REGIONAL SURVEY East Coast South America

Beating the bureaucracy

PIONEER: Rio Grande is setting the tone with its top off container agreement with partner ports

Red tape and ageing infrastructure are holding back development at ports up and down South Americas east coast. Bob Moser reports
KEY PORTS ALONG South Americas east coast are balancing the boon of record cargo growth with aging infrastructure thats limiting their ability to handle larger vessels. From Buenos Aires to Salvador, expansion plans arent moving fast enough for forecasted demand, and more bureaucratic hurdles seem to appear at every turn. Brazilian port development is being held back by a cumbersome approval process that industry players say has stripped them of the ability to make decisions on direct investment. A survey by consultancy RAmaral & Associados found that over the past decade, BRL1.2bn of the BRL4.2bn ($637m of $2.2bn) in federal funds earmarked for improving Brazilian port infrastructure had been tapped, or roughly 28% of the money available. In contrast, Brazils state-owned energy company

Petrobras, which follows bidding guidelines similar to ports, saw 90% of its promised investment come through during the same decade. In 2010, Brazilian ports moved 834m tonnes of cargo. Of this, more than 70% passed through 109 private ports in the country, says the Brazilian Association of Port Terminals, or ABTP. The organisation forecasts that by 2015, more than 1 billion tonnes will hit the nations ports. The country is behind on expansion and simply wont be able to meet that projected demand, says Wilen Manteli, ABTP president. Private companies have BRL25bn ($13.3bn) ready to invest in building new ports for their own cargo shipments or modernising existing terminals, but cant get past the governments evaluation process for project approval. ABTP says theres at least 30 private terminal projects that have been on hold for government approval for more than a year. In Brazil we need to decentralise port management, provide more autonomy to professional managers, and keep them based only on meritocracy, Mr Manteli says. We have to expunge the political interference thats slowing us down here. Federal officials counter that theyve approved construction of new private terminals for

Renato Barco Santos Port

For containers, in some areas were now moving more than 70 per hour compared to 10 just a few years ago c

companies that have proven theyre truly interested in the space for their own cargo. Brazils new Special Secretary of Ports has a problem, however, with what it considers too many companies using private ports as rented space for third-parties. The necessity of upgrades at the Port of Buenos Aires has also become clear. Its terminals were built to receive 180 metre-long ships with a

18 www.portstrategy.com

November 2011

East Coast South America REGIONAL SURVEY

capacity of 2,500 teu, but are now being asked to handle 300 metre-long ships with up to 6,500 teu. Argentinas General Ports Administration and operators at Buenos Aires have been working towards dredging and expansion projects this year, but it will be a long-term effort to bring this port up to the advanced standards of the markets future, says Eric Sisco, chief executive of APM Terminals Americas region, which services key accounts at T4 terminal in Buenos Aires. APM also operates two terminals in Brazil, and is building a third with partner TIL which will be the largest terminal at Santos. There are some navigational challenges for all port operators (in Buenos Aires) with depth as vessels get larger, he says. One of the key issues is the location of the breakwater in relation to city channels, which is being widened significantly. Congestion remains an issue at Uruguayan ports as well, particularly Montevideo. The National Ports Authority (ANP) wants to move containers outside the port of Montevideo to avoid overload at the terminal, but operators say they already do this, and that the port needs infrastructure investment to avoid operational collapse. ANP will hike tariffs by 20% in 2012 to raise an extra $15m for the $120m in investment it plans for national ports next year. The challenges were seeing in Argentina, Uruguay and Brazil are true in all of Latin America, Mr Sisco says. Vessels are getting bigger, and main ports there are often river ports with varying restrictions on navigation that must be addressed. New multi-class vessels are much larger than the

STACKED UP: congestion remains an issue at Uruguayan ports, particularly Montevideo

vessels currently calling those markets. Terminal equipment and the navigational situations there must be addressed. Brazils largest port, Santos, handles 25% of the countrys total foreign trade balance through its terminals. In 2010, Santos moved 96m tonnes of cargo; this year it should pass 100m tonnes, and by 2022 its expected to top 230m tonnes. Private and public infrastructure investment is a must to meet those expectations, says Renato Barco, director of strategic planning at Santos. For 2011, Santos port authority Codesp was slated to receive BRL189m ($100.3m) for improvement projects. But through the end of July,

BRL9.4m (US$5m) of that funding had been released, about 5% of the total. Codesp chairman Jose Roberto Sierra has called for Brazils bidding laws for the port system to be relaxed. Otherwise, the sea of red tape port managers have to wade through for approval on expansion plans wont let them meet demand in the coming years, he says. In all, 17 agencies have a hand in supervising or directly approving the growth management of Brazils ports. Follow-through on funding has improved since 2007, when a Special Secretary of Ports position was created at the federal level. Last year, Codesp at Santos secured 49% of the funding it had been

