Lunes 16 de Julio del 2018

South America: West’s Growth Contrasts With Protectionism in East

The trade picture is more robust on the continent’s west coast, where Chile and Peru have opened their markets to global trade and are investing more heavily in infrastructure developments

South America: West’s Growth Contrasts With Protectionism in East


It’s not fiesta time for shippers or carriers south of the border — south of the Panama border, that is. Trade with the multifaceted markets of South America is decidedly a mixed bag. True, trade volumes with many of the largest markets there are growing faster than global trade as a whole, but a combination of weakening currency exchange rates, growing protectionism, tangled red tape and poor infrastructure is slowing the growth of exports to countries on South America’s east coast.

The trade picture is more robust on the continent’s west coast, where Chile and Peru have opened their markets to global trade and are investing more heavily in infrastructure developments. “We’re looking for global volume growth of around 6 percent for the continent as a whole, about 1 ½ points higher on the west coast, and lower by the same amount on the east coast,” said Joe Nielsen, head of the Latin America region for APM Terminals, which operates three container terminals in Brazil and others in Argentina, Colombia and Peru.

The prospects for that kind of growth are sparking three significant developments this year. Hapag-Lloyd and Chilean carrier CSAV are planning a merger that will expand the German line’s primarily east-west services into the north-south trade with South America. Maersk Group is reviving the SeaLand brand to take over and expand Maersk Line’s intra-Americas services. And the P3 Network among Maersk Line, Mediterranean Shipping Co. and CMA CGM will bring larger vessel capacity into joint services from Asia that call at Panama’s Port of Balboa for transshipment to and from South America’s east and west coasts.

Freight rates remain under pressure because carriers have cascaded unneeded older container vessels with capacities of 9,000-plus 20-foot-equivalent units onto the South American trades from the Asia-Europe trade. “The competitive arena is such that if you don’t have 8,500- to 9,000-TEU ships on any of the big trunk line trades, you are already at risk of not being competitive anymore,” said Robbert van Troojian, head of Maersk Line for Latin America and the Caribbean.

The ships of this size that already have cascaded onto the South American trades tend to be older, less-fuel-efficient vessels and don’t have the shallow draft necessary to use many of Brazil’s east coast ports. “These cascaded ships have difficulty competing with the 8,500-TEU purpose-built ships with 1,500 reefer plugs that we and some of our competitors are deploying,” van Troojian said.

Freight rates plummeted on the east coast at the beginning of 2013, but stabilized and started to rebound in the latter half of the year as carriers withdrew about 13 percent of capacity this winter. Rates to and from the west coast weren’t hit as hard because of stronger demand and less cascading.

“Since October, we’ve seen some slack-season programs and blank sailings, so certain efforts are taking place to make sure that capacity meets demand,” van Troojian said. Rates firmed last November, but came under pressure again following the Chinese New Year that started on Jan. 31, he said.

Nevertheless, carriers may see more rate stability as the peak shipping season approaches later this year. “Rates will go up slightly, by low single digits, as vessel utilization continues to improve,” said John Abisch, president of Econocaribe, a non-vessel-operating common carrier that serves the region.

Carriers aren’t waiting for the Panama Canal expansion to be complete to bring big, new ships into the trade. Instead they’re using the Suez Canal. “We are routing trade via the Suez with super-post-Panamax ships,” van Troojian said. In fact, the delayed completion of the canal — it’s now expected to be operational in the first quarter of 2016 — may spare the South American trade from overcapacity for a few more years because carriers won’t cascade Panamax ships of up to 4,800 TEUs onto those trades until the new locks open.

The delays in completing the Panama Canal are forcing some carriers to put plans for South America on hold. “Our plans for serving South America depend on what’s happening at the canal,” said Howard Finkel, executive vice president of Cosco Container Lines, Americas. Cosco calls at South American ports with its services from Asia, but it doesn’t operate any services from the U.S. in the trade with the west coast.

