Latin American challenges

Economists are expecting a challenging year for Latin America. Recent forecasts made by the Economic Commission of Latin America and the Caribbean (ECLAC), for instance, reveal that economic output will expand by just 0.5% this year, and that both trade and inward investment will be impacted.

 

According to ECLAC, South American countries face the greatest hardship, with economic output projected to decline by 0.4% in 2015, led by Brazil and Venezuela, whose economies are expected to contract by 1.5% and 5.5%, respectively, in 2015.

 

In contrast, nations in the Caribbean region and in Central America (including Mexico) will post growth. Collectively, these areas will see GDP rises of 1.7% and an impressive 2.8%, respectively.

 

ECLAC attributed Latin America’s slowdown to a mix of external and domestic factors. “In the external arena, the global economy’s slow growth during 2015 stands out, particularly the deceleration of China and other emerging economies, with the exception of India,” explained Alicia Bárcena, executive secretary of the United Nations-controlled agency.

 

“Global trade will remain stagnant as part of what has become a structural problem in the global economy,” she added. “In addition to less external demand, there is also a downward trend in prices for basic products, as well as greater volatility and uncertainty in international financial markets.

 

“Revitalising growth in the short and long term requires boosting public and private investment at a complex time. This can be done with fiscal rules that protect investment, resorting to public-private associations and new sources of financing, such as the investment and infrastructure banks of the BRICS countries, and alternative mechanisms, such as green bonds and triangular loans cooperation.”

While there has been a rationalisation in the number of shipping services offered on core trades linking Asia and Europe with South America, ocean carriers are generally phasing into operation bigger and newer ships. This has little to do with fundamental demand parameters of the routes, and more to do with ocean carriers’ needs to absorb new and surplus tonnage. In particular, lines are having to find homes for 5,000 TEU plus capacity ships displaced in Asia/Europe trades by new ultra-large container vessels.

Economies of scale

 

While larger vessels help carriers by cutting their unit costs, genuine economies of scale only apply with high utilisation factors, as freight rates have also fallen. 

 

Despite the region’s trading and economic difficulties, there are some very large infrastructure projects being pursued in South American countries, particularly in the rail and ports sectors.

 

There also appears to be plenty of interest from the private sector, with international container terminal operating companies, for example, chasing the many concession deals on offer and/or being proposed.

 

It seems that companies see now as a good time to enter the South American market and establish a presence, in advance of an economic recovery taking place. This is especially true of Brazil, Colombia and Peru. In these nations, there is still an urgent need to modernise and expand their maritime and inland transport systems.

ECLAC’s latest economic forecast would suggest that when it comes to container traffic volumes, Latin America’s ports will post another generally disappointing performance this year, with growth likely to be in the 1% to 1.5% range, at best.

In 2014, the region’s box throughput rose just 1.3% to 47M TEU. This was the fourth year of declining growth and compared with rises of 1.7% in 2013, 5.8% in 2012 and 13.8% in 2011.

 

Last year, of the region’s top 20 ports, only Cartagena (Colombia) and Valparaíso (Chile) registered double-digit increases in their throughputs (see table). While Buenos Aires was the worst performer, posting a decline of 21.5% to 1.4M TEU, Santos, Caucedo (Dominican Republic) and San Antonio (Chile) all lost sizeable cargo volumes. 

 

It will be South American ports that will be hardest hit, as China’s imports from the region slow, and domestic consumption and industrial investment soften in countries such as Brazil, Argentina, Chile and Venezuela.

Success story

 

But it is not all bad news and there will be success stories in 2015. Based on those ports that have issued operating performances thus far, Brasil Terminal Portuário (BTP) in Santos looks as if it could be the outright winner.

 

Opened in the second half of 2013, BTP – a joint venture between APM Terminals and Terminal Investment Ltd (TIL) – handled 363,921 TEU in H1 2015, a 167% rise on the previous year. The facility has been designed to handle the largest vessels employed in Brazil’s liner trades, with its 15m deep 1.1 km quay line able to service three 9,200 TEUclass ships simultaneously. The terminal is equipped with eight super post-Panamax STS cranes and 26 RTGs.

The investment climate in ports/terminals appears encouraging and the world’s main global terminal operators are keen to increase their presence in the region. DP World, APMT, TIL, and Grup TCB, which is being bought by APMT, have been particularly active over the past two years.

