Prime Minister Joseph Muscat last week told a conference that he favoured creating a series of free trade warehouses rather than extending the Freeport further inland. The part about the Freeport did not go down very well with the UĦM but the idea of free trade zones – and the logistics sector that it would nurture – has been long anticipated by the freight sector.
Peter Bonavia, the general manager of Carmelo Caruana Co. Ltd, is one of many who spoke to The Business Observer saying that the creation of zones would serve as a catalyst for the growth of logistic services, mainly sea and road freight.
“Considering the geographical location of Malta, it would be expected that the growth will be mostly in ocean freight but one cannot exclude that road and air will also benefit.
“Malta as a logistics hub combines the advantages of being a gateway to the European Union and also of being a short distance away from the main ports feeding the North African countries.
“Another advantage which a country like Malta should leverage is the short distance connecting the main hubs – the airport, the Freeport and the economic zones.
This is a considerable advantage since in practice it should save considerable costs on commuting and manpower,” he said, warning, however, that Malta still lacked the infrastructure required.
Kevin Attard, the CEO of Attard Holdings, agrees that Malta’s location makes it a natural crossroads for logistics – stressing that this would grow on the achievements of the past.
“Malta is extremely well connected on daily basis to the rest of the world by air and sea and Ro-Ro ferries which over the past years have brought imports and exports to the next level,” he said, although he too warned about some shortcomings, picking on bureaucracy: “It is about time that we change our mentality and reduce the additional bureaucracy – and inflated charges – if we want to attract foreign companies to make more frequent use of Malta.”
Malta as a logistics hub combines the advantages of being a gateway to the European Union and also of being a short distance away from the main ports feeding the North African countries
He pointed out that major players had already made considerable investments but that their actual and potential contribution were not being appreciated.
Speaking about bureaucracy, he said that although Malta had always been on the frontline of innovation when it came to customs procedures, this remains one of the most important pillars for the industry as the most important competitive advantage for a hub was its transit times.
The need for ‘fast track’ customs procedures was also picked up by John Zerafa, the director of Freight Zone Logistics, who said that Malta had much to gain by being competitive in both costs and time.
“Malta is continuously competing with other European & Mediterranean ports and must ensure that its ports, inbound/outbound freight, and transport charges are commercially viable – coupled with ‘fast track’ customs procedures,” he said.
Freight Zone Logistics is actively involved in transhipment from Asia to Europe and he believes that the right infrastructure – including warehousing facilities in free trade zones – would facilitate this activity.
However, the changes would have unintended – and positive – consequences for other economic sectors: “We would expect to see a rise in cargo movements in and out of Malta. As a consequence of the rise of cargo volumes, we may experience a reduction in the overall freight costs,” he said.
It would also bring in more competition for local operators: “The logistical infrastructure is pivotal if we are to attract international traders and freight logistics companies to use Malta as a distribution hub i.e. by road, sea and air, as a gateway to Europe and North Africa. On the other hand, in today’s exceptionally competitive world, free trade zones in the Mediterranean are only successful if they are competitive.”
The issue of customs was brought up by another operator who wants to see concrete change: Franco Azzopardi, the chairman and CEO of Express Trailers, explained that customs bonded stores currently serve the purpose of warehousing outside customs zones.
“The main advantage of bonded stores is that it economises on customs warehousing costs – which are based on the value of the cargo rather than on volume. That said, under the current bonded stores regime, administration and also formalities in terms of customs supervision remain a burden.
“Free trade zones are a welcome proposal. However, it is still unclear what will differentiate them from the legacy bonded stores. No mention seems to have been made yet of both regulatory port workers fees, and also terminal charges. Will these cost burdens remain the same?” he said.
Mr Azzopardi also pointed out that for non-EU destined cargo, the bottleneck could be the amount of private warehousing space available, properly supported with the set-up in terms of equipment, IT and management. He also worried that the road capacity to handle carriage from port to warehouse and back could be strained – depending on the volumes being envisioned.
“We do not seem to have a researched opinion on the scalability of this capacity. It all depends on the quantities being attracted to Malta.
“If the cargo is warehoused in a FTZ for onward clearance and carriage to EU countries, it is most probable that roads, and Ro-Ro connectivity will be affected. The capacity of the roads to handle any envisioned magnitude remains a function of that envisioned magnitude of additional cargo.
As for the capacity of Ro-Ro mode of shipment to mainland Europe, there is still a lot of volume both in trailer space and on the vessels that can be utilised for the purpose,” he said.
The need to get proper data and to plan accordingly was also brought up by Kurt Camilleri, managing director at O&S Shipping Ltd.
Free trade zones are a welcome proposal. However, it is still unclear what will differentiate them from the legacy bonded stores. No mention seems to have been made yet of both regulatory port workers fees, and also terminal charges. Will these cost burdens remain the same?
“Developing Malta into a logistics and transhipment hub would certainly attract bigger freight movements and lure foreign trade and investment, but one must look at a long-term plan which is well-defined, with more flexible and practical laws,” he said.
While the current infrastructure seems to coping well, they would require investment in personnel, machinery, new technologies and possibly even land to support the industry, he said.
“With regards to roads, one must have the proper infrastructure and connectivity between the ports and the free zone warehouses. Increased freight traffic must not conflict with other daily routines such as tourists passing through MIA and people accessing the industrial estates and factories close by.
“Freight lanes, road, rails and tunnels are all possible means of transport, but as I said, one has to study this well.”
He also believed that this could have a positive effect on other sectors in Malta: “Where there is demand there’ll be supply. Air lines, shipping lines and freight carriers will follow to meet the demand for connectivity to and from the islands. Local industry might benefit from more frequent sailings, shorter transit times and new destinations.
Attrans sales & business development manager Kevin Filletti praised the possibilities, sure that all the effort would be worth it: “The opportunities for Malta with its strategic position in the Med and as an EU member state are immense.
“The logistics sector could be one of the island’s main industries and would create new job opportunities. We could attract various commodities as an FTZ eliminates bureaucratic requirements such as customs tariffs and quotas.
“We could use our sea connectivity from the Far East to warehouse goods in Malta under FTZ and then despatch by sea, road or air to mainland EU or North Africa.”
A typical activity carried out in an FTZ area is the onward supply relief (OSR). This is a VAT exemption on importing goods to Malta from a non-EU Country.
Once despatch is done, duty is paid in Malta and cargo can travel freely in the EU under free circulation.
“Considering the imbalance of trade between importation & exportation FTZ would help trailer operators like us decreasing our costs on north bound routes. This could close the gap between import/export.”