Transport & Logistics - Cyprus Profile

Transport & Logistics

Capitalising on Geographical Location

In a triumph of ambition over size, Cyprus has emerged as a key regional transport hub, capitalising on its strategic location to attract multi-million investments in ports and an oil terminal – while more airlines jet in.

Significant investments by global heavyweights such as Dubai’s DP World and the Netherlands-based oil terminal company VTTI reflect a strong vote of confidence in Cyprus’ future as a strategically located hub for inter-regional maritime trade, both in goods and hydrocarbons. Seaborne passenger traffic is also set to grow rapidly after the recent revitalisation of Limassol’s multipurpose port where DP World opened a new passenger terminal in summer 2017. Cruise ships will also be able to dock at Larnaca port once it is redeveloped and expanded, again with major foreign investment. Cyprus is already profiting from record tourist arrivals by air, with new airlines establishing to meet growing demand.

Already a maritime transhipment hub, Cyprus is well-positioned to serve airborne cargo, which is a growth area. Meanwhile, the ability to handle big increases in air or maritime traffic boosts Cyprus’ standing as a strategic base for international reconstruction or relief efforts in the volatile region. The island is also being touted as a safe and secure staging and supply post for material and personnel to reconstruct Syria when the time comes. Cyprus has valuable experience in this role. It helped to evacuate tens of thousands of foreign nationals from Lebanon in 2006 during Israel’s military offensive against Hezbollah. Such relief efforts boost Cyprus’ geopolitical importance to its allies in the EU and beyond.

Multipurpose Ports

Limassol port is now a key regional hub of maritime commerce in the south-eastern Mediterranean following its successful privatisation in 2016. With a significant inflow of investor funds, it is now well-equipped to compete with regional rivals such as Piraeus and Haifa. The tender attracted big-name operators from around the world, with the winning bids going to German Eurogate International GmBH, as the majority participant, along with Interorient Navigation Company Ltd and East Med Holdings SA for the container terminal, and Dubai DP World Limited, as the majority participant, and G.A.P Vassilopoulos Ltd for both the marine services and multipurpose terminal. These companies are investing heavily in Cyprus.

The Eurogate consortium, for instance, has invested €1.8 million in a high-spec information technology system that processes the information flow at high speed between customs, clearance and the customer, who can receive the container just 20 minutes after a ship berths at Limassol port. This results in less cost for shipowners and customers as this procedure previously could take an entire day. Eurogate has also invested €16 million on buying two bigger and more modern gantry cranes from Italy that it expects to be operational in September 2018. It has reserved two key sites at the port where it can swiftly erect another two cranes to handle expected growth in demand for transhipment activities.

The operators of Limassol’s redeveloped multipurpose port were ahead of the curve in seeing the increased importance of the East Mediterranean in world shipping. This increase has resulted from enhanced trade, regional port expansions, the discovery of natural gas deposits in its waters and the recent expansion of the Suez Canal, which currently handles 7% of global maritime trade. The investment that went into expanding and modernising Limassol port not only improves the necessary infrastructure that gives Cyprus a competitive boost but helps to generate revenue for the country. The deal to commercialise Limassol port will add around €2 billion to state coffers over the next 25 years, and €100 million in planned infrastructure investment by the new port operators. DP World, for instance, says it will be investing in all aspects of the port, including off shore oil and gas, multipurpose general cargo, roll-on and roll-off, and further development of the new cruise terminal. Similarly, the forthcoming privatisation and expansion of Larnaca port and marina will also generate significant revenue for the state.

Larnaca’s attraction as a tourist destination is set for a dramatic boost this year with ambitious plans to expand, redevelop and privatise the city’s port and marina. Three international consortia have submitted tenders for the project, and development work is expected to begin in 2018. The aim is to transform Larnaca’s existing port into a functional harbour, which will be able to host large cruise ships and mega yachts. The marina is to be one of Cyprus’ largest, with around 1,000 berths, including some for superyachts.

Cyprus is in a favourable position to act as a stop for cruise ships, being in the eastern Mediterranean, it is a single day’s sailing from destinations such as Rhodes, Crete, Alexandria and Port Said. Although the main aim is to boost Larnaca’s attraction as a tourist destination, the project presents excellent investment opportunities, combining commercial port and passenger activities with leisure and real estate development. The port and marina’s redevelopment will cover an area of 510,000 square metres, with the winning investor having the option to construct a hotel, apartments, villas, shopping areas, offices, restaurants and recreational and sporting venues. The three bidders for the project were Peninsular and Oriental Steam Navigation Company with Cabo Marina S de RL, the Amba Ltd & Israel Shipyards Ltd, and the China Communications Construction Company Ltd. Plans for the project were delayed for years because of the difficulty of finding an investor with sufficient funds, a situation aggravated by the 2013 financial crisis.

