VENEZUELA: NEW PORT AUTHORITIES CHARACTERIZED BY DECLINING

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 001561 SIPDIS AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2019/12/15 TAGS: ECON EINT EWWT VE MARR PGOV PREL ETRD SUBJECT: VENEZUELA: NEW PORT AUTHORITIES CHARACTERIZED BY DECLINING INVESTMENT REF: CARACAS 1181; CARACAS 00778 CLASSIFIED BY: Steuart, Darnall, Economic Counselor, DOS, ECON; REASON: 1.4(B),(D) ¶1. (C) SUMMARY: Shipping company representatives report that port conditions improved immediately after the nationalization of Venezuelan port operations in June 2009 when the government retrieved thousands of containers that had been left in the ports. This improvement, though, was short-lived as maintenance problems and managerial ineptitude affect operations and commerce. Insurance issues further exacerbate costs and risks of maritime transport to Venezuelan ports. According to shipping lines, the Cuban role in the ports is mainly advisory. However, one source has alleged that Cuba's Puertos del Alba is running warehouse operations at Puerto Cabello. End Summary. MAINTENANCE ISSUES ¶2. (C) Econoffs met with shipping company representatives Elieser Castellanos of Mediterranean Shipping Company (MSC) and Kenneth Pedersen of Maersk (protect throughout) to discuss current port operations. Castellanos claimed that from August to mid September there was a marked improvement in port operations due to government confiscation of containers. In August, the government removed around 3,500 containers from the port, alleviating congestion problems. [NOTE: MSC points out that this was not done through a legal process. END NOTE] Although this action alleviated congestion, the shipping lines have had problems recovering either payment or the actual containers, which are usually leased for the transport of goods. When the shipping lines complained about the lost containers, the GBRV told those liners that have their own trucking service that they could use their trucks to look for the missing containers. The GBRV still has not reimbursed the shipping lines for missing containers. ¶3. (C) Since mid-September 15, operations have deteriorated further, with productivity declining 40% according to MSC's Castellanos. Since the nationalization, many of the cranes in the ports, which formerly were leased by private sector warehouse operations from third-party companies, no longer receive regular maintenance and are beginning to break down. Since the Venezuelan government is not paying the crane owners for their lease or maintenance, the owners have stopped sending replacement parts for the cranes. As a result, fewer cranes are operating in the ports. MSC said that ten cranes were working in August at Puerto Cabello (Venezuela's largest port) and now only four are in operation. Bolipuertos has tried to force shipping lines to use the cranes on their ships to offload cargo, but the liners responded by sending ships without cranes on board. EFFECT ON COMMERCE ¶4. (C) Chrysler President Jim Perez de la Cruz (protect) informed Emboffs that port problems continue to affect his company's operations and provided data dramatizing the deterioration in port operations since nationalization in Puerto Cabello: Before After (Current) Wait Time for Deck Assignment 12 hours 72 hours Unloading Timing Operations (movements/hour) 24 5 Crane per Ship 2 1 CARACAS 00001561 002 OF 003 Operating Cranes (for 24 shipping lines) 10 5 Cranes assigned to Braperca (3 shipping lines)* 5 0 Ship Unloading Time 17 hours 160 hours *Braperca is a large warehouse company with facilities in Puerto Cabello and La Guaira. It previously had its own terminal in Puerto Cabello and owned six Liebherr mobile cranes between the two ports (five in Puerto Cabello and one in La Guaira). BASIC PROCEDURES IGNORED AND DEBT ACCUMULATING ¶5. (C) Basic paperwork used to release cargo is not being completed and often cargo is retrieved without advising the shipping line according to Maersk. This causes problems because many of the cargo contracts require payment upon receipt of the cargo and allow only a certain number of days to rent the company's container. ¶6. (C) According to Maersk and MSC, government food distribution companies PDVAL and MERCAL, were their largest customers and also have the most operational problems and debt. Both companies claim that government entities often purposely wait to retrieve cargo until it is considered "legally abandoned" to get it at a cheaper rate at auction from the port. Due to a lack of planning, these state-owned companies frequently retrieve cargo without any place to take it. Maersk's Pedersen estimated that there are around 300 retrieved containers filled with cargo sitting outside the port at Puerto Cabello. He also confirmed rumors that the government had excavated holes outside the port to bury rotting food from containers that were not retrieved during the port congestion in 2008/early 2009. Meanwhile MSC's Castellanos claims that PDVAL's debt is about a year and a half past due. As a result, he claims the shipping lines are not accepting more cargo for PDVAL using the excuse that there is "a lack of refrigerated containers." MSC was doubtful that PDVAL's promised food and goods for the holiday season will arrive on time unless they are sent by air. PORT DEVELOPMENT INVESTMENT ¶7. (C) Pedersen noted that even before nationalization, Venezuelan ports needed infrastructure investment and there were companies with this expertise willing to take on the project. He described how Dubai World, whose subsidiary, DP World, had a yard at the port, approached the Government of the Bolivarian Republic of Venezuela (GBRV) with a proposal to invest around $200 million to develop Puerto Cabello. The company withdrew its offer a couple of weeks before Bolipuertos took over; DP World has since left the country. INSURANCE PROBLEMS ¶8. (C) In June and September 2009, UK P&I Club, the world's largest mutual insurer for third party liabilities on maritime ships, classified Venezuelan ports as risky, launching higher insurance rates. Pedersen stated the biggest insurance risk in the ports is container disappearance, making coverage crucial. He said that Maersk and other lines have implemented an Emergency Risk Surcharge of approximately $500 per container. These costs are being passed down to the importer. CARACAS 00001561 003 OF 003 ¶9. (C) In response to insurance concerns, Bolipuertos has offered its own insurance policy to the shipping lines, but Castellanos says it is does not appear to be reliable. Bolipuertos still has not revealed the details of its plan. Castellanos added that three insurance claim payoffs he had heard about were paid directly from Bolipuertos, which leads him to believe that there is no insurance structure in place. CUBANS IN THE PORTS ¶10. (C) Both MSC and Maersk said they believe the Cubans' role in the ports is advisory and that they have had no significant role in port operations (ref A). MSC stated that many of the shipping lines were "happy" to see the Cubans come in as advisors to help the Venezuelan authorities with operations. Maersk executives commented that they have not noticed a prominent Cuban role in the ports. ¶11. (C) Dino Denato (protect),a SENIAT official at Puerto Cabello who was identified in the visa line by an alert Consular officer, told Econoff that Puertos del Alba (the Cuban company working with Bolipuertos in the ports) is currently managing port warehouses. Though part of the justification for taking over the warehouses was their exorbitant prices, Denato claims that Puertos del Alba continues to charge the same rates or more. ¶12. (C) COMMENT: The problems in the ports are consistent with the GBRV's lack of management capability across the different sectors that it now controls. Managers and workers with no experience or background in the industry as well as insufficient investment in maintenance and infrastructure are leading to serious new damage in the ports. With the type of logistical setbacks described by Chrysler and unauthorized cargo retrieval, the problems facing the business sector are growing. DUDDY