Cuba Q&A With Jay Brickman
Q: How many sailings does Crowley currently have between the US and Cuba?
We have six sailings a month going to Cuba. We have two to three sailings per month going out of Gulfport to Havana. We will also set up a service where we will issue a Jacksonville bill of lading but rail the cargo down to Port Everglades. We will then use the Wednesday vessel going to the Southern Zone which probably won’t be every week but will be about three times a month; so between the gulf coast and the Port Everglades sailings we should have about six sailings per month.
Q: Will there be any cargo departures via ocean to Havana from Jacksonville?
For the moment, no.
Q: Which ship or ships will service this route?
Out of the Gulf it’s easy; it’s the Gothica. Out of the East Coast (Port Everglades) it’s harder to say because those ships rotate. It depends on which one is there on Wednesday that is going to the Southern Zone. But, from both the Gulf and the East Coast both ships will be RO/RO.
Q: About how many containers go to Cuba in a week or in a shipment?
What we would like to have are about 40 containers per week out of the East Coast and 50-60 containers per week out of the Gulf Coast.
Q: What is the cargo?
The interesting thing about Cuba is that before trade was opened in 2000, out of 266 countries, Cuba was in last place on the U.S list of imports from the U.S. in agricultural products. Today Cuba is the 26th largest importer of agricultural products from the U.S. and it’s either the second or third largest importer of rice and frozen chicken. So, the trade has grown substantially and Cuba has begun to play a significant role in certain agricultural sectors exporting from the U.S. The largest U.S. exports to Cuba are grain products which move by bulk carrier. That is not Crowley’s expertise. In the container section, the market is still small and it represents a very small percentage of Crowley’s container movements in the Caribbean. Crowley carries mostly packaged food products. It is Crowley’s feeling that U.S./ Cuban trade will grow and that Cuba will be a very significant market in the future.
Q: How is that happening with trade sanctions? Is it because it is considered humanitarian goods?
The law says that humanitarian, agricultural and medical supplies can go to Cuba. The interpretation of agricultural extends from food to wood pulp to lumber because all those things grow. What our government has done now is that they have changed the terms of cargo delivery. Previously they allowed goods to go to Cuba but said payment had to be received prior to the goods being released to the Cuban government. Now they have said that goods cannot be placed on a ship in the U.S. bound for Cuba until a cash payment is received or Cuba can use third country financing with a letter of credit.
Q: Can you explain to me how the letter of credit works in trading with Cuba? Is it the same as other countries that require them as well? At which point does the actual transaction occur — is it when the ship is en route to the load port?
A little background on this. The present trade with Cuba is governed by the Trade Sanctions Reform and Export Enhancement Act of 2000. This Act defines which products may move from the U.S. to Cuba and it also stipulates that there may be two methods for payment: Cash payment in advance and financing by third country financial institutions. Until recently, the cash payment in advance has been interpreted as receipt of payment before transfer of title and release of physical control of goods. It is now said that what this term means is payment before the cargo is placed on the vessel to leave the United States. In relation to financing by third country financial institutions, there is some question as to the full interpretation of this item but certainly, letters of credit would be one way to have financing by a third country.
In relation to how the letter of credit works. Letters of credit were created in the 12th century in order to resolve the concerns for payment and delivery of goods between the buyer and the seller. There are a number of different types of letters of credit and terms and conditions are negotiated between the buyer and the seller. At this point I do not think that there is a template letter of credit with boilerplate terms specifically for US – Cuban trade. Until that happens I am not sure that there is a standard time as to when the “transaction” actually occurs…or what exactly “transaction” means.
The letters of credit, which might be used in this trade, are similar to those used in regular international trade. The one basic difference is that a letter of credit cannot be opened in Cuba against a U.S. bank. In normal practice a U.S. bank would be permitted.
Q: What is the state of the Cuban dollar in relation to the U.S. dollar?