An additional prospect, which has been floated for years and was recently revived at a trilateral summit, is the long-standing proposal by Israel to build a specialised port in Cyprus to handle cargo ships carrying goods destined for Gaza. The request is being re-examined by Cyprus, but no decision has been made whether these plans are to go ahead.

Efficient Infrastructure

Responding to increasing interest from major shipping lines to choose hub ports in the region, Cyprus has consistently raised the bar and adapted its port systems to cater to the demands of international trade. The island’s two deep-sea ports of Limassol and Larnaca have been extended three times since their construction in the mid-1970s. Over the years, Cyprus has transformed itself from being a small break bulk handler exclusively serving domestic imports and exports, to a fully-fledged container and cruise port hub for international trade, shipping and passenger services. In recent decades, Cyprus has invested in developing an efficient transport and communications infrastructure to support all sectors of the island’s economy.

Cyprus’ impressive performance in the infrastructure rankings of the Global Competitiveness Report 2017-2018 of the World Economic Forum reflects the government’s proactive drive to be ready to seize the lucrative opportunities offered by regional and global developments. Cyprus ranked 30th among 137 countries in the latest report, up from 50th place in the 2016-2017 report. In terms of the quality of its air transport infrastructure, Cyprus ranks 27th, up from 44th in 2016-2017. As for the quality of port infrastructure, Cyprus was in 46th place in 2017-2018, up from 61st place in 2016-2017.

The Hydrocarbons Bonanza

Ports, terminals and logistics services companies in Cyprus are already reaping rewards from the discovery of natural gas riches in Israeli, Cypriot and Egyptian waters. The benefits are accruing even before any Cypriot gas is extracted and monetised. This is important because if objections by Turkey delay the exploitation of Cyprus gas, they are not stopping revenue from ancillary services. Cyprus-based companies are capitalising on the island’s geographical location to offer logistic support to major oil companies operating in the various gas fields. The island can also offer the same specialised support to its regional neighbours – such as storage, servicing supply vessels, repair and maintenance. Gas pipelines destined for Egypt’s huge Zohr gas field, for instance, are unloaded and stored at DP World’s facilities in Limassol port before being reloaded and shipped to Egypt. The pipelaying vessel for Zohr was also mobilised in Limassol, where DP World sees itself as the provider of the logistics base for international oil and gas companies such as ENI of Italy or ExxonMobil of the US to undertake offshore activities.

From Limassol Port, DP World can support three offshore explorations at any one time in the eastern Mediterranean. Expecting rapid growth in demand for such services, DP World has designated a large area of Limassol Port to support the offshore gas industry. It has a bulk handling plant, a pipe storage plant and vessel-loading equipment, and three covered bonded areas where goods can be stored in transit, supply vessels can be serviced, and repair and maintenance provided. Being able to offer these specialised services to its regional neighbours gives Cyprus added muscle as it strives to become the region’s pre-eminent energy trading hub. Moreover, as an EU member with an established and secure international business centre with an attractive fiscal regime, Cyprus can also provide good administration, and banking and legal services to the sector.

Growing Fuel Storage Hub

Cyprus is fast becoming a significant regional fuel storage, processing and re-export hub for Europe, the Middle East, Asia and Africa, thanks mainly to the sophisticated terminal at Vassilikos, situated between Larnaca and Limassol. It is operated by VTTV, the Cyprus subsidiary of Rotterdam-headquartered VTTI, a leading provider of energy storage facilities worldwide, which describes Cyprus as the ‘Mediterranean’s new energy hub’, although the €300 million project was conceived before the discoveries of large gas fields in the East Med. VTTV’s operations do not involve gas or crude oil but rather white or ‘clean’ products – those which have already been refined, such as diesel or middle distillates. These are shipped to Vassilikos from producers in the Gulf or the former Soviet Union.

The specifications of these refined products do not always meet those required by the markets for which they are destined. At Vassilikos, VTTV alters the product by processes such as distillation or blending to get the specifications required by, for example, the European market. With large refineries operating and more being built in the Middle East, the international market expects more product-vessel traffic through the Suez Canal, bound for the European and Mediterranean markets. These cargoes need to be resized or blended with other products to change specification and meet regional requirements. VTTV’s strategic location makes it the first terminal of its kind in the eastern Mediterranean offering these services and connecting Europe and the Black Sea with markets in the Middle East and Asia. Product fuel oil from the Black Sea area heading to markets in Asia must first be transported in small ships because of shallow waters in the Bosporus. At Vassilikos, VTTV helps to ‘build bulk’ and processes the cargo to the correct specifications required by the end-user before much larger vessels from Asia arrive to take the fuel home for ‘burning’.

