Factory to Market: How Freight and Local Handling Costs Impact Net Stripped Value

As part of the commercial agreement between BSI and farmers, the price of sugar cane is determined by a formula which calculates the Net Stripped Value (NSV) of sugar and molasses. Once this value is calculated, 65% goes to farmers and 35% to BSI as miller. NSV of sugar and molasses is essentially determined by deducting (stripping) from the gross proceeds of all sugar and molasses sold (local and export), those costs that are incurred in getting the sugar from factory to market.

In the case of export markets, which is roughly 90% of production, the most significant costs are:
1. Local Handling – transporting and handling sugar from the factory at Tower Hill to ocean going ships anchored offshore Belize City using a fleet of tugs and barges. This service is provided by BSI on the basis of a Handling Charge that is reviewed periodically. The current charges for handling export sugar and molasses have been in effect since the 2009 crop and are BZ$76.89 and BZ$49 per ton respectively.
2. Stevedoring – loading the sugar from barges to ship. This service is provided by the Port of Belize (POB) and the costs are as invoiced by the POB.
3. Freight – transporting the sugar from Belize to the export market, mainly Europe. This service is procured via external shipping brokers and the costs are as contracted for particular vessels.

One of the key challenges to growing the sugar industry in Belize is the slow, inefficient and costly logistical process for getting raw sugar to the export markets. The absence of a proper deep water port facility within range of the Tower Hill mill means that sugar needs to undertake a long, 122 mile trip up the New River and down the coast to load sugar directly from barges onto export ships. The size of the grabs the ships have to use, and the absence of modern loading gear, mean ships can be in Belize for three to four weeks loading the sugar. A similar sized ship could be loaded in less than 24 hours in countries with mechanical port facilities.

The logistics limit the size of ships that can be contracted to load in Belize given the slow loading rate of around 700 tons a day. The use of small vessels adds to the cost and in addition are harder to contract, because there are fewer and fewer being built. Those that can be contracted demand a higher price because of the slow loading arrangements.

Given current constraints, it is important to have a good system in place for getting the lowest costs possible. Tate and Lyle Sugars (TLS) co-ordinates the freight. TLS shipping agents have a good knowledge of the market and the the freight companies that use smaller vessels. They put this knowledge together to look for the best deals, including when to fix freight contracts for shorter or longer terms, depending on the market conditions. All freight contracts then go out to competitive tender to ensure the best prices. This all helps reduce the cost for both BSI and farmers.

Longer-term, increasing loading rates to reduce freight cost is a high priority for BSI, and a pre-requisite to growing the industry. This will require major investment, as it will require modernisation of the fleet and new loading facilities. BSI is in discussion with government and development partners
in search of a solution.

Posted on April 7, 2015 .