Brazil's new chapter for port development
Brazil is dealing with its image problems when it comes to attracting foreign investment, reports Alex Hughes
In recent years, the Brazilian government has done its best to promote foreign investment in new port projects. However, perceived corruption at the very highest levels allied to a faltering economy have seen many potential investors holding back.
But, with a change of government and improvements to business confidence, money is slowly being attracted, albeit not exactly in the way the government has envisaged. Investors have begun to acquired successful existing companies, rather than splashing out on new projects.
In 2017, for example, Terminal Investment Group (TIL) acquired 100% of the shares in incumbent terminal operator Portonave.
Glauco José Côrte, president of the Federation of Industry for Santa Catarina State (FIESC), says that he hopes this will be a positive move, especially since it should result in existing shipping line calls remaining at the port.
“This is key for overseas trade and for state industry, including for both importers and exporters,” he says, noting that, in 2016, this generated $17.9bn.
“It’s also an important move, since it ensures continuity of efficient port management, with Navegantes-Portonave now in second place in Brazil’s overall ranking for port efficiency, according to the Logistics Institute (ILOS).”
In addition, he notes that this move should also guarantee continued investments in the expansion of the terminal, thereby boosting its operational capacity.
Two's company in Itajaí
In the Itajaí River Port Complex, TIL’s acquisition of Portonave effectively means that its parent company, Mediterranean Shipping Company, more or less controls half of all box handling assets in that area. However, across the bay, at Itajaí, APM Terminals, part of the Maersk group, is the concessionaire.
Significantly, APM Terminals also operates the box terminal in nearby Itapoá, albeit a terminal that serves a slightly different market.
Rather than seeing this as a developing monopoly, since both MSC and Maersk collaborate closely as part of the 2M alliance, Mr Côrte maintains the TIL buy out is a good thing for industry in Santa Catarina. Indeed, he sees the presence of both lines in the state as a virtual guarantee that much-needed maritime outlets will remain for overseas markets.
However, many in Brazil wonder whether there is sufficient independent port regulation in place to prevent monopoly practices from taking root and for price abuse to take place. Although not entirely dismissive of such concerns, Mr Côrte points out that this is not something that simply affects Brazil. Nowadays, the whole world is having to live with mergers between some of the main players in the navigation segment, he notes.
To prevent irregularities from creeping in, FIESC not only monitors the situation of terminals throughout the state, but also has a Transport and Logistics arm that frequently brings together representatives of ports and users to discuss the main challenges facing the industry, then searches for solutions, including looking at tariff issues and other aspects such as structure, efficiency, investment, management and availability of lines.
“We need efficient regulatory agencies that have an adequate structure and independence in place to defend users’ interests,” he says. “In Brazil, the competition authority CADE has been reasonably effective and plays a key role in identifying potential threats.
“This is a sensitive issue and one that does require a careful technical [analysis], while avoiding further highlighting the legal and institutional fragility of the country. But we believe that it is also very important that the user occupies their role of being the main protagonist in denouncing and avoiding abuses and defending their interests,” he adds.
In the very recent past, there has been aggressive competition between Portonave and Itajaí. In 2016, for example, Portonave saw throughput grow by 34% to 905,962 teu from the previous year’s figure of 673,817 teu. In the same period, APM Terminals’ operation at Itajaí registered a 37% drop to 196,226 teu, having handled 309,922 teu in 2015.
In the first ten months of 2017, Portonave reported throughput of 775,333 teu, generated by an average of 60 vessel calls per month. According to Osmari de Castilho Ribas, superintendent-director of Portonave, this represents year-on-year growth of around 3%.“Factors contributing to this result are good infrastructure as well as a well trained and dedicated workforce,” he says. “As a result, we expect to end this year with total traffic similar to that posted last year, which was 910,000 teu.”
At Itajaí, an APMT spokesperson notes that the terminal had been working hard to recover liner volumes as well as diversifying its current portfolio of lines and routes.
In the first 11 months of 2017, 193,559 teu had been handled, compared to 175,634 teu in the same period in the previous year, which represents growth of 10%, something the company attributes to a new, bi-weekly service to/from Asia, as well as to the recovery of the regional trade.
In fact, with such a fluid situation in place, the spokesperson refutes all suggestions of a possