Home BusinessAnalysis Vivisection of a trade heart

Vivisection of a trade heart

Resurgence of a shocked and atomized sector

by Nabil Makari

The short story of Lebanon’s vital trade of 2020 has three chapters but no resolution at the end. The tragic and dramatic lead character of the story is the Beirut port, which is revealed throughout the year as, in a succinct synopsis of this ballad, the open secret and potential epitaph of the Lebanese economy in its overwhelming dependence on external trade.

In the story’s first chapter, external trade was hit by the worst economic headwinds that stakeholders in Lebanon’s trade have experienced in years, due to severely restricted imports and port activity. The second chapter of the story starts out bloody and brutal, opening with one port warehouse’s gigantic explosion on August 4. The immediate fallout of this unimaginable catastrophe was a perfect storm of an elite-induced humanitarian and economic emergency, and the people’s justly outraged response; a cataclysm that has swept away a – by that time already shockingly ineffective – 20-member government that had been in office for 202 days but was never truly in power. The yearlong narrative’s third chapter overlaps with the existential pain felt by the myriad direct and indirect blast victims in the latter part of the year but, from the perspective of trade and container operations at Beirut port, actually constitutes the resilience part of the story. The narrative’s conclusion, however, is a cliffhanger of unanswered questions and tensions leading into the next year. 

The opening chapter

In the first six months of the year, activity at the country’s existential point of entry for goods and gateway for exports – the Port of Beirut – saw a 47 percent contraction of imports. Already in the prior year of 2019, the port had seen a modest weakening of its business, but “2020 is the first real contraction and it is a drastic one” in the experience of Samih El Zein, marketing manager of shipping industry stalwart Mediterranean Shipping Company (MSC) Lebanon, part of the five decades old Europe-based MSC shipping empire. 

As Zein told Executive in an interview in the second half or July, the worrying contraction in the number of standard containers – the so-called twenty-foot equivalent units or TEUs – processed at Beirut Port between January and July was overshadowed by the risks of misfortune that would befall Lebanon’s vital imports if there ever was a systemic breakdown of crucial port equipment, especially of the huge Chinese-made gantry cranes that have been working 24/7 as the physical backbone of the port’s container terminal for the past two decades. “We are at risk of losing everything that the industry built over many years,” he said. 

Both, the contraction of shipping activity in the first 6 months of 2020 (by over 50 percent when compared with the port’s longer term performance over the same periods in the past four years), and the perception of excessive risk if crucial equipment failure would occur, were unsurprisingly rooted in Lebanon’s economic meltdown and the debilitating restrictions on transferring funds abroad. 

As a side note to the problem, the outlook for the global logistics industry in the middle of the year appeared momentarily uncertain and gloomy, exacerbated by the coronavirus lockdowns in various countries and the supply chain and logistics disruptions of spring. Whereas cargo arrivals to Lebanon from the distant manufacturing hubs of China in the first half according to Zein were mere “ghosts of the past” and container shipment flows already reflected changes in Lebanese consumer behaviors and prioritization of basic necessities, cheaper goods and shorter international supply chains by importers, Zein expected inflows of containers through Beirut port to continue at reduced levels but not to dry up in the remainder of the year. The paramount concern on his mind, before the blast, for the near-term horizon was the specter of the Beirut port becoming unable to pay for equipment repairs due to transfer restrictions in combination with the rapidly weakening Lebanese lira.

The epic drama 

While the global shipping and logistics industries were adjusting their ways to the global trade realities and emitted first signs of returning freight volumes and profits by the beginning of the year’s third quarter, the second chapter of the 2020 Lebanon trade story unfolded on a sunny Tuesday evening in Beirut. Out of the blue, first a fiery roar, then a fireball, and then a devastating blast-wave raced through the streets and buildings of Beirut in neighborhoods near to the exploding, ammonium-nitrate filled warehouse of the centrally located port.  

In itself, this part of the port’s story was as short as it was destructive. This “Beirut Blast” was reported extensively in the hours following the catastrophe. The human cost, traumatic stresses, medical and survival needs and livelihood impacts on hundreds of thousands have been recorded and the responses documented over the following months. In parallel to those valid human interest stories, much has been opined, analyzed and speculated about everything and everyone who was ostensibly involved or morally responsible for the catastrophe, so much so that it does not need to be repeated here. 

In the context of the Lebanese trade story, the explosion’s dramatic chapter of humanitarian needs and amazing human solidarity does not have the central role. Therefore, just one encouraging recent piece of information might be noted: the latest update (No 15) in the regular situation reports by the United Nations Office for Coordination of Humanitarian Affairs, (OCHA) that covers the Beirut port explosion and aid responses, the UN flash appeal for relief funds has lately been revised downward to $196 million and was noted to have been funded to 80 percent. 

This is notable for both the important funding success of the flash appeal and for the downward reassessment of emergency needs by almost 45 percent when compared with the appeal issued at the end of August (an even earlier iteration of the appeal on August 14 contained an estimate of $566 million in total need, covering eight needs categories from food security and shelter to medical and education. The December 2020 situation report by OCHA thus can be read, among other things, as testimony to the amazing international and local solidarity with the people of Lebanon – notably, it bears repeating that the volunteerism and solidarity among the people of Lebanon excelled over months after the catastrophe – that has made considerable strides towards healing the city.  

While this human narrative wrote itself, the economic story of trade continued developing and did so, as usual in the Middle East, inclusive of regional and political overtones. Firstly, detailed numerical analysis of first-half and nine-month container traffic at Beirut Port showed that altogether, import shipping operations by the top five shipping companies and freight forwarders – which handle close to 80 percent of goods moved into Lebanon – through the port reached 110,033 TEUs in the first nine months of 2020, a 48.8 percent drop from 215,011 TEUs in the same period of 2019. The announced revenues of Port of Beirut clocked in at $84.8 million over the nine months, which shadowed the drop in activity through a contraction of 44.5 percent when compared with the same period last year. 

The Lebanon This Week publication of Byblos Bank further noted that by the end of Q3, 2020, the five largest shipping companies Mediterranean Shipping Company (MSC), Merit (CMA CGM), Maersk, Gezairy Transport, and Tourism and Shipping Services handled 35,569 TEUs (13%), 28,606 TEUs (10.3%), 20,339 TEUs (7.3%), 14,104 TEUs (5%) and 11,415 TEUs (4%), respectively. These five shipping companies and freight forwarders furthermore accounted for 89 percent of exported Lebanese cargo and 18 percent of the total export freight market, including trans-shipments through Lebanese ports. Maersk registered a year-on-year increase of 15 percent in export shipping in the first nine months of 2020, the highest growth rate among the top five companies. Indicative of the volatile exporting situation, the companies’ export-shipping operations increased by 70.8 percent in September 2020 from the previous month, following a decline of 25.4 percent in August 2020.

For the political and strategic angle of trade in the eastern Mediterranean, the news of rapprochements between various Arab countries and Israel was the autumn period’s defining news. No wonder that the question of competition between Lebanese and Israeli ports was occupying local minds in Lebanon. With Beirut port still in transition from arrested managers to their replacements and being consumed by investigating the blast, making repairs, and clearing up many messy questions over political responsibilities, operational negligence, possible terrorist implications, old-fashioned stupidity, destructive self-interests and handy scapegoats, attention for a while turned to the Tripoli port and its capacity. 

With regard to the Tripoli port’s utilization in short term substitution of the Beirut port, analysts recorded year-on-year increases of shipping volumes for the month of August. Those were reported as 55 percent increase in the number of vessels that called at the port and 79 and 99 percent increases in total shipping volumes and importation of goods, respectively. However, the number of TEUs processed at the port rose by a less spectacular 23 percent and analysts pointed out that Tripoli’s very modest container terminal cannot serve as a sustained alternative to Beirut. 

As far as the question if the port might be at risk of losing business to Israel’s Haifa port under a changed political paradigm of commercial ties between some Arab nations and Israel, the Tripoli port director Ahmad Tamer responded that he has no fears of the Haifa port competing against Lebanese ports, on grounds that Lebanese ports would be able to count on the support of the Arab states to Lebanese exports. “We are not afraid [of such competition] since our ports have a distinguished geographical location. Besides, the Arab always stand with Lebanon and its exports,” he tells Executive. 

However, Elie Zakhour, the head of the International Chamber of Navigation in Beirut, sees the competition of the Haifa port as a serious concern. “The Haifa port is not only a competitor to its Beirut counterpart but also to the Suez Canal.” This view is based on buzz, first created in mid 2019, over creation of rail links between Israel and the United Arab Emirates and Saudi Arabia and also on the signing of a memorandum of understanding between the UAE’s Jebel Ali Free Zone Authority and the Israeli chambers of Commerce, a move aiming to build new partnerships and allow data exchange. Zakhour further pointed to agreements between Dubai Ports Authority and Israel to revamp the ports of both countries, something which he considered as posing large competitive threats to the Beirut port.   

The resilience tale of the Beirut container terminal

While pundits chase catchy labels for the problems of the Beirut port – the “cave of Ali Baba and his 40 thieves” was a hit – the resilience chapter of the port’s return to operations and facilitation of imports and exports must be accounted for in the year’s trade narrative. 

Contrary to the initial cries of alarm that the people in the city and country would be largely derived of bread and all existential goods, which could no longer be off loaded at the devastated port, the operational recovery of the port’s trade heart – the container terminal with its towering cranes that have been defining the Beirut seaside since the beginning of the century – was achieved by August 10, the start of the next workweek after the devastating explosion.

Situated between 1.3 and 2.3 kilometers from the warehouse where the irresponsibly stashed store of ammonium nitrate had blown up, the damages to the all-important container terminal ranged from destruction of a spare parts warehouse containing 100,000 items to far slighter damages to the most distant equipments and facilities, including the quayside cranes. Several department heads in the management team of the Beirut Container Terminal Consortium (BCTC), the public-private partnership (PPP) company that has been operating the concession for the terminal and yard under a 15-year contract that actually expired in 2020 and was put up for a new tender in March, recounted their experiences in the days after the explosion in a meeting with Executive. 

The first hours were filled with shock and implementation of evacuation plans in the operation that numbers 650 employees and has about 150 on shift at any time of day and night. Safety, quality, and efficiency, in that order, are the three top priority objectives of procedural management that govern BCTC operations at any time, explains Terminal Manager Sarah Haidar. The safety, evacuation, and emergency response plans at the container terminal – a district in the port that is in a tight customs enclosure – thus were implemented within minutes of the blast. Search for employees on the ground commenced. Combining their efforts, uninjured managers and employees from all departments soon were heading to the hospitals all over Beirut’s conurbation, checking for injured colleagues. Phone trees were implemented to verify the safe whereabouts of every employee in the chaotic first two days after the blast. The team of BCTC suffered 10 fatalities and 42, partly major, injuries. The last two missing bodies could be found and recovered only after a week.  

The next action steps included setting up an outdoor emergency operations node in the parking lot, checking the integrity of containers with dangerous materials, finding of temporary electricity solutions for hooking up containers that depend on refrigeration in the heat of the Lebanese summer, retrieving one existential piece of equipment from the BCTC administration building – the server – and starting to sort through the debris, all in organized and orderly fashion to the extent possible.

Making a really long story short, the 99 percent Lebanese workforce of BCTC, returned the container terminal to partial operating functionality by August 7 and resumed the terminal’s activity on August 10, following safety checks of the port area and basins by the Port Authority and Lebanese security agencies. Up until the end of November, operational capacities were further recovered in increments.  

And then what?

If the past year has reinforced any trade knowledge, this must be the knowledge that external trade is inseparable from the economic success of this country. For a century, there have been and still persist man-made challenges for the geographic edge-and-transit country of Lebanon; these will not vanish until the global neighborhood of the Near East finds, if not outright peace (we dream of it, along with dreams of good national governance and 24-hour electricity, etcetera), but contractual and orderly coexistence which pays non-war dividend. 

The Tripoli port is a fine example. According to its director Ahmad Tamer, one week of Beirut Port closure saw 4,000 containers rerouted via the northern gateway to Lebanon, translating into temporary increases of general cargo volumes by 50 percent and containers by 10 percent during the period. But the real significance of the Tripoli port and development ideas for locating maritime transport hubs away from Beirut is the stunted regional gateway potential of such facilities. “The Tripoli port’s main aim is to serve external trade, but unfortunately the transit routes through Syria were closed when the civil war began in this neighboring country,” Tamer says, pointing furthermore to the border closures between Syria and its other Arab neighbors. 

The self-interests of countries in the Mashreq region and the impediments of ongoing conflicts are not the only barriers that constitute historical challenges to greater cross-border economic utility of Lebanese ports. In any case, Israeli-Arab rapprochement or not, it stands to reason that ports located on the eastern and northeastern Mediterranean and the Red Sea and Gulf/Shatt Al Arab coasts will have to compete for business in the wider Middle East where transportation infrastructures and emerging sea-land bridges are bound to re-shape the long-term equations of economic transit between Europe and Asia. 

In the short term, the Beirut container terminal operation is far from a comfortable situation because of the stresses on the economic equation that are caused by capital controls, need to maintain the expensive equipment, and downside risks on Lebanon’s importation volumes. As the concession for operating the terminal has this year been renewed in piecemeal extensions of three months at a time, question marks loom over the operation and the today very questionable proposition to reach another multi-year concession agreement with a qualified operator. This all endangers what in the words of BCTC general manager Ziad Kanaan was the successful creation of an industry. He tells Executive enthusiastically, “This project has in our opinion been the most successful PPP project in Lebanon.” 

One could easily argue that any further deepening of the past year’s economic policy and financial liquidity problems besetting Lebanon’s external trade can only be detrimental for the future trans-regional and international trade position of Lebanon if the ongoing challenges for finding better governance and national maritime coordination among Lebanese ports remain unsolved. The last two decades of gains in the utilization of the well-managed Beirut container terminal are an asset that must not be eroded.  

Journalist Walid Sleiby contributed to this story. 

Shipping activity in the Beirut port contracted by 50 percent in the first 6 months of 2020 when compared to the port’s performance over the same periods in the past four years.
The operational recovery of the port’s trade heart was achieved by August 10, the start of the next workweek after the devastating explosion.

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Nabil Makari

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