SHIPPERS HIKE HONDURAN PORT FEES, SPURRING

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001843

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC AND L/EB
STATE FOR EB/TRA (DHAYWOOD)
TREASURY FOR DDOUGLASS
COMMERCE FOR AVANVUREN, MSIEGELMAN
JUSTICE FOR APURCELL
STATE PASS AID FOR LAC/CAM

E.O. 12958: DECL: 09/07/2015
TAGS: EWWT KJUS ECON ECPS EINV PGOV KMCA HO
SUBJECT: SHIPPERS HIKE HONDURAN PORT FEES, SPURRING
ALLEGATIONS OF CARTELIZATION

REF: TEGUCIGALPA 1825 AND PREVIOUS

Classified By: Classified By: Economic Chief Patrick Dunn for reasons 1
.4 (b) and (d)


1. (C) On August 26, the private shippers' umbrella
organization -- the Central America Discussion Agreement
(CADA) -- informed Honduran importers and exporters that
effective September 1, shippers would raise container
handling fees by USD 5-15 per container. According to CADA,
this price increase is to offset the additional
administrative costs associated with the new GOH-imposed
non-intrusive inspection (NII -- gamma-ray scanning) regime.
The Honduran private sector is livid, and calls this raise
"the straw that broke the camel's back." They allege this is
merely the latest in a series of price-fixing decisions by
CADA, and they intend to test the waters for launching an
anti-trust lawsuit in a U.S. court. What makes this case
more than the usual private sector maneuvering for position
is private comments to EconChief by the Minister of Finance
William Chong Wong that he, too, believes the shippers are
acting as a cartel and are in fact price gouging.


2. (C) CADA is a group of shipping companies active in
Honduras that reportedly meets periodically in Coral Springs,
Florida, to discuss and agree upon prices and fees. The
group is composed of leading companies including APL, Crowley
Liner Services, Dole Ocean Cargo Express, Great White Fleet,
Maersk Sealand, King Ocean, and Seaboard Marine. In addition
to a letter documenting the fee increase for NII, Post also
has copies of letters documenting a general fee increase for
container handling, and has been informed by the private
sector that historically all such price increases are issued
jointly by the CADA, from their Florida office.


3. (SBU) Econ Chief has discussed this issue over the last
several days with President of the Honduran Industrialists
Association (ANDI) Adolfo Facusse, President of the
Tegucigalpa Chamber of Commerce Amilcar Bulnes, Executive
Director of the Honduran Private Enterprise Council (COHEP)
Bejamin Bogran, President of the Cortes Chamber of Commerce
Oscar Galleano and Executive Director Raul Reina. All are
"fed up" with the shippers' behavior, and all alleged at one
time or another during our discussions that the shippers were
acting as "a cartel" or were illegally conspiring to set
prices. In addition to the letters, which they consider
prima facie evidence of collusion, the businessmen point out
that shipping a container from the Gulf Coast of the U.S. to
Honduras is more expensive than shipping one from Los Angeles
to Hong Kong. Even accounting for economies of scale, volume
discounts and the like, they say, such prices can only be
explained by price gouging on the part of the shippers.


4. (SBU) Three of these private sector groups -- ANDI, the
Tegucigalpa Chamber, and COHEP -- have formally requested
information on whether and how they could file a case in the
U.S. alleging violation of Taft-Hartley anti-trust laws,
basing their claim of U.S. jurisdiction on the fact that the
coordination meetings take place in Florida. The group
pointed out that when a similar challenge was filed in Costa
Rica, CADA dropped its rates there significantly. Such a
case has not been filed in Honduras because until August 2005
no anti-trust legislation existed under which to charge the
shippers. That legislation has now been approved by Congress
but is not expected to enter into force until late 2006,
leaving a suit in the U.S. as the private sector's only
recourse.


5. (SBU) No U.S. firm has approached Post directly about this
matter, but Post notes that there are an estimated 170
U.S.-owned light industrial manufacturers (maquilas) in
Honduras that are dependent on containerized sea-freight
services for both import of production inputs and export of
finished goods. Post also notes that approximately 75
percent of all container traffic that transits Puerto Cortes
-- Honduras' largest port -- is destined for the U.S. While
these allegations have been presented by the Honduran private
sector, there is clear U.S. economic interest in determining
if price collusion or cartelization is happening.

The scanning fees issue
--------------


6. (C) In the most recent case, CADA determined that as a
group it would raise fees passed on to importers for
gamma-ray scanning to USD 20 across the board. As Post
reported previously (ref a),these fees were arduously
negotiated between the GOH and the private sector, with the
result that full containers imported for domestic consumption
would be charged USD 15 for scanning, while full containers
laden with inputs for re-export (such as fabric for apparel
assembly operations) would be charged only USD 5. CADA has
unilaterally raised that formerly differential fee to a flat
rate of USD 20, imposing a 35 to 300 percent increase for
"administrative overhead." According to Galleano, whose
Chamber includes a number of shippers as members, this is not
a real fee, but rather a signal from the shippers that they
do not want responsibility for administering the fee at all.
The shippers claim that knowing which kind of import is which
is too complicated and expensive, and should be the
responsibility of the national port company, ENP.

7. (SBU) EconChief spoke with Mohand Merzkani, Senior
Financial Advisor for Puerto Cortes, who explained that ENP
could not undertake such a responsibility. First, he pointed
out, ENP has relationships with the shippers, not with the
individual importers. Second, the shippers must manifest and
bill for each container anyway, and so are the logical choice
to undertake the task of billing for scanning as well.
Third, he said, the administrative burden of being in contact
with hundreds or thousands of importers would be too much for
ENP to handle. Finally, he said, who would the ENP bill in
the case of empty containers, which must also be scanned and
paid for, since in that case there is no importer, only the
shipping company itself.


8. (C) The private sector seems unanimous in its position
that the shippers should not be given the responsibility for
billing for the inspection fee. According to Bulnes, the
private sector has been through this before, with port
security fees. In the case of port security fees, a
surcharge of USD 40 was to be charged for physical
infrastructure upgrades to Puerto Cortes. Following several
rounds of negotiations between the private sector and the
GOH, that fee was reduced by the GOH to USD 16 per container,
and the shippers were given responsibility for collecting it.
The shippers immediately added USD 4 to the fee for
"administrative costs." That fee is still in place, and
would be charged in addition to the scanning fee, leading, in
the case of a maquila importer, to per-container surcharges
of USD 21 for security and scanning, plus USD 19 in fees for
"administrative overhead" on the part of the shipping
company. The private sector finds this excessive, and
complains that with every such fee Honduras loses
competitiveness versus other CAFTA countries.


9. (C) Time is running out, as the fees were set to be
charged effective September 1, 2005. On that date, the
scanning contractor, CAMOSA, was to begin scanning
operations. Those operations would be billed to the Ministry
of Treasury at USD 37 per full container and USD 17 per empty
container. The lower costs passed on to the private sector
reflect GOH subsidies for the fees, based on the cost
recovery that is expected as a result of improved customs
collections as scanning reveals under-invoicing and other
forms of customs evasion. According to Bogran, those fees
have been suspended pending resolution of this dispute.
Shippers, the ENP, and the private sector met in a series of
discussions August 29-31 to address this problem, but without
apparent success.


10. (C) Comment: Post is following this issue with interest,
and would welcome any insights the Department can provide as
to the applicability of U.S. anti-trust legislation to the
instant case and any advice as to Post's role in such a
process. End comment.

Williard
Williard