The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Freeport Container Port suffered a dramatic 47 per cent operating income drop in 2011, its majority shareholder has revealed, due to a sharp decline in cargo transhipments to the US east coast.

The disclosure was contained in the 2011 annual report of Hong Kong-based conglomerate, Hutchison Whampoa, which noted that the Freeport Container Port also saw the throughput of 20-foot equipment units (TEUs) decline by 1 per cent year-over-year to 1.116 million in 2011.

Hutchison Whampoa, whose Ports division holds a 51 per cent stake in the facility, said: "Freeport Container Port, on Grand Bahama island, reported a throughput decline of 1 per cent and a reduction in EBIT (Earnings before interest and taxation) of 47 per cent, mainly due to the lower transshipment cargo bound for the east coast of the US."

The 47 per cent decline, which means that the Freeport Container Port's operating income was almost cut in half compared to 2010 levels, helps to explain both the year-end 2011 lay-offs at the facility, as well as Mediterranean Shipping Company's (MSC) decision to relocate some of its business from Grand Bahama.

Some 72 workers were terminated at Hutchison Whampoa-controlled Grand Bahama operations at the 2011 year-end, the majority of the lay-offs -some 47 - coming at the Freeport Container Port. Most of those impacted were middle management and supervisory staff who had been employed for 10 years or more.

Based on the Freeport Container Port's financial performance, it seems likely that Hutchison Whampoa downsized the workforce in a bid to align costs with the facility's new, reduced levels of business given the drop in US demand for containerised cargo.

It also looks as if Hutchison Whampoa decided its Grand Bahama operations, which also include the Grand Bahama Airport Company and Freeport Harbour Company, were too 'middle heavy' when it came to management.

And the drop in US demand for container transhipments also explains MSC's decision to shift some of its business from Freeport to its other ports in the Caribbean and Panama.

In a little-noticed interview with the Journal of Commerce earlier this year, MSC (USA) chairman and chief executive, Nicola Arena, said the company was moving some of its transshipment operations to hubs at both ends of the Panama Canal, as well as to Nassau.

MSC was said to ship about 700,000 TEUs through Freeport annually, accounting for 62.7 per cent of the Container Port's business, based on last year's figures. The Journal of Commerce report confirmed that the company's shift from Freeport was due to the slowdown in US demand.

Describing Nassau as becoming "an important port for us", Mr Arena said: "I would like to categorically affirm that we have no intention whatsoever to leave the Port of Freeport.

"Freeport is strategically very important for MSC, particularly in view of the bigger ships which will come in the near future. It is our strong intention to remain here.

"With 50.8 feet of water depth, it is ideal for big ships. It is the best port in the American hemisphere."

Meanwhile, Hutchison Whampoa's 2011 annual report also referred to "an improvement in the results from operations in the Bahamas" in the section relating to its property and hotels division.

That is likely to mean that losses produced by the Grand Lucayan were sharply reduced, rather than the hotel producing a profit.

John Meredith, group managing director for Hutchison Port Holdings (HPH), told Tribune Business last year that the Grand Lucayan was in a "perilous position", with the Hong Kong-based conglomerate "frankly desperate" to reduce the property's electricity bill.

He added that Hutchison Whampoa had subsidised the Grand Lucayan's "heavy annual losses", amounting to "tens of millions of dollars", for years.