|The Bahamas Investor Magazine
July 1, 2006
July 1, 2006
Sean van Zyl
Several years ago, Grand Bahama Island pegged its economic hopes on a bet that increased competition in international shipping and distribution would stimulate demand for a new trans-shipment hub near the Americas. The prediction came true and now the operators of Freeport Container Port (FCP) are considering a multimillion-dollar expansion. The FCP’s new Sea Air Business Centre (SABC), which provides a tax-free warehouse and distribution zone, has also signed on its first international tenant.
With FCP nearing its tenth anniversary, the bustling centre is likely to undergo a massive $165-million upgrade by owner Hutchison Port Holdings (HPH), a subsidiary of the Hutchison Group, which will significantly increase its current container handling capacity.
The Hutchison Group has port holdings in 20 countries spanning the Pacific Rim, Europe and the Americas. Growing interest by global shippers in the geographic and tax-efficient advantages available through Freeport’s marine shipping centre has also spurred development of a new distribution and industrial park, the SABC.
The industrial park, which occupies about 750 acres of land strategically located between the port and Grand Bahama’s recently modernized airport, has signed on its first customer, US-based Associated Grocers of Florida (AGF). This multimillion-dollar deal was recently secured by HPH in what is expected to be a string of several agreements with international distributors interested in establishing facilities within the SABC.
AGF, which distributes consumer products to more than 42 countries, is expected to initially develop a 30,000-square-foot warehouse with the objective of expanding the facility to over 100,000 sq ft. While the formalities of the deal are mostly complete, AGF is waiting for closure of the land sale contract, says Chris Gray, CEO of HPH, following which the company will be able to move forward with development in the second half of 2006. Referring to other potential deals in the pipeline, Gray adds, “We’re planning on developing [the SABC] in a very significant way.”
Key factors for growth
The location and direct access between Grand Bahama’s port facilities (including the container centre and the ship repair yards) with the airport and the SABC are key factors in promoting Freeport as an international trans-shipment hub similar to the free-trade centre concept successfully pioneered by Dubai, Gray observes.
HPH, which is a subsidiary of Hong Kong-based Hutchison Whampoa Ltd, first became involved in Grand Bahama in 1995 when the company entered into a joint venture with the Grand Bahama Port Authority, Ltd (GBPA) to develop the FCP. Since 1997, HPH has invested over $150 million in the development and expansion of the handling facilities at FCP, with a further $165 million earmarked for the phase five expansion set for 2007.
Completion of phase five will see an additional 1,640 ft of berthing (the FCP’s existing berthing is 3,400 ft) and five new quay-side Gantry cranes resulting in a total fleet of 15 quay cranes that will boost the FCP’s current annual handling volume of 1.5 million TEUs, or twenty-foot equivalent units, to over two million TEUs per year. Longer-term expansion planned for the FCP includes an additional 4,200-acre-site accommodating about 4,000 feet in berthing space supported by 12 quay cranes; this growth phase is expected to boost the FCP’s annual handling capacity by a further two million TEUs.
HPH has also invested significantly in the refurbishment of the Grand Bahama International Airport, including construction of a new $25-million international passenger terminal. Plans are also afoot for the erection of a new domestic passenger air terminal. Furthermore, discussions are taking place with prospective air cargo carriers to establish a trans-shipment hub at Grand Bahama International Airport.
“We [HPH] built the container port with a high degree of speculation nine years ago,” Gray says, “and we’ve [since] proven that the decision to invest was a sound one. We’re now moving more than one million containers a year.”
Gray notes that the Freeport business model, established in 1955 under the Hawksbill Creek Agreement, was designed to facilitate the importation of goods into a duty-free zone with the intent of redistribution. The development of the FCP and the SABC bring Grand Bahama a step closer to achieving this goal and thereby elevating the status of The Bahamas as one of the top shipping and distribution centres of the world, he adds. “We believe [Freeport’s] geographic location, in terms of proximity to the US eastern seaboard, the Gulf of Mexico and the major shipping lanes connecting to Asia and Europe, will provide for future growth in business volumes.”
