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Published: September 2017      

Mixed picture for Latin liners

While cargo fl ows to/from Latin America have risen this year, overcapacity remains a problem on several routes, and freight rates remain at near historic Lows.

The ongoing overcapacity problem in the Latin America trades means that ocean carriers – many of which are facing the challenges of phasing in much bigger tonnage – are continually switching partners, as they seek better ways to serve the market. Then, there has been the opening of larger locks on the Panama Canal, and the new opportunities this has presented carriers with.

The trades to/from Latin America have been in rude health this year according to data published by UKbased Container Trades Statistics (CTS). The region's exports were up nearly 21%, and imports were up by just over 4%. On the key Asia corridor, exports, which have been propelled by primary products and reefer cargoes, jumped by 74.4%, and imports, largely fuelled by rising consumption in Brazil and to some extent Chile, rose by almost 7% to 1.96M TEU (see accompanying table).

Despite rising trade, overcapacity remains in the market, and freight rates are poor, with the CTS pricing index in the 50-60 point range for exports and 60-70 for imports. Therefore, cost-cutting remains important for all carriers involved in the market.

To date, the opening of the enlarged Panama Canal has not had a significant impact on the way carriers serve the region, although this might change. However, it is unlikely that there will be a wholesale shift by carriers to hub in the Caribbean/Central America basin and feed ECSA ports, for instance.

Going direct

The Asia/ECSA and Europe/ECSA trades have a critical mass of cargo that, in most cases, justifies direct call operations. In the northbound directions, perishable products comprise a sizeable proportion of the traffic, and shippers/ consignees of such cargo do not like transhipment. Meanwhile, in the case of the Asia trade, many services are routed via southern Africa, and this provides lines with multiple and highly valuable cross-selling opportunities.

Interestingly, recent months have seen an expansion of services to/from Europe, with CMA CGM, MSC and Hapag-Lloyd adding or extensively revamping existing strings, and phasing in larger ships. It is thought that some of these moves are designed to counter what Maersk and Hamburg Süd may be planning for the trade when their merger is completed later this year.

However, there are fundamental commercial and operational reasons for the moves, too. First, they reflect ongoing growth in northern Brazil’s reefer exports. Second, they are in response to the increasing needs of producers/processors to move cargo through local ports, and to have access to strings that can offer faster transit times to the consumer markets.

The latter is particularly important, as landside infrastructure in Brazil is generally poor, and the network of cold stores limited. Therefore, it can take a long time to move cargo to the major container ports, which are mainly located in the southern part of the country. This raises the risk of cargo being damaged or having a limited shelf life once it arrives at the store.

In the case of MSC and Hapag-Lloyd, the new loop uses nine ships of 9,000 TEU, with a reefer capability of 1,325 containers, and calls direct at the northern Brazilian ports of Salvador and Pecem. In particular, the service will benefit shippers/consignees of reefer produce, such as grapes, melons and mangoes. Growers in this region have been targeting northern European and US markets to increase sales.

The new link has replaced an existing joint service operation between the two lines that used smaller 5,700 TEUclass vessels with fewer electrical slots for reefer containers.

Canal effect

The new Panama Canal has had more of an impact on trades between the Pacific seaboard of South America and the US east coast and northern Europe. Several carriers have opted to deploy larger vessels on their direct services, as the larger locks have given them an opportunity to increase their tonnage, exploit improved economies of scale, and generally cut their unit operating costs.

MSC and Eurosal members Hapag-Lloyd and Hamburg Süd are among those carriers now using 9,000-10,000 TEU Neo-Panamax tonnage on their strings. This has meant some ports in South America, most notably Guayaquil in Ecuador, being eliminated from schedules, owing to channel access difficulties. In Q1 2017, Guayaquil’s box traffic declined by just over 6% to 383,294 TEU, partly as a consequence of these developments.

CMA CGM has been extremely active in the past two months, with three services started to/from Europe, including the Mediterranean, and another extensively revamped. This follows the carrier’s acquisition of coastal operator Mercosul from Maersk earlier this year, and fully demonstrates the French carrier’s expansionist strategy in the region.

With regard to port call patterns, the impact has been muted, as most of the ports affected have, for many years, been served via hubs, such as Colon, MIT, Kingston, Cartagena, Rio Haina and Freeport. Few changes are expected to this modus operandi, unless the Nicaragua Canal project comes to fruition and major development plans in ports such as Puerto Moín (Costa Rica), Veracruz (Mexico), and Mariel, (Cuba) lead to carriers changing their service networks.

Powerhouse

In terms of the trade, Brazil remains the powerhouse, and it is what happens in this economy that shapes the region’s trade as a whole. This year has seen the Brazilian real strengthen against the US dollar, and this has boosted consumption levels in the country, and with it imports, especially from China.

While the recovery in the mainline trades is welcome news, there are many economists and commentators who believe Latin America’s true trading potential and long-term economic growth will not be realised until greater regional integration has been accomplished. Currently, intra-regional trade accounts for less than 10% of total trade, but it is now growing fast.

In a report entitled Better Neighbors: Toward a Renewal of Economic Integration in Latin America, published this year, World Bank analysts argued that “a renewed integration strategy that takes advantage of the complementarities between regional and global economic integration can contribute to growth with stability”...


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