The SS Otter is a small ship with a capacity of 124 containers or general cargo that is docked at the Eilat Port's northern wharf. In contrast to the Klos C, with its cargo of Iranian arms, the Otter's arrival was not accompanied by Israel Navy corvettes and drew no media attention, but its economic impact is at least as great.
The Otter is a feeder ship, which sails between the Eilat Port and Jordan's Aqaba Port 30 minutes away. These trips will make the large new Aqaba Port into the first private container port serving Israeli importers and exporters.
The idea is operate a new container line via Jordan emerged during the privatization of the Eilat Ports Company Ltd., which was completed in 2013. The Government Companies Authority sold to Papo Maritime Ltd. an exclusive 15-year franchise to operate the Eilat Port for NIS 120 million. The initiative became urgent when Papo Maritime, controlled by the Nakash brothers, brought in businessman Shlomi Fogel as a minority shareholder in the company. Fogel is one of the owners of Israel Shipyards Ltd., which operates the country's first private port in Haifa. At the demand of the Histadrut (General Federation of Labor in Israel), it is limited to handling 5% of Israel's container market. In addition to the Otter, which Papo Maritime has leased for six months, the company bought two mobile cranes for loading and unloading cargo, which will begin operating next week.
Under the terms of the contract with the government, Papo Maritime promised to meet a target of handling an annual average of 80,000 TEU of containers. Government Companies Authority deputy director general Meir Shamra, who handled the Eilat Port's privatization, admits that this is not an amount that will lower prices in Israel's container market, which currently handles 1.6 million containers a year. He says, however, "The entry of a private player into the sector will improve competition and create a quality benchmark for the other ports."
The government is using both the carrot and the stick to guarantee container activity at the Eilat Port. The carrot is a discount in the use fee that Papo Maritime pays Israel Ports Development & Assets Company Ltd. of NIS 100 per container. The stick is a threat not to extend the 15-year franchise is the operator does not meet the five-year milestones set in the agreement.
Aqaba's advantages
Containers are not a new business at the Eilat Port. It handled up to 40,000 containers a year in the 1980s, but the business waned until it was eliminated altogether in 2007, when Zim Integrated Shipping Services Ltd. stopped visiting the port. The hope to revive the container business largely depends on Aqaba. Its port, which for years was a marginal and obsolete port, has undergone a revolution since it was privatized in 2000 to AP Moller Maersk A/S (OMX: MAERSK-B) subsidiary APM Terminals Management BV. The Aqaba Port is basically three different ports, for general cargo, containers, and phosphates. It can now handle 30 million tons of goods a year, compared with 20 million tons by Ashdod Port Company Ltd., and 24 million tons by Haifa Port Company Ltd. The deep water of the Gulf of Eilat/Aqaba allows the Aqaba Port to handle container ships of up to 18,000 TEU, compared with 10,000 TEU ships by Israel's shallow water Mediterranean ports.
The Aqaba Port is especially important for trade with Asia, because it saves the need to pass through the Suez Canal. For Israeli exporters, the Aqaba Port has some other important advantages. The first is price. Most containers at the port handle imports to Jordan, rather than exports, resulting in ships leaving the port empty. This makes it possible for Israeli exports to ship goods to the Far East for $150 per container, compared with the $450-500 fee charged by Israeli ports to the same destinations. A second advantage is reliable service, which is not suspended because of family events of port workers, as is a norm in Israel. A third advantage is the possibility of shipping goods to Arab countries, especially in the Persian Gulf.
"Our biggest advantage, in addition to price, will be stability and availability of lines," says Eilat Port CEO Gideon Golbar. Papo Maritime has already carried out several pilot sailings to Aqaba. Its ship can make several trips a day, taking up to 500 containers to the Aqaba Port. The line's commercial activity depends on signing contracts with anchor customers. Negotiations are now underway. The natural candidate is Israel Corporation (TASE: ILCO) subsidiary Israel Chemicals Ltd. (TASE: ICL), which already operates the phosphates export terminal at the Eilat Port. Israel Chemicals exports an estimated 20,000-30,000 containers a year. The port's operators have already examined reactivating the cargo railway terminal at Nahal Zinn, transferring containers by semitrailer road trains, each of which can carry three containers.
The Eilat Port admits that the potential of this option is limited because of Israel's high overland transport cost. "Our biggest problem is the excise on the trucks," says Golbar. "We estimate, that under current conditions, we can reach 20,000-25,000 containers a year. A cargo rail link to Eilat would give a huge boost that could more than double the number of containers to 60,000-70,000 a year. Regrettably, we are in an inferior position compared with Ashdod Port and Haifa Port in this matter."
Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2014
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