US embassy cable - 05DJIBOUTI699

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000699 
 
SIPDIS 
 
STATE FOR AF, AF/E, AND EB 
 
E.O. 12958: DECL: 07/14/2015 
TAGS: ECON, ETRD, EWWT, ELTN, DJ 
SUBJECT: THROUGH-BILL-OF-LADING A CONCERN FOR DJIBOUTIAN 
TRANSIT COMPANIES 
 
Classified By: Pol/Econ Erinn C. Stott for reasons 1.4 (b) and (d). 
 
1. (U) Summary: The number of freight forwarding businesses 
in Djibouti has greatly increased since Ethiopia's shift from 
the Port of Assab in Eritrea. The existing companies complain 
that many of the new freight forwarding companies are causing 
unfair competition by skirting many of the expensive 
regulations and offering lower prices. Transportation through 
the Ethiopian-Djiboutian corridor is virtually monopolized by 
Ethiopian trucks, which are more competitive than Djiboutian 
trucks because they have lower overhead and are willing and 
able to take payment in Birr. The local companies also end up 
monopolizing other related sectors by obtaining 
through-bill-of-lading arrangements. A less important worry 
at the moment is the future of freight forwarding once the 
proposed container terminal is completed at the Port of 
Doraleh. End Summary. 
 
2. (U) The Port of Djibouti accommodates all seaborne imports 
and exports destined for its huge landlocked neighbor, 
Ethiopia. Ethiopia stopped using the Port of Assab in Eritrea 
after it went to war with this country in 1998. Official port 
statistics show that 2.29 million tons of goods and 1.29 
million tons of fuel were imported to Ethiopia through 
Djibouti in 2004. The quantities were 2.59 million tons and 
1.24 million tons respectively in 2003. On the other hand, 
Ethiopian goods equivalent to 433,470 tons were exported 
through the Port of Djibouti in 2004 and 338,889 tons in 
2003. Entities called "freight forwarding companies" handle 
all the documentation necessary to clear the goods and charge 
them on the trucks going to Ethiopia. 
 
3. (U) Ethiopian trucks carry ninety-nine percent of the 
transportation of commodities destined for Ethiopia or for 
the Port of Djibouti. At first, some Djiboutian entrepreneurs 
ventured to get a share of this lucrative business in the 
Ethio-Djiboutian corridor. This was quickly discouraged by 
their Ethiopian competitors who offered better rates and did 
not hesitate to accept payment in Birrs, the Ethiopian 
currency. Djiboutian counterparts have high overhead costs 
and can't accept Birrs for payment because there is little 
demand for Birrs in Djibouti, which makes exchanging fees 
collected difficult. Ethiopian customers also prefer to pay 
in Birrs and keep US dollars for purchasing goods from abroad. 
 
4. (C) The Port of Djibouti published a list of 35 official 
freight-forwarding companies, which reportedly fulfilled the 
legal requirements to establish and operate in Djibouti. A 
large number of these were created in the last few years to 
take advantage of Ethiopian cargo. The long-established 
freight-forwarding companies complain that there are 
companies not listed as official which continue to operate 
and that other listed companies avoid some legal requirements 
because of relations with high government officials. An 
committee created by the Government in 2000 to screen 
companies and deliver licenses to eligible freight-forwarding 
companies quickly lost its effectiveness after it became 
clear that the Minister of Transportation was personally 
approving companies refused licenses by the committee. These 
companies reportedly do not pay taxes or other duties so can 
afford to offer low tariffs, making competition unfair. 
 
5. (SBU) Djiboutian freight-forwarding companies have 
expressed resentment over lengthy delays in payment by their 
Ethiopian customers. Ethiopians must pay in US Dollars, which 
are obtained from Ethiopian government owned banks. The 
Ethiopian government's lengthy bureaucracy causes 
availability of dollars to be limited and it reportedly often 
takes up to three months to obtain dollars. Some Ethiopian 
customers take advantage of this situation by paying as late 
as six months. A few years ago, the total bill owed by 
Ethiopian companies to Djiboutian freight-forwarding 
companies amounted to more than 3.4 million USD. The 
Djiboutian government did intervene with Ethiopia to resolve 
the problem. 
 
6. (C) Djiboutian freight-forwarding companies are concerned 
about the through-bill-of-lading Ethiopia has been pushing 
for. It is an arrangement whereby purchased goods are handled 
at every level from supplier to receiver by a single bill of 
lading. It is a door-to-door system where the Ethiopian 
customer deals directly with the shipping line. The 
Government of Djibouti accepts in principle the process of 
through-bill-of-lading because it is a modern system and will 
speed up the goods transfer process. However, the GOD is 
concerned that it will give a monopoly to the Ethiopian 
Shipping Line (ESL) at the detriment of the Djiboutian 
shipping, freight forwarding and transit companies. Local 
companies fear that ESL will only give its business to 
Ethiopian Maritime and Transit Services (EMTS) and Ethiopian 
owned trucks. Also, if ESL becomes the only shipping line 
handling Ethiopian goods, there is a possibility that it 
might dictate its conditions to the port as well as to 
Ethiopian customers. The issue of through-bill-of-lading is 
still on the table between Ethiopia and Djibouti and has not 
yet been approved for use. 
 
7. (C) Concerning the Port of Doraleh project, freight 
forwarding companies interviewed by the Embassy unanimously 
said they did not have enough information about the subject 
to comment on its impact. Other companies in other fields 
stated to us that the Djiboutian government did not consult 
them on the project, thus they did not feel a part of it. 
They found it illogical for the government to ask them to 
invest in a project completely unknown to them. Yet, the 
freight forwarding companies said they hoped to have the 
opportunity to operate in the Port of Doraleh when it is 
completed. They expressed concern that Dubai Ports 
International (DPI) would eventually monopolize the freight 
forwarding market. Many companies also said that the interest 
of DPI in the Port of Aden could prove detrimental to the 
success of the container terminal at the Port of Doraleh. 
RAGSDALE