It is important, however, to remember that the FCP’s main markets are the Americas, Gray says. Nearly 45 per cent of the containers handled through Freeport are sourced from South America, with the US accounting for roughly 32 per cent of total volume. And, he observes, “increased trade between the US and the Asian markets–specifically the Republic of China–is a growing contributor to the FCP’s business volume.”
The FCP and Port Authority are also participating in the US-sponsored mega port initiative. Part of this initiative entails beefed up security for detection of materials associated with weapons of mass destruction. As well, the FCP now utilizes a straddle carrier equipped with sensory devices designed to detect radioactive materials.
Freeport Harbour has another competitive advantage in that it has the deepest water of the Atlantic East Coast. Gray points out that the commercial shipping industry is generally moving toward larger vessels to achieve cost efficiencies and therefore the availability of deep water becomes a significant factor in where the container operators take their business. Future growth within the FCP “will happen because the big ships want deep water and we have it,” Gray says.
SABC sets sights on future tenants
Economic growth in Grand Bahama will be largely driven by the rising congestion within ports on the US East Coast, predicts Willie Moss, deputy chairman of the GBPA. The US ports “have limited ability to expand in order to accommodate the increasing demand on them,” she notes. Located less than 100 miles from the Florida coastline, Grand Bahama is well suited to pick up this spillover, Moss adds.
The GBPA, in conjunction with HPH, is actively pursuing several avenues to enhance the attractiveness for distributors and manufacturers to relocate shop to within the SABC, Moss says. Initially, the GBPA had focused on a single potential client, the Chinese-owned CITIC Group, for occupancy of the 760-acre SABC site. However, it was eventually decided that attracting a diversified mix of smaller businesses, such as the deal with AGF, would be a better long-term strategy. And, as Gray points out, “we can put any kind of business in the SABC, from value-added light manufacturing enterprises to warehousing and distribution.” There is no exclusion on any type of company engaged in legal activities from operating in the SABC, he says. Having direct access to both sea and air modes of transport, the SABC offers an almost unique combination of features.
While the discussions with CITIC are far from exhausted, Moss says the GBPA has approached other parties within certain industries as potential candidates for the SABC. For instance, Bahamian auto importers who face costly overhead due to high import duties could hold inventory within the SABC’s tax-free zone until the vehicles are either sold or required elsewhere, she explains.
Moss also says the GBPA is particularly interested in getting the major shipping lines to establish logistics and parts centres within the SABC. With direct access to the ship-maintenance centre and its floating dock, any work required on a ship could be easily and quickly facilitated. “We’re very hopeful of the future of this initiative. It doesn’t make sense for the ship lines to waste time and fuel in moving a vessel to Europe just for standard maintenance.”
The Grand Bahama brand
The biggest obstacle that Grand Bahama Island faces from an international business perspective is that “not many people know that we are here,” Gray says. “We have to lift up our public profile, make people aware of what we have.” Moss fully agrees with this sentiment, noting that any awareness-building programme would have to address both the tourism and business components of Grand Bahama’s economy. The GBPA is presently engaged in a branding exercise under the banner of “The Grandest of the Islands” to showcase Grand Bahama on the international stage, Moss says. As part of this initiative, the GBPA has sponsored editorial supplements in targeted high-end media publications, such as The Financial Times and Lloyd’s List. Early market feedback from these supplements has been very encouraging, she adds.
Moss says the GBPA is also looking at acquiring select international mailing lists–specifically related to business sectors that the Port Authority wants to attract to Grand Bahama–that will be used to periodically distribute marketing materials. Furthermore, the GBPA plans to increase its participation in international trade delegations and attendance at trade conferences and shows held both within The Bahamas and overseas. “I think increasing our visibility by attending key business events can be highly effective,” as a means of promoting Grand Bahama, Moss observes.
Good bets for economic growth
The Grand Bahama Port Authority recently revealed six key sectors of the island’s economy upon which the GBPA will be focusing its investment initiatives:
• Real estate and land development
• Light industry (including distribution)
• Heavy industrial (specifically oil refining and the pending liquefied natural gas project)
• Financial services