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