This year has seen a number of deals concluded, with one of the most interesting being APMT’s decision to form a joint venture with Cartagena-headquartered Compañia de Puertos Asociados SA (Compas) and invest US$200M in the port (see “APMT’s Colombian debut”, WorldCargo News, August 2015, p9).

Cartagena is Colombia’s largest box port and was one of the fastest growing in the Latin America region last year (see table). Its throughput totalled 2.24M TEU, with the Compas-controlled facility handling approximately 11% of the total.

 

“Colombia represents one of the most promising investment opportunities in the region, and we are pleased to participate in the country’s ongoing economic growth and development,” said Kim Fejfer, CEO of APMT. “Cartagena has enormous significance among South American ports, and this joint venture underlines APM Terminals’ growth and investment plans.”

Fejfer stressed that the capital investment would be used to buy new equipment and upgrade the terminal so that it could handle the new generation of ship that will be transiting the expanded Panama Canal. His hope is to triple the terminal’s traffic, although no time frame was given for doing this.

General cargo

 

The Compas terminal also processes a significant volume of general cargo. This fits APMT’s strategy of also investing in facilities that have a presence in the noncontainerised cargo business sector (see “APM Terminals’ growth plan”, WorldCargo News, August 2015, p4).

 

Elsewhere in Latin America, APMT’s other main development projects include the ongoing refurbishment and expansion of the North Harbour complex in Callao, Peru, and the development of a purpose-designed container terminal in Puerto Moín, Costa Rica. This is being designed to handle mainly bananas and pineapple exports in reefers.

While the container trades to/from west coast South American ports are less well established than that to/from the eastern seaboard, there is considerable optimism and the belief that  growth rates will strengthen. Partly, this is because the containerisation process is less advanced and penetration of the existing general cargo, reefer and neo-bulk cargo sectors is considerable.

 

Potential

 

The expansion and redevelopment programmes being carried out in Callao by APMT and DP World (South Harbour), Grup TCB at Buenaventura (Colombia) and PSA International and Panama Ports Company in Panama, illustrate this potential.

 

This is also the case in Chile, and modernisation programmes are underway in both San Antonio and Valparaíso, the country’s two largest box ports.

At the former port, more than US$360M is being invested by the operators of the Puerto Central and San Antonio Terminal Internacional (STI) facilities, with the port’s throughput capacity expected to more than double to 3M TEU a year by early 2018.

 

At STI, two larger STS cranes – with a taller lift height and longer outreach over 21 rows of containers  – were recently delivered to the terminal, as it equips itself to handle the larger vessels being deployed in the trade with Asia and ultimately Europe too. They have joined six smaller cranes which have an outreach across 19 rows.

 

STI is also expanding its quay line from 800m to 930m, and will place further equipment orders to support this development.

 

Puerto Lirquén, which has the concession to manage the Costanera Espigón terminal at San Antonio, hopes to commence operations at its new Puerto Central terminal towards the end of the year. The new 350m berth has a depth alongside of 15m. Puerto Central recently took delivery of the first post-Panamax STS cranes, in a series of four being built by Liebherr Container Cranes for phase one of the project, as well as seven E-One2 RTGs from Kalmar.

 

Rodrigo Olea, CEO of Puerto Central, said: “These STS cranes are part of a group of four for the first stage, and the entire project involves seven units and the value of the investment is about US$11- 12M each. They have a range of 22 wide rows.”

Further equipment is due to arrive in November, with Puerto Central having signed a recent contract with Kalmar for 24 Kalmar Ottawa T2 terminal tractors and three Kalmar DCG160-12 forklift trucks.

 

The terminal’s initial handling capacity will be approximately 450,000 TEU a year, with phase two, which comprises a similar length berth, adding capacity to handle another 550,000 TEU a year.

 

To secure the long-term future of San Antonio, the port authority has an ambitious plan that could cost as much as US$3B to implement. A new complex would feature at least eight berths for handling containers and raise the port’s box handling capacity to 6M TEU a year.

 

Valparaíso’s stevedores/terminal operating companies are also expanding their facilities. At Terminal 1, Terminal Pacifico Sur Valparaíso (TPS) has ordered three new STS cranes from Liebherr and is extending its quay line by 120m to 740m. This will enable the terminal to accommodate two post-Panamax ships simultaneously, and give the operator more flexibility. With an outreach of 62m, the cranes have a safe working load of 65t under a twin lift spreader configuration, and will be capable of serving ships with 23 rows of containers across the weather deck.

