REGIONAL SURVEY

East Coast South America

www.portstrategy.com

November 2011

KEY PORTS ALONG

South America’s east coast arebalancing the boon of record cargo growth withaging infrastructure that’s limiting their ability tohandle larger vessels. From Buenos Aires toSalvador, expansion plans aren’t moving fastenough for forecasted demand, and morebureaucratic hurdles seem to appear at every turn.Brazilian port development is being held backby a cumbersome approval process that industryplayers say has stripped them of the ability tomake decisions on direct investment. A survey byconsultancy RAmaral & Associados found that overthe past decade, BRL1.2bn of the BRL4.2bn($637m of $2.2bn) in federal funds earmarked forimproving Brazilian port infrastructure had beentapped, or roughly 28% of the money available.In contrast, Brazil’s state-owned energy company

Beating the bureaucracy

Red tape and ageinginfrastructure are holdingback development atports up and down SouthAmerica’s east coast.

Bob Moser

reports

Petrobras, which follows bidding guidelines similarto ports, saw 90% of its promised investment comethrough during the same decade.In 2010, Brazilian ports moved 834m tonnes ofcargo. Of this, more than 70% passed through 109private ports in the country, says the BrazilianAssociation of Port Terminals, or ABTP.The organisation forecasts that by 2015, morethan 1 billion tonnes will hit the nation’s ports. Thecountry is behind on expansion and simply won’tbe able to meet that projected demand, says WilenManteli, ABTP president.Private companies have BRL25bn ($13.3bn)ready to invest in building new ports for their owncargo shipments or modernising existing terminals,but can’t get past the government’s evaluationprocess for project approval. ABTP says there’s atleast 30 private terminal projects that have been onhold for government approval for more than a year.“In Brazil we need to decentralise portmanagement, provide more autonomy to professionalmanagers, and keep them based only onmeritocracy,” Mr Manteli says. “We have to expungethe political interference that’s slowing us down here.”Federal officials counter that they’ve approvedconstruction of new private terminals forcompanies that have proven they’re trulyinterested in the space for their own cargo. Brazil’snew Special Secretary of Ports has a problem,however, with what it considers too manycompanies using private ports as “rented space”for third-parties.The necessity of upgrades at the Port of BuenosAires has also become clear. Its terminals werebuilt to receive 180 metre-long ships with a

For containers, in someareas we’re now movingmore than 70 per hourcompared to 10 just afew years agoc

Renato Barco

Santos Port

‘’

PIONEER:

Rio Grande is setting the tone with its “topoff” container agreement with partner ports

East Coast South America

REGIONAL SURVEY

November 2011

www.portstrategy.com

capacity of 2,500 teu, but are now being asked tohandle 300 metre-long ships with up to 6,500 teu.Argentina’s General Ports Administration andoperators at Buenos Aires have been workingtowards dredging and expansion projects this year,but it will be a long-term effort to bring this port upto the advanced standards of the market’s future,says Eric Sisco, chief executive of APM Terminals’Americas region, which services key accounts at T4terminal in Buenos Aires. APM also operates twoterminals in Brazil, and is building a third with partnerTIL which will be the largest terminal at Santos.“There are some navigational challenges for allport operators (in Buenos Aires) with depth asvessels get larger,” he says. “One of the key issuesis the location of the breakwater in relation to citychannels, which is being widened significantly.”Congestion remains an issue at Uruguayan portsas well, particularly Montevideo. The National PortsAuthority (ANP) wants to move containers outsidethe port of Montevideo to avoid overload at theterminal, but operators say they already do this,and that the port needs infrastructure investmentto avoid operational collapse. ANP will hike tariffsby 20% in 2012 to raise an extra $15m for the$120m in investment it plans for national portsnext year.“The challenges we’re seeing in Argentina,Uruguay and Brazil are true in all of Latin America,”Mr Sisco says. “Vessels are getting bigger, andmain ports there are often river ports with varyingrestrictions on navigation that must be addressed.New multi-class vessels are much larger than thevessels currently calling those markets. Terminalequipment and the navigational situations theremust be addressed.”Brazil’s largest port, Santos, handles 25% of thecountry’s total foreign trade balance through itsterminals. In 2010, Santos moved 96m tonnes ofcargo; this year it should pass 100m tonnes, andby 2022 it’s expected to top 230m tonnes. Privateand public infrastructure investment is a must tomeet those expectations, says Renato Barco,director of strategic planning at Santos.For 2011, Santos port authority Codesp wasslated to receive BRL189m ($100.3m) forimprovement projects. But through the end of July,BRL9.4m (US$5m) of that funding had beenreleased, about 5% of the total.Codesp chairman Jose Roberto Sierra has calledfor Brazil’s bidding laws for the port system to berelaxed. Otherwise, the sea of red tape portmanagers have to wade through for approval onexpansion plans won’t let them meet demand inthe coming years, he says. In all, 17 agencies havea hand in supervising or directly approving thegrowth management of Brazil’s ports.Follow-through on funding has improved since2007, when a Special Secretary of Ports positionwas created at the federal level. Last year, Codespat Santos secured 49% of the funding it had been