“We’re looking at expanding our Gulf service to include the Caribbean and the west coast of South America, but nothing is written in stone yet,” Finkel said. Cosco is looking at various options, including deploying its own ships there, slot chartering or using feeder services. “Everything is on the drawing board, as long as it’s self-sustaining and profitable.”

For now, the real growth of the trade is from Asia to South America’s west coast. “South America is a tale of two coasts,” FedEx founder and Chairman Fred Smith said in an interview at the JOC’s 14th Annual TPM Conference in Long Beach this month. “On the west coast, Chile has been open-minded since the Chicago boys went in there, and it has done well. But on the east coast, there has been retrograde movement, especially in Argentina and to a lesser extent in Brazil.”

Shipping lines are seeing much of the same thing. “The west coast is opening the doors, but the east coast is still closing the doors,” van Troojian said.

South America’s currencies fluctuated sharply this winter when debt-ridden Argentina unexpectedly devalued its peso 15 percent against the U.S. dollar. “Argentina has passed 168 protectionist measures since 2009; could the recent crisis be somewhat related?” Smith said in his keynote address at TPM, in which he voiced his concern about growing global protectionist trends.

Protectionism is especially strong in Brazil, where high import duties along with state and local taxes on imports make foreign products much more expensive than in other South American countries. Take Apple’s iPhone 5S, for example, which costs $1,076 in Brazil, compared with $700 in the U.S. By contrast, it costs $710 in Argentina, $842 in Chile, $750 in Colombia, and $842 in Chile, according to The Economist. Brazil’s imports also are being hit by the creeping devaluation of the real, which cut the value of its currency 15 percent last year, making imports that much more expensive.

“We have not seen anywhere near the underlying trade that those markets are capable of,” said Foster Finley, managing director of AlixPartners’ Global Supply Chain Practice. “The overhead cost of production is a factor, and exports to South America are challenging because of the protectionist mindset.” For example, tariffs are very high on toys, up to 35 percent, he said.

“The potential for South America is very high and always has been,” said Walter Kemmsies, chief economist for port consultant Moffatt & Nichol. “We’ve always waited for the big updraft, but the updraft requires investment in infrastructure, and the countries have struggled to get it all in place.”

Infrastructure on the continent’s west coast is in relatively better shape, he said. “Chile has always invested in infrastructure. Colombia is on a rampage investing in infrastructure,” Kemmsies said. “Ecuador might be OK because of the energy sector, but they have political issues and are aligned with Venezuela, which is a mess.”

Brazil’s infrastructure is the big bottleneck to its trade growth, but that may be changing, albeit slowly, over the longer term. “You can’t grow faster than your infrastructure, so they are trying to change the way roads, airports, highways airports and ports are developing, and the process is in full swing now, which will give both a short- and long-term boost to the economy,” Kemmsies said. He expects Brazil to invest $2 billion or more in ports, roads and railroads over the next two years, but that investment could reach tens of billions of dollars over the longer term. In addition, he thinks Brazil’s spending on this summer’s World Cup and the 2016 Summer Olympics will stimulate economic growth over the next few years.

In Brazil, APM Terminals has invested billions of dollars in three terminals in Itajai, Pecem and Santos. It opened a new terminal in the major gateway port of Santos last year, but the 1.2 million-TEU facility won’t reach full capacity until the government completes the deepening of its channel to accommodate post-Panamax ships. It currently handles ships of up to 5,500 TEUs, but once dredging is completed, it will be able to handle the 9,000-plus-TEU vessels being deployed in the main trades. APMT also operates modern terminals in Buenos Aires, Argentina, and Callao, Peru.

The competition for service calls is heating up as more terminals open in Brazil and Argentina, van Troojian said. “Now, particularly in the ports of Santos and Buenos Aires, we are seeing some really aggressive players out there that are eager to make deals,” he said.

Fuente: Journal of Commerce

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