Such business is facilitated by the proximity of Limassol, which is home to a strong maritime cluster. The VTTV terminal currently comprises 28 tanks and has a capacity of 544,000m3, a 1.5 km-long deep water marine jetty and four berths that can accommodate vessels from 5,000 to 160,000 DWT, and a fully automated road tankers’ loading facility. A second phase, involving further significant investment, is currently under evaluation which would create 13 more tanks and further capacity of 305,000m3.

Vassilikos is also benefiting from the growth in ship-to-ship cargo transfer operations in the eastern Mediterranean usually involving petroleum products. Most transfer takes place offshore, which saves on port fees. However, when this is carried out at jetties, it is safer, less affected by weather conditions, and reduces the possibility of spillages, which can cause environmental damage at sea. With Vassilikos being ideally located for this business, VTTV is attracting more such transfers at its jetties and is in talks with the Cyprus authorities to reduce port charges to encourage such traffic.

Global Air Links

Cyprus’ two international airports recorded phenomenal growth in 2017 with 10 million passengers passing through the terminals at Larnaca and Paphos, a year-on-year increase of 14%. Hermes, the terminals’ management company, now expects growth to stabilise at around 5% in the coming years. This success is a vital boon for the island economy because of its reliance on tourism, international trade and global business. Directly, the airports contribute more than €500 million to the economy, corresponding to approximately 3% of Cyprus’ GDP, and provide thousands of jobs. The rapid growth in passenger numbers largely stems from Cyprus’ adoption in 2014 of an Open Skies aero-political strategy that aimed to lift any restrictions in terms of the number of designated airlines, frequencies, types of aircraft, cargo and charter flights. This guaranteed Cyprus against any negative repercussions following the demise of Cyprus Airways in January 2015. Four new airlines rushed to fill the vacuum. TUS Airways was first out of the blocks, then Cobalt Air, Charlie Airlines, which now operates under the Cyprus Airways brand, and finally Orion Airways.

None has grown faster or performed better than Cobalt Air, a start-up whose long-term aim is to transform Cyprus into an air traffic hub to rival Dubai. Cobalt launched in mid-2016 with just one aircraft and today constitutes Cyprus’ biggest domestic fleet with six Airbus A320-family aircraft flying to 20 destinations across Europe, the Middle East and Africa. Cobalt carried 750,000 passengers in 2017, four times as many as during its first year, and is on course to increase to one million in 2018. Today Larnaca and Paphos airports are served by over 70 airlines, operating to 120 destinations in 40 countries. As a result, Cyprus is enjoying ever-expanding air connectivity and better services during the winter months, which is helping the hotel and hospitality sector.

Processing, Re-Exporting and Transhipment

The redevelopment of Cyprus’ ports and its ever-improving air connectivity is supporting the expansion of logistics services companies. They are investing heavily in technology, equipment and warehousing as they expand to meet growing demand for transhipment, processing, and re-exporting services. A leading company in this field is Eurofreight Logistics, whose core activities are pharma and foodstuff logistics and e-commerce. As well as facilitating trade between East and West, the company has clients in countries such as Germany, Switzerland and Britain that send pharmaceuticals and cosmetics to Cyprus for processing and then have them sent back home. Even with transportation costs, it is still cheaper for such companies to process their products in Cyprus thanks to tax savings. Among other projects, Eurofreight helps a client in China to export its products to the Middle East in a fraction of the time it previously took. It used to take the Chinese company 30 days to send its goods by ship. Now the company flies these to Larnaca, where Eurofreight Logistics handles the order, paperwork and labelling before forwarding them on another aircraft. Delivery time has been slashed to less than a week. Eurofreight now looks forward to repeating the success of this project with clients in Greece, Egypt and Spain. Another major transport and logistics concern is G.A.P Vassilopoulos Group, which handles the multipurpose terminal at Limassol port in partnership with DP World and marine services at the port in partnership with P&O Maritime. The group provides sea freight, air freight and land forwarding services through its representation of DB Schenker, as well as specialising in freight forwarding by air and land, warehousing and distribution.

Growing Transport Hub

Having astutely leveraged its strategic location to attract major foreign investments in the infrastructure needed to facilitate international trade in goods and hydrocarbons, Cyprus has a bright future as a transport and logistics hub. The other necessary elements were already well-established – a world-class shipping industry, a deep pool of highly qualified human talent, a vibrant professional services sector, and a pro-business government committed to safeguarding Cyprus’ attractive, EU-approved tax regime. At the same time, innovative and ambitious new airlines such as Cobalt Air are determined to help transform the island into a major air traffic hub.

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September 2018

Cooperation Partners