BRAZIL’S FEDERAL GOVERNMENT

will renegotiate contracts with portsthat have administration delegatedto states, municipalities and theprivate sector, in order to securemore influence over managementand investment plans deemed keyto national interest.The power play should include16 ports that received nearly 93mtonnes of goods last year, about32% of the country’s total porttraffic. Three ports above all aresaid to be key growth targets thegovernment wants to see doneright: Paranaguá in Parana state,Rio Grande in Rio Grande do Sulstate, and Itaqui in Maranhão state.Renegotiating will begin in thefirst half of 2012, once theSecretary of Ports has been able toreview a final version of theNational Plan for Port Logistics,which offers investment andexpansion needs for Brazil’sterminals over the next 20 years.The conclusion appears to be thatonly the federal level can steer anoverall plan for the nation’s ports,and identify risks like neighbouringports that may overlap investmentand cannabalise one another.The government’s goal is toappoint its own representatives tohave a more active role in eachport’s management anddevelopment. Top officials at theMinistry of Ports got a green lightfrom President Dilma Rousseffherself this year to tackle portdevelopment, which they felt waslagging in part because state andmunicipal authorities in charge ofports weren’t reinvesting enoughprofits into terminal development.In the most extreme cases oflocal management’s misuse offunds, the federal governmentcould take over a port indefinitely.The initiative could cause frictionwith local officials, but it’s unfair forfederal authorities to have such ahands-off relationship with keyundeveloped ports when there’s somuch at stake econmically, saidLeonidas Cristino, chief minister atthe Secretary of Ports.For example, at the Port of RioGrande in Rio Grande do Sul state,

Brazil’s federal authorities flex their muscles

BRL462m ($245m) in federal fundswere transferred to the state toextend jetties. Deepening ofchannels at Itajai Port in SantaCatarina, though managed by thecity, is being funded federally.And while ItajaíPort is managedby the state, BRL73m ($39m) infederal funds saved an otherwiselost channel dredging project thisyear, and the Feds have assumedmost of the investment to repairone berth and build another.Though it wants more power inthe process, federal governmentknows it can’t fund these projectsalone. A recent study from Brazil’sInstitute of Applied EconomicResearch noted that BRL42.8bn($22.7bn) in investment would beneeded to complete 265 portimprovement projects currently inthe pipeline, and federal fundscould only cover 23% of that.

C r e d i t : R o o s e w e l t P i n h e i r o / A g é n c i a B r a s i l

GO-AHEAD:

Brazilian presidentDilma Rousseff gave the green light for aport development rethink this year

STACKED UP:

congestionremains an issue at Uruguayan ports, particularly Montevideo

➠

East Coast South America

REGIONAL SURVEY

November 2011

www.portstrategy.com

expecting, roughly BRL132m ($70m). Projects willbe prioritised though, with dredging plans for thenation’s 18 major ports ranking no. 1.All of Brazil’s ports, including Santos, need todrastically alter the balance of how they movecargo, Mr Barco says, which today consists of littlerail and too much trucking.“We need to at least double our movement byrail, and here at Santos we need to exploit green,undeveloped areas near the port that are servedby (smaller) rivers,” he says. “We need remoteterminals outside the port area to shift cargo frombarges to these terminals, and take trucks out ofthe congested cities.”Rodolfo Amaral, director of RAmaral &Associados, says it’s “absolutely inconceivable”that the Port of Santos has received just BRL323m

