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05DJIBOUTI699 2005-07-21 06:56:00 CONFIDENTIAL Embassy Djibouti
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					C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000699 



E.O. 12958: DECL: 07/14/2015

Classified By: Pol/Econ Erinn C. Stott for reasons 1.4 (b) and (d).

1. (U) Summary: The number of freight forwarding businesses
in Djibouti has greatly increased since Ethiopia's shift from
the Port of Assab in Eritrea. The existing companies complain
that many of the new freight forwarding companies are causing
unfair competition by skirting many of the expensive
regulations and offering lower prices. Transportation through
the Ethiopian-Djiboutian corridor is virtually monopolized by
Ethiopian trucks, which are more competitive than Djiboutian
trucks because they have lower overhead and are willing and
able to take payment in Birr. The local companies also end up
monopolizing other related sectors by obtaining
through-bill-of-lading arrangements. A less important worry
at the moment is the future of freight forwarding once the
proposed container terminal is completed at the Port of
Doraleh. End Summary.

2. (U) The Port of Djibouti accommodates all seaborne imports
and exports destined for its huge landlocked neighbor,
Ethiopia. Ethiopia stopped using the Port of Assab in Eritrea
after it went to war with this country in 1998. Official port
statistics show that 2.29 million tons of goods and 1.29
million tons of fuel were imported to Ethiopia through
Djibouti in 2004. The quantities were 2.59 million tons and
1.24 million tons respectively in 2003. On the other hand,
Ethiopian goods equivalent to 433,470 tons were exported
through the Port of Djibouti in 2004 and 338,889 tons in

2003. Entities called "freight forwarding companies" handle
all the documentation necessary to clear the goods and charge
them on the trucks going to Ethiopia.

3. (U) Ethiopian trucks carry ninety-nine percent of the
transportation of commodities destined for Ethiopia or for
the Port of Djibouti. At first, some Djiboutian entrepreneurs
ventured to get a share of this lucrative business in the
Ethio-Djiboutian corridor. This was quickly discouraged by
their Ethiopian competitors who offered better rates and did
not hesitate to accept payment in Birrs, the Ethiopian
currency. Djiboutian counterparts have high overhead costs
and can't accept Birrs for payment because there is little
demand for Birrs in Djibouti, which makes exchanging fees
collected difficult. Ethiopian customers also prefer to pay
in Birrs and keep US dollars for purchasing goods from abroad.

4. (C) The Port of Djibouti published a list of 35 official
freight-forwarding companies, which reportedly fulfilled the
legal requirements to establish and operate in Djibouti. A
large number of these were created in the last few years to
take advantage of Ethiopian cargo. The long-established
freight-forwarding companies complain that there are
companies not listed as official which continue to operate
and that other listed companies avoid some legal requirements
because of relations with high government officials. An
committee created by the Government in 2000 to screen
companies and deliver licenses to eligible freight-forwarding
companies quickly lost its effectiveness after it became
clear that the Minister of Transportation was personally
approving companies refused licenses by the committee. These
companies reportedly do not pay taxes or other duties so can
afford to offer low tariffs, making competition unfair.

5. (SBU) Djiboutian freight-forwarding companies have
expressed resentment over lengthy delays in payment by their
Ethiopian customers. Ethiopians must pay in US Dollars, which
are obtained from Ethiopian government owned banks. The
Ethiopian government's lengthy bureaucracy causes
availability of dollars to be limited and it reportedly often
takes up to three months to obtain dollars. Some Ethiopian
customers take advantage of this situation by paying as late
as six months. A few years ago, the total bill owed by
Ethiopian companies to Djiboutian freight-forwarding
companies amounted to more than 3.4 million USD. The
Djiboutian government did intervene with Ethiopia to resolve
the problem.

6. (C) Djiboutian freight-forwarding companies are concerned
about the through-bill-of-lading Ethiopia has been pushing
for. It is an arrangement whereby purchased goods are handled
at every level from supplier to receiver by a single bill of
lading. It is a door-to-door system where the Ethiopian
customer deals directly with the shipping line. The
Government of Djibouti accepts in principle the process of
through-bill-of-lading because it is a modern system and will
speed up the goods transfer process. However, the GOD is
concerned that it will give a monopoly to the Ethiopian
Shipping Line (ESL) at the detriment of the Djiboutian
shipping, freight forwarding and transit companies. Local
companies fear that ESL will only give its business to
Ethiopian Maritime and Transit Services (EMTS) and Ethiopian
owned trucks. Also, if ESL becomes the only shipping line
handling Ethiopian goods, there is a possibility that it
might dictate its conditions to the port as well as to
Ethiopian customers. The issue of through-bill-of-lading is
still on the table between Ethiopia and Djibouti and has not
yet been approved for use.

7. (C) Concerning the Port of Doraleh project, freight
forwarding companies interviewed by the Embassy unanimously
said they did not have enough information about the subject
to comment on its impact. Other companies in other fields
stated to us that the Djiboutian government did not consult
them on the project, thus they did not feel a part of it.
They found it illogical for the government to ask them to
invest in a project completely unknown to them. Yet, the
freight forwarding companies said they hoped to have the
opportunity to operate in the Port of Doraleh when it is
completed. They expressed concern that Dubai Ports
International (DPI) would eventually monopolize the freight
forwarding market. Many companies also said that the interest
of DPI in the Port of Aden could prove detrimental to the
success of the container terminal at the Port of Doraleh.