Brazils federal authorities flex their muscles

BRAZILS FEDERAL GOVERNMENT will renegotiate contracts with ports that have administration delegated to states, municipalities and the private sector, in order to secure more influence over management and investment plans deemed key to national interest. The power play should include 16 ports that received nearly 93m tonnes of goods last year, about 32% of the countrys total port traffic. Three ports above all are said to be key growth targets the government wants to see done right: Paranagu in Parana state, Rio Grande in Rio Grande do Sul state, and Itaqui in Maranho state. Renegotiating will begin in the first half of 2012, once the Secretary of Ports has been able to review a final version of the National Plan for Port Logistics, which offers investment and expansion needs for Brazils terminals over the next 20 years. The conclusion appears to be that only the federal level can steer an overall plan for the nations ports, and identify risks like neighbouring ports that may overlap investment and cannabalise one another. The governments goal is to appoint its own representatives to have a more active role in each ports management and development. Top officials at the Ministry of Ports got a green light from President Dilma Rousseff herself this year to tackle port development, which they felt was lagging in part because state and municipal authorities in charge of ports werent reinvesting enough profits into terminal development. In the most extreme cases of local managements misuse of funds, the federal government BRL462m ($245m) in federal funds were transferred to the state to extend jetties. Deepening of channels at Itajai Port in Santa Catarina, though managed by the city, is being funded federally. And while Itaja Port is managed by the state, BRL73m ($39m) in federal funds saved an otherwise lost channel dredging project this year, and the Feds have assumed most of the investment to repair one berth and build another. Though it wants more power in the process, federal government knows it cant fund these projects alone. A recent study from Brazils Institute of Applied Economic Research noted that BRL42.8bn ($22.7bn) in investment would be needed to complete 265 port improvement projects currently in the pipeline, and federal funds could only cover 23% of that.
Credit: Roosewelt Pinheiro/Agncia Brasil

GO-AHEAD: Brazilian president Dilma Rousseff gave the green light for a port development rethink this year

could take over a port indefinitely. The initiative could cause friction with local officials, but its unfair for federal authorities to have such a hands-off relationship with key undeveloped ports when theres so much at stake econmically, said Leonidas Cristino, chief minister at the Secretary of Ports. For example, at the Port of Rio Grande in Rio Grande do Sul state,

November 2011

www.portstrategy.com 19

East Coast South America REGIONAL SURVEY

Wilen Manteli Brazilian Association of Port Terminals

We have to expunge the political interference thats slowing us down here c

TOP GEAR: Santos, Brazils largest port, handles 25% of the countrys total foreign trade balance through its terminals

expecting, roughly BRL132m ($70m). Projects will be prioritised though, with dredging plans for the nations 18 major ports ranking no. 1. All of Brazils ports, including Santos, need to drastically alter the balance of how they move cargo, Mr Barco says, which today consists of little rail and too much trucking. We need to at least double our movement by rail, and here at Santos we need to exploit green, undeveloped areas near the port that are served by (smaller) rivers, he says. We need remote terminals outside the port area to shift cargo from barges to these terminals, and take trucks out of the congested cities. Rodolfo Amaral, director of RAmaral & Associados, says its absolutely inconceivable that the Port of Santos has received just BRL323m

($171.4m) in investment over the past 10 years, while arguably far less important rural power plants have received millions of dollars in public funding for improvements. With large-scale infrastructure plans still years from offering a positive impact, terminals are improving turnaround now by embracing new automation options. Operators at the Brazilian ports of Santos, Rio Grande, Rio de Janeiro and Itaja have reported efficiency gains in container, dry and liquid movement via conveyers and automated twin-spreader cranes that werent available here just a few years ago. For containers, in some areas were now moving more than 70 per hour compared to 10 just a few years ago. Conveyers have allowed Santos to become the biggest port in the world for sugar,

Mr Barco says. In the coming years, paper export will all be automated on the wharf, as well as liquids like juice. And smaller ports could follow the lead of Rio Grande, which earlier this year agreed with the ports of Montevideo and Buenos Aires to encourage shippers to top off their container loads whenever possible at the partner ports. Together they'll draw more major international routes to the region by simply prioritising a full vessel for the client, says Dirceu Lopes, PS superintendent of the Port of Rio Grande.

Want More?
Michael Mackey wrote Keep shining for the April 2010 edition Read the full article at: www.portstrategy.com/features

