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Shipping companies seek to diversify

The war in Syria has made land transportation dangerous, and so increased traffic at Beirut Port. (The Daily Star/Mohammad Azakir)

BEIRUT: For Fouad Bawarshi, Deputy CEO at Gezairi Transport, the secret to a successful shipping business is market diversification. “We are originally a Lebanese company, but to be able to survive we have expanded our operations and opened offices in other countries in the region, including Iraq, Jordan, Turkey and some places in Europe,” he told The Daily Star.

Bawarshi argued that many local shipping companies that have relied on a specific market in the region have lost their businesses and suffered great losses in the past three years, following the deterioration of the security situation in some Arab countries.

“Some companies here specialized in the North Africa region such as Libya, but they have lost their market due to the complicated situation there,” he said. “One has to diversify; this is the secret of the game.”

He added that some Lebanese investors in Iraq had decided to pull out or reduce their investments in the country, which has impacted Lebanese shipping lines as well.

Jacques Sarraf, a leading industrialist, had said previously that the unstable situation in Iraq had also prompted many businesses there to reduce their imports from Lebanon. “ Iraq is one of the main export markets for Lebanon and the deteriorating political and security situation there affected our industrial exports,” he said.

The total value of industrial exports dropped by 14.5 percent from $1.188 billion in the first four months of 2013 to $1.016 billion during the same period in 2014, according to a report issued by the Industry Ministry around two weeks ago.

Some industrialists stress that an efficient government would usually take practical measures to weather the crisis resulting from the upheavals in neighboring countries, such as reducing the cost of energy to help manufacturers export their goods to other countries.

But the industrialists complain that successive Lebanese governments have failed to take any initiative to reduce the cost of locally produced items.

“We haven’t heard from the Transport Ministry in Lebanon for two or three years. It is totally inactive except for a few personal initiatives by some of the officials,” Bawarshi said.

“Since the wars in the area have started, no one from the ministry has approached any of the industrialists or transporters to ask them about their needs.”

Bawarshi said that one option under these delicate circumstances was to open new markets for Lebanese-made goods, but he admitted that this could only be achieved by hammering out a new strategy, which would require a lot of time.

Moreover, opening new markets requires some extra efforts from the government to provide industrialists with an advantage over others in the region for them to be able to compete.

Industrialists have on many occasions complained about the high cost of production, which is hindering their ability to compete in foreign markets.

They have repeatedly called upon the government to support them with some incentives, including lower energy and shipping costs, in addition to other measures that would support their industries.

“This would for sure contribute to improving the business volume of shipping companies,” Bawarshi said.

He added that the government must negotiate with insurance companies in order to reduce the cost of premiums on transportation, which have risen remarkably as a result of the worsening security situation in the region.

“Insurance on land transit via Syria for instance used to cost 0.3 percent of the cargo value, but now it has reached from 3 percent to 5 percent,” he said.

He added that several airlines serving Iraq had suspended their flights because of the high cost of premiums requested by insurance companies nowadays.

“TMA has stopped its chartered flights to Irbil because they were paying around $60,000 per flight for insurance,” he said.

Former president of the Lebanese Industrialists Association Fadi Abboud has previously complained that land shipping costs, including insurance fees to Saudi Arabia, one of Lebanon’s main regional export markets, have almost doubled over the past few years to around $4,000, mainly due to security problems on the export route.

Domestic fees are also adding to the woes of Lebanese exporters, Abboud said. “It costs around $800 to load a 40-foot container on a ship at Port of Beirut before even shipping it. This makes Lebanon among the most expensive countries in the world when it comes to shipping costs.”

The decline in business for land shipping companies has been to the advantage of maritime shipping companies. “We benefitted from the events in Syria to some extent because traders started using our services in the absence of land shipping,” said Mohamed Fakhreddine, Vice President of Mediterranean Shipping Company in Lebanon.

MSC is a privately owned container shipping line, one of the leading global carriers in the world.

Fakhreddine reported a 10 percent increase in their business as a result of the disruption in land shipping via Syria. “The hike in our business was not huge, because the volume of exports to the Gulf is not that big compared to the Far East for instance,” he said. Moreover, he added that despite the great danger incurred, some people had continued to use land transportation to save money, especially when the products shipped were not that expensive.

Fakhreddine added that some clients had also refrained from using maritime services because of the complicated procedures that needed to be done for every shipment.

His remarks were echoed by head of the Beirut International Chamber of Navigation Elie Zakhour, who said that the exporter needed to take his empty container from Beirut port, load his cargo into the container and then return it to Beirut Port in order to ship it to the desired destination. “Land transportation is much easier,” he said.

Zakhour added that maritime shipping cost around 20 percent more than land services. “But we cannot deny that sea transport has solved a great problem in light of the tense situation in some regional states,” he said. “Industrialists would have suffered great losses if this option was not available.”

Zakhour argued that despite the higher cost incurred when using maritime transport, industrialists were able to profit from the competition among maritime shipping companies to attract clients.

“ Lebanon usually exports much less than what it imports and maritime shipping companies reduced their prices in order to be able to attract clients,” he said. He explained that these companies preferred to attract even small cargoes rather than nothing, to avoid paying for the cost of sending an empty container to any destination. “When the container is used by a client, the latter pays for the transportation cost.”

 
A version of this article appeared in the print edition of The Daily Star on September 03, 2014, on page 5.

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Summary

For Fouad Bawarshi, Deputy CEO at Gezairi Transport, the secret to a successful shipping business is market diversification.

Bawarshi argued that many local shipping companies that have relied on a specific market in the region have lost their businesses and suffered great losses in the past three years, following the deterioration of the security situation in some Arab countries.

Former president of the Lebanese Industrialists Association Fadi Abboud has previously complained that land shipping costs, including insurance fees to Saudi Arabia, one of Lebanon's main regional export markets, have almost doubled over the past few years to around $4,000, mainly due to security problems on the export route.

The decline in business for land shipping companies has been to the advantage of maritime shipping companies.

Zakhour added that maritime shipping cost around 20 percent more than land services.

Zakhour argued that despite the higher cost incurred when using maritime transport, industrialists were able to profit from the competition among maritime shipping companies to attract clients.


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