Bolloré, MSC..‘In Africa, the big shipowners have become the masters of the game’

By Olivier Caslin

Posted on Wednesday, 9 November 2022 15:45
Aboubaker Omar Hadi, president of the Djibouti Ports and Free Zones Authority, on 20 October 2020. © Vincent Fournier for JA

Aboubaker Omar Hadi, the all-powerful head of the Djibouti Ports and Free Zones Authority (DPFZA), looks back at the main developments in the maritime sector and their implications for the continent.

Since 2011, Aboubaker Omar Hadi has been the all-powerful boss of the Djibouti Ports and Free Zones Authority (DPFZA). In just over 10 years, he has succeeded in turning the small republic into a maritime and logistics hub that cannot be overlooked on the East African coast, in the wake of the modernisation of its old port. Trained in Le Havre and at the prestigious University of Malmö in Sweden, this 63-year-old Djiboutian, who has also worked in Nigerian terminals, knows his sector inside and out. He looks back at the many changes that the maritime industry is undergoing worldwide, and their consequences for Africa in general and Djibouti in particular.

Of all the upheavals that have transformed the maritime sector, what do you think is the most significant?

Aboubaker Omar Hadi: The prices! Everything is becoming very expensive in maritime transport, in the wake of the fourfold increase in freight rates with the pandemic and even more so on the Asia-Africa axis. Each container still goes for $9,000, compared to an average of 3,000 before Covid.

In this context, how is the port of Djibouti faring?

We have recorded a significant drop in our volumes, of the order of 20% between 2021 and 2022. We have had to reorganise our terminals and lay off some of our staff for many months. Finally, the situation has balanced out, now that our operating expenses and volumes have been decreased, as they are linked.

What is the situation in the ports today?

They are at the bottom of the wave, but orders have been placed and production lines have been restarted in Asia. Volumes are expected to rise again, despite the considerable increase in freight rates. Prices are expected to fall back to around $6,000 per container in the next 12 months, thanks to this observed upturn in demand.

Why should these rates remain high for the time being?

Because, although the ships are there and there is once again a lot of cargo to be transported, the crews are not fully manned and there is still a shortage of containers on certain shipping routes. One-third of the crew were Russians and Ukrainians who had to be replaced quickly. Meanwhile, large amounts of cargo have been stuck on the East-West route for a long time, due to congestion in the ports of Los Angeles and Shanghai, and have still not been repositioned to Africa.

Some observers fear that this increase in tariffs will lead to a shift in the type of containerised freight in favour of high-value-added goods. What do you think?

The rate of containerisation of goods is increasing year on year, even today and even in Africa. The container is a turning point for the shipping industry as well as for world trade since it allows the capacity of a ship to be compartmentalised between several customers. Shippers appreciate this flexibility because it is too expensive to store goods in one port. It is therefore preferable to break them down as quickly as possible, and for this, containerisation is not an option.

How do you respond to those who believe that this same increase in freight rates could result in the African markets furthest from the Asia-Europe axis being sidelined?

There will be no disconnection from world trade. The container business is complicated, but the continent has a lot of products to export, especially in mining and agricultural bulk. Geographically, Africa is at the heart of the world market and cannot be ignored. AfCFTA’s announced arrival is also expected to increase intra-African trade tenfold, provided that landlocked countries are better served by land, and in this area, everything remains to be done. Without quality road and rail connections, there is no AfCFTA.

Do the enormous profits that shipping companies have been making since 2021 have an impact on the sector?

The big shipping companies have become the masters of the game because of their enormous profits, even though volumes have fallen. The vertical integration strategy of the shipping companies, which are investing in ports, logistics and even air transport, does not really affect the flow of goods themselves, but rather the sector’s organisation, as there is a real risk of monopoly. The major alliances between companies resemble cartels. It is not a coincidence that the US administration is investigating the matter.

What do you think of the fact that the world’s leading shipowner, Mediterranean Shipping Company (MSC), has taken over the port assets of Bolloré Africa Logistics (BAL)?

A port has two clients: the ship’s owner and the owner of its cargo. In my opinion, a port should never get too close to either of them because there is a real risk of conflict of interest. When managing the terminals, shipowners could be tempted to reduce the room for manoeuvre of the port authorities, for example by limiting access for other shipping companies, applying different tariffs, playing on berthing priorities, etc. This could lead to a conflict of interest. In the end, competition could be distorted. A port must remain accessible to as many people as possible. MSC and the others have the means to build their own terminals. The reason they do not do so is perhaps that they want to exercise control over those that already exist.

Should we fear competition between ports on tariffs?

The rates don’t make much difference today. The most important thing, for both shippers and shipowners, is to reduce the cost involved in having ships pass through the terminals and ensure that the ports prioritise their efficiency. There is therefore no point in them seeing port tariffs fall if this is to the detriment of the quality of services provided.

What strategy have you put in place to ensure that Djibouti retains its port leadership in Africa?

We are focusing on human resources by training our staff to guarantee the quality of our services. We also heavily rely on the digital tools available today to improve the flow of traffic by eliminating bottlenecks. Our customers can thus see at any time, and in real-time, where their ship or goods are.

Aren’t you afraid of becoming too dependent on the Ethiopian market, which absorbs more than 70% of your traffic every year?

Ethiopia is a landlocked country that is looking for alternatives to Djibouti and that is perfectly valid. We too need to diversify our sources of activity in order to be less dependent. The transhipment of goods is one of the areas we are working on, by signing agreements with Uganda and South Sudan to supply these countries via roads and rivers. By its very nature, transhipment activity is very competitive and brings less profit to a port than captive import or export traffic for a given market, but it boosts traffic volumes and strengthens a port’s positioning with shipping companies. This is why we have set ourselves the objective of achieving 50% transhipment by 2030.

What other ways can this diversification take place?

Like MSC and CMA-CGM, we are also pursuing a policy of vertical integration, by developing our air services, via air-sea transit. We started our activities a year ago, targeting a dozen countries, including Algeria, Morocco, Tunisia, Angola, Ghana and Nigeria. In 2023, we will have a new airport specialised in freight and managed by the Port Authority. At present, we only ship a few containers each week, but the potential is enormous, so much so that we are expecting 600,000 tonnes of air freight per year by 2025.

What are the challenges facing the maritime industry in the near future?

The energy issue is the only real revolution to come. Limiting CO2 emissions from the world fleet will be very costly for shipowners, who must now implement a real strategy for developing green fuels. It remains to be seen who will pay for ships to be decarbonised, which does not necessarily mean that freight rates will be further increased. On the port side, our main challenge is to cope with the fleet’s gigantic size. A port is designed for 50 years, a ship for 20 years. We need to be able to anticipate the choices of shipowners today so that we can adapt our ports to tomorrow’s maritime sector.

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