Industry questions Brazilian cruise choices

BRAZIL WILL INVEST millions of dollars to build four new passenger terminals and reform two key existing ones for cruise tourism before the 2014 FIFA World Cup, but the industry is concerned over the choice of ports, and timetable for construction. Ports in the northeastern cities of Salvador, Recife, Fortaleza and Natal will all have new terminals built, kicking off a rush for cruise traffic to an entire region of the country that has never had a proper structure to receive leisure ships. In Santos, docks will be realigned, and in Rio de Janeiro a Y-shaped pier will be built with six berths reserved exclusively for passenger ships. Aside for those six sites, the federal government still plans to invest BRL89m ($47m) on a river terminal in Manaus. Construction should start in each of the six cities within the next five months, wrapping up in late 2013 in time for cruise ships to offer 45,000 extra beds during the June-July explosion of tourists in 2014. The growth potential for maritime tourism in Brazil will be tremendous if the projects come through. The Port of Santos had 1.1m passengers pass through during the 2010/11 tourist season, up 30% from the year prior. By late 2013 if its expansion is seen through, the port could receive 2.5m per season. Despite the governments optimism itll have new terminals ready in less than two years, complications have already arisen. In September, an audits court froze bidding for the Rio de Janeiro pier project on hints of irregularities and overpricing in bid guidlines. Brazils Maritime Cruise Association, or Abremar, calls todays ports system chaotic and a basis for improvisation for passenger reception. At Northeastern ports, tourists literally disembark amid containers, says Marcia Leite, Abremars infrastructure coordinator. The organisation says that aside from Salvador, it wasnt consulted by the government on any of the projects. Over the past decade, Brazils cruise tourism sector grew 22% per year, on average. In 2010, growth was 2%, a drop only attributable to limited port space, and the fact that 40 Brazilian ports are registered to receive cruise ships but less than 20 have the infrastructure for it. After the sports tourism of 2014 and the Rio Olympics in 2016, operators are worried that port fees already limiting the industrys growth in Brazil will be higher, and more of a deterrent. A recent study by Abremar found that embarkation and disembarkation fees for passengers at Santos were 398% higher than those charged at the Port of Civitavecchia (Italy), 266% higher than in Tunis (Tunisia), and 190% higher than the Port of Barcelona.

November 2011

www.portstrategy.com 21

Itaja PORT PROFILE

Itajai is positioning itself as an alternative destination to more congested Brazilian ports, as Bob Moser finds out

Jump the queue

THE PORT OF ITAJA has ranked as Brazils no. 2 for container traffic nearly every year since 2005, despite facing major flooding emergencies twice in that span. With a firm grasp on local commodities and expansion in the works, management is now eyeing Itajas first railway connection, and promoting its turnaround speed to new clients dissatisfied with more congested ports. Itaja closed August with a turnover of 91,750 teu, a 14% growth rate compared with the same month a year ago and the second best month alltime for the port. Itaja hit a record 957,000-plus teu in 2010, and management expects the port to pass 1m by the end of this year. Land access is a common challenge for most ports, but Brazils chaotic and severely dilapadated highways inflame growth limitations for ports like Itaja, which doesnt have a rail line connection. Two railroad research projects currently underway could offer fantastic development for Itaja if implemented, says Robert Grantham, commercial director. A new federal railway being studied would run from the Port of Itaja through western Santa Catarina the heart of the states agro-industrial region and on into Argentina. Another public railway being studied, and currently open to bids from developers, would link all three ports along the states coast. With two major highways already branching out from Itaja, wed make a fantastic hub here, Mr Grantham says. Santa Catarina is Brazils top state for poultry and pork production. An insatiable export demand for those products has made Itaja Brazils top port for frozen poultry exports, and no. 2 for pork. They make up half of Itajas exports, and the resale value of those meats is attracting shipping lines along the Brazilian coast to stop in Itaja over other ports. Ships are coming in full and going out full, its a good balance, Mr Grantham says. Six to eight years ago, our imports represented no more than 20% of our total movement. But with devaluation of the US dollar, weve seen imports grow considerably, now up to 45% of our total movement. Whats being unloaded at Itaja isnt fair-weather stock or goods that ebb and flow with seasonal demand. Its mainly machinery for Santa Catarinas agroindustry, a consistent class of imports. Mr Grantham wants to see Itaja now grab a larger share of beef exports. Brazil is the worlds top producer and exporter of beef, and while most of it moves through the nations busiest port in Santos, congestion there offers an opportunity to lure producers and shippers south.

SILVER MEDAL: Itaja has consistantly ranked as Brazils no. 2 for container traffic

A main selling point used to separate Itaja from other ports is its two container terminals on the river, and six overall berthing facilities. When compared with three berthing spaces at the Port of Rio Grande, or two at Paranagua, Itaja can guarantee vessels a berthing window even if theyre delayed, with terminal gates opening as much as seven days in advance of arrival. This has helped Itaja boast a splendid record of non-cancellation, compared to other ports in Brazil that are full, Mr Grantham says. The port faces some natural constraints that have always been its biggest challenge. Its located on what can be a powerful Itaja-Au River and about 3.2 km from a waterfall, which can close the port at times when the current is too strong from heavy rains. Itaja was hit by flooding in early September that shut down operations for seven days. Dredging planned to take the port from 11 to 14 metres is on track to finish by years end, and the dredger, already in port when the storm hit, should aid in the overall storm recovery. One of Itajas other goals for 2012 and beyond is widening the mouth of the river and providing ample space for larger ships to turn once inside. The ports current turning circle is 400 metres wide, but on both sides of the circle are wharfs that take up valuable space.

Robert Grantham Port of Itaja

Ships are coming in full and going out full, its a good balance c

Port management is studying construction costs for a new 450 metre-wide turning circle to accommodate larger ships. The post-Panamax ships are arriving, container ships on Brazils coast are growing and were definitely a container port now, Mr Grantham says. This is the market of the future, and thats PS what we have to focus on.

Want More?
Michael Mackey wrote Counting on the economy for the April 2010 edition Read the full article at: www.portstrategy.com/features

November 2011

www.portstrategy.com 23