There has been a change. Up until very recently you could go to Cuba with U.S. dollars and they were accepted as legal tender. The official exchange rate of a Cuban peso is 25:1, which is not a real market exchange. The Cuban government has changed its policy and you can no longer spend dollars in Cuba. If you go with dollars you have to buy what is called a convertible peso and there is a 10% tax on buying them. So now effectively the dollar is worth 90 cents towards a Cuban peso.
Q: Do you foresee an increase in southbound cargo to Cuba as a result of the letter of credit mandate?
First a word about Office of Foreign Assets Control (OFAC). They have a very difficult job. They have to work in an environment in which there are a number of differing opinions. No matter what they do in any given situation they will never have 100% agreement. Specifically on the interpretation of “cash in advance” there are some problems. This is a very conservative way of doing business. In addition to that, it raises concerns from the Cuban point of view as to whether goods paid for in advance in the US could be held to stratify various US Court rulings. It is fair to conclude that goods will not be shipped under this condition. The “old” method of payment before transfer did work and to the best of my knowledge everyone was paid in full for their shipments. The change in payments terms will negatively impact this trade.
The changes do put the U.S. producers at a disadvantage. It does increase the cost of the transaction. So, the first thing we are going to see because of this change is a dip in trade until the Cuban government decides exactly what it wants its policy to be. Letters of credit cost money. Following this dip in trade we hope to see a resumption of what we see today.
Q: Are there several third party countries that have come forward willing to issue this credit?
Sure, that isn’t a problem. Currently Cuba does international banking all across the world except in the U.S.
Q: Are there any pitfalls that a shipper could conceiv- ably run into with the letter of credit if he or she is unfamiliar with the process?
No matter which trade you may mention, letters of credit can have a number of pitfalls. If shippers are unfamiliar with the terms of a letter of credit they should definitely seek the professional support of an international bank or international freight forwarder.
Q: How do the Cuban people feel about receiving U.S. goods?
U.S. goods have had a significant impact in Cuba by having higher quality goods and more goods available, that’s been clearly recognized. For example when there was the chicken flu in the U.S. and chicken exports were stopped for a while, I literally had people stop me on the street who knew who I was or who I worked for and ask me where the chicken was. So, they appreciate the goods coming in.
Q: Is there a shift toward having more open trade?
From the Cuban point of view, trade is welcome; from the U.S. perspective, there are still restrictions.
Q: In general, are the U.S. manufacturers and farmers willing to ship to Cuba or are they hesitant because of the politics?
No, much to the contrary. When you look at the Craig Bill which is in the Senate right now it expresses the desire of citizens who want this trade to be left alone to grow. Everyone who ships to Cuba has been paid on time, there has never been, up until now, a bad debt and they are very vocal about wanting to improve the trade.
Q: Is Crowley still shipping cows? What else have we shipped?
Yes, we shipped more cows last month. We have had bison, sheep and goats as well. It could be a regular shipment, if we would give the Cuban veterinarians the visas to come over and do agricultural inspections.
Q: Do you see any development in the ability of the U.S. to import goods from Cuba or is it going to continue to be a one-way trade at this point?
At this point it will continue to be all southbound because U.S. law does not permit any imported goods from Cuba.
Q: Are you a proponent of trade to Cuba?
I have been going to Cuba for Crowley since 1978. There were times when we could go and times when we couldn’t. From a purely commercial point of view, Cuba is the largest island in the Caribbean with 11.2 million people. Though at present it doesn’t have a high per capita income, it used to and it could again. When we look at Puerto Rico, it has about 3 million people and we understand the significance of Puerto Rico. Cuba could be something similar for Crowley. In some sectors such as poultry and rice, Cuba is a key market. If the sanctions were lifted, there would be a tremendous growth potential for U.S. goods and services. The additional trade would create a large number of new jobs in the U.S. and it would enable Cuba to use its resources to purchase more goods and services. If the sanctions were lifted it would also enable Cuba to export to the U.S. That would create more jobs in Cuba and facilitate even more imports from the U.S.
The Cuban market presents the opportunity for the U.S. to export of a large spectrum of goods and services. The list really goes from A to Z.