

His company controls 30% of the U.S. mainland-Puerto Rico shipping trade of around 260,000 boxes southbound and 78,000 boxes northbound annually (the remaining 70% are in the hands of Crowley, Sea-Barge, CSX and Intership). Since mid-1998, NPR has sunk $15 million into its San Juan International Terminal at Puerto Nuevo, just outside San Juan. This year, the facility, which has been dredged to at least 40 feet, will handle 100,000 lifts -- about a third of that transshipment cargo.

"It's our goal as a company to develop a state-of-the-art transshipment and local cargo terminal in Puerto Nuevo," said Fox. "It's our contention that, with a significantly less amount of money, you can develop a premier transshipment facility in Puerto Nuevo. Yes, we need additional funds through the Ports Authority to further develop our facility, but I can assure you it's a whole lot less than $1 billion."

Leo Holt, spokesman for Philadelphia-based Holt Group Inc., which owns NPR, questions the Guayanilla project's return on investment.

"We have been developing marine terminals for the last 30 years. They are complex organisms, and they have a multitude of regulatory requirements to make them happen," he said. "This project is a generation away at best, and our Puerto Nuevo marine terminal -- as it exists now and as planned for future expansion -- is a vibrant and thriving complex that can accommodate almost any conceivable growth in volume."

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