Tackling changes

 

Francesco Schiaffino, general manager of TPS, explained: “The extension project is not aimed at increasing the capacity of TPS, but to maintain current levels of operation, considering all the changes we have experienced in recent years.” He referred to the increasing number of post-300m length ships calling at the facility, and sees this trend increasing, given carrier strategies in the trade with Asia and the opening of the new locks on the Panama Canal.

 

Meanwhile, at Valparaíso’s Terminal 2, Terminal Cerros de Valparaíso is spending about US$500M on a new 735m wharf and raising its handling capacity to about 1M TEU a year.

On the Atlantic seaboard of the continent, Wilson, Sons and Braskem recently announced that they would reopen Container Terminal Santa Clara, which is located at the Triunfo petrochemicals complex near Porto Alegre.

The facility, which was closed in 2009, has the capacity to handle 100,000 TEU. It is thought that the terminal will be used to alleviate some of the pressure on Wilson, Sons-operated Tecon Rio Grande facility, which is operating near to capacity.

Ocean carriers also see longterm growth potential in the Latin America trades. Hapag-Lloyd and Hamburg Süd have substantially boosted their presence in the region in the past 12 months through the acquisition of Chilean carriers CSAV and CCNI, respectively. Their moves have been backed by investments in new hardware, with Hapag-Lloyd in the process of phasing in 6,000 new reefer containers, 1,000 units of which are fitted with CA systems.

 

The past year has also seen APL, SeaLand – part of the AP Møller-Maersk Group – Evergreen, Hyundai Merchant Marine and UASC expand their South American operations, principally by increasing their slot capacity and extending their service reach. UASC has been especially active, with the carrier strengthening its ties with Hamburg Süd and CMA CGM, to develop a northsouth network to complement its mainly east-west orientation.

Jørn Hinge, president and CEO of UASC, said: “The east coast South American markets of Brazil, Argentina and Uruguay provide significant opportunity for UASC and its customers. As an emerging global carrier that places customer service at the very heart of our operations, we are continually exploring enhanced geographical reach and improved products, whilst always safeguarding reliability and service excellence.”

To support its Latin America services strategy, UASC has appointed the Santiago (Chile)- based Ultramar Group as its local agent covering Brazil, Argentina and Uruguay.

“With Ultramar, we know that we are working with a trusted and committed partner. Ultramar has an outstanding track record in South America, and we are confident that it can support our near and medium-term goals for this marketplace,” said Hinge. “This development marks the next stage of our evolution in South America, and gives a flavour of our longer-term aspirations.”

Perishables

 

UASC has also invested in new reefer equipment, as it seeks a share of the region’s higher-value, and at the same time growing, perishable products sector, which includes fruit, juices, fish, beef and chicken.

 

This year has seen the carrier order 5,500 reefer containers, all of them fitted with Daikin’s LXE10E model reefer machinery. According to Gareth Madsen, head of reefer management at UASC, this allows all types of reefer cargo to be carried in any weather condition.

 

“While providing the optimum temperature environment and airflow for chilled cargo, hardware and software developments have significantly reduced power consumption, achieving a 50% reduction, in comparison to the earliest model, introduced in 2001,” he said.

Elsewhere, Taipei-based Wan Hai Lines has established a jointventure company in Lima, Peru, with its local agent Ultramar. Wan Hai Lines Peru, in which Wan Hai owns 51% of the shares and Ultramar 49%, has responsibility for all of the Taiwanese carrier’s activities in Latin America.

“We used to use agents in Central and South America, but now we have established a subsidiary company, so that we can watch over the business better,” explained Davis Kao, a spokesman for Wan Hai Lines.

The move will enable Wan Hai to gain a better understanding of the region, establish closer contact with importers and exporters and, therefore, act more quickly and decisively, according to market conditions.

 

Although Wan Hai’s service network is heavily concentrated on the intra-Asia market, until recently it operated on the Asia/Europe route, and it has been expanding its transpacific network. It sees the Latin America/Asia trade as giving it new opportunities in an emerging region with strong growth opportunities. It is this kind of optimism that is driving developments, irrespective of the region’s current difficulties.  

 

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This complete item is approximately 2000 words in length, and appeared in the September 2015 issue of WorldCargo News, on page 37. To access this issue download the PDF here.