TRANSIT CONTAINER TRAFFIC THROUGH CYPRUS SET TO

UNCLAS NICOSIA 000795 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EWWT ECON ETTC PTER MNUC PARM PREL CY SUBJECT: TRANSIT CONTAINER TRAFFIC THROUGH CYPRUS SET TO TRIPLE IN TWO YEARS (U) This cable is sensitive but unclassified. ¶1. (U) Summary. On May 18 2006, Cyprus signed a Memorandum of Understanding (MOU) with the Mediterranean Shipping Company (MSC),the world's second largest private shipping fleet. The MOU obligates the GoC to make significant infrastructure improvements at Limassol port. In exchange MSC committed to triple the current volume of transit container traffic through Cyprus over the next two years. End Summary. ¶2. (U) On May 18, 2006, the Cyprus Ports Authority (CPA) and Geneva-based Mediterranean Shipping Company (MSC) S.A. signed a Memorandum of Understanding (MOU) committing them to increased cooperation concerning the use of Limassol port for container transshipment. ¶3. (U) While not quite as legally-binding as a full-fledged agreement, the MOU commits both sides to work in good faith towards implementing specific goals. MSC is committed to move through the Port of Limassol 1,000 containers (TEU's) per week, gradually increasing this traffic to 2,000 TEU's per week over the next two years. MSC has been using the port of Limassol for the last 15 years but on a much more limited basis. In 2005, MSC moved around 10,000 TEU's in transit through Cyprus. ¶4. (U) For its part, the CPA is committed to: -- dredge the port of Limassol to a minimum depth of 16 meters along the quay (from the existing 11-14 meters) and to increase the turning circle for ships to 17 meters (from the current 15 meters). This upgrading project must be completed by March 2007; -- add one more modern gantry crane to Limassol port's existing five cranes ASAP; -- give MSC vessels priority, wherever possible; and -- work 24/7 to accommodate the increase in traffic. ¶5. (U) MSC is one of the leading global shipping lines, ranking second-largest worldwide in terms of container slot capacity and number of container vessels in operation. Its maritime fleet has expanded substantially in recent years, growing steadily from 65 vessels in 1995 to 278 vessels in ¶2005. Similarly, its intake capacity has grown remarkably from 120,000 TEU's in 1995 to 780,000 TEU's in 2005, while its actual throughput has increased from just over one million TEU's in 1995 to 6.5 million TEU's in 2005. ¶6. (SBU) Cypriot ports, however, have not been nearly as successful in recent years. The occasional port workers' strike notwithstanding, Cypriot ports have proved quite adequate in handling domestic shipping traffic (total domestic container traffic moved through Cyprus' two ports reached 175,454 TEU's in 2005 -- 175,381 through Limassol and only 73 through Larnaca). However, the Turkish embargo against Cypriot ships as well as against all other ships, regardless of flag, sailing to Turkey from Cyprus has significantly hurt container transshipment traffic through Cypriot ports. Turkey introduced the embargo in 1994 and stepped up its enforcement gradually over the next three years. Concomitant with the stricter enforcement of the embargo, transit container traffic through Cyprus dropped from 421,000 TEU's in its heyday in 1996 to 142,000 TEU's in 1998, to 47,000 TEU's by 2000 and to 38,000 TEU's in ¶2005. The port of Limassol currently handles more than 85 percent of Cyprus' total container transit traffic, the remainder being handled through the port of Larnaca (33,156 TEU through Limassol and 4,626 through Larnaca). ¶7. (SBU) Comment: This MOU promises to breathe new life into Cyprus' ailing transit trade industry. Its successful implementation (particularly, the commitment to work 24/7), however, depends entirely upon the port workers' goodwill. It remains to be seen whether port workers' unions will cooperate fully for the successful implementation of this MOU. Transshipment of goods through Limassol will also increase significantly if, and when, Turkey lifts its embargo on Cypriot shipping. These developments underscore the importance of continued Cypriot participation in U.S. programs designed to help the GoC increase its capability of interdicting shipments of WMD and its components such as EXBS and the DOD's International Counterproliferation Program. The issue also gives some of the local texture and economic importance of the customs-union issue, which looms on the political horizon this autumn. End Comment SCHLICHER