BRAZIL WILL INVEST

millions ofdollars to build four new passengerterminals and reform two keyexisting ones for cruise tourismbefore the 2014 FIFA World Cup,but the industry is concerned overthe choice of ports, and timetablefor construction.Ports in the northeastern cities ofSalvador, Recife, Fortaleza and Natalwill all have new terminals built,kicking off a rush for cruise traffic toan entire region of the country thathas never had a proper structure toreceive leisure ships. In Santos,docks will be realigned, and in Riode Janeiro a Y-shaped pier will bebuilt with six berths reservedexclusively for passenger ships.Aside for those six sites, thefederal government still plans toinvest BRL89m ($47m) on a riverterminal in Manaus. Constructionshould start in each of the six citieswithin the next five months,wrapping up in late 2013 in timefor cruise ships to offer 45,000extra beds during the June-Julyexplosion of tourists in 2014.The growth potential formaritime tourism in Brazil will betremendous if the projects comethrough. The Port of Santos had1.1m passengers pass throughduring the 2010/11 tourist season,up 30% from the year prior. By late2013 if its expansion is seenthrough, the port could receive2.5m per season.Despite the government’soptimism it’ll have new terminalsready in less than two years,complications have already arisen.In September, an audits court frozebidding for the Rio de Janeiro pierproject on hints of irregularities andoverpricing in bid guidlines.Brazil’s Maritime CruiseAssociation, or Abremar, callstoday’s ports system “chaotic” and“a basis for improvisation” forpassenger reception. AtNortheastern ports, touristsliterally disembark amidcontainers, says Marcia Leite,Abremar’s infrastructurecoordinator. The organisation saysthat aside from Salvador, it wasn’tconsulted by the government onany of the projects.Over the past decade, Brazil’scruise tourism sector grew 22% peryear, on average. In 2010, growth

Industry questions Brazilian cruise choices

was 2%, a drop only attributable tolimited port space, and the factthat 40 Brazilian ports areregistered to receive cruise shipsbut less than 20 have theinfrastructure for it.After the sports tourism of 2014and the Rio Olympics in 2016,operators are worried that portfees already limiting the industry’sgrowth in Brazil will be higher, andmore of a deterrent.A recent study by Abremarfound that embarkation anddisembarkation fees forpassengers at Santos were398% higher than those chargedat the Port of Civitavecchia (Italy),266% higher than in Tunis(Tunisia), and 190% higher thanthe Port of Barcelona.

Want More?

Michael Mackey

wrote

‘Keep shining’

for the April 2010 editionRead the full article at:

www.portstrategy.com/features

We have to expungethe political interferencethat’s slowing usdown herec

Wilen Manteli

BrazilianAssociation ofPort Terminals

‘’

($171.4m) in investment over the past 10 years,while arguably far less important rural powerplants have received millions of dollars in publicfunding for improvements.With large-scale infrastructure plans still yearsfrom offering a positive impact, terminals areimproving turnaround now by embracing newautomation options. Operators at the Brazilianports of Santos, Rio Grande, Rio de Janeiro andItajaí have reported efficiency gains in container,dry and liquid movement via conveyers andautomated twin-spreader cranes that weren’tavailable here just a few years ago.“For containers, in some areas we’re nowmoving more than 70 per hour compared to 10 justa few years ago. Conveyers have allowed Santos tobecome the biggest port in the world for sugar,”Mr Barco says. “In the coming years, paper exportwill all be automated on the wharf, as well asliquids like juice.”And smaller ports could follow the lead of RioGrande, which earlier this year agreed with theports of Montevideo and Buenos Aires toencourage shippers to “top off” their containerloads whenever possible at the partner ports.Together they'll draw more major internationalroutes to the region by simply prioritising a fullvessel for the client, says Dirceu Lopes,superintendent of the Port of Rio Grande.

TOP GEAR:

Santos, Brazil’s largest port, handles 25% of the country’s total foreign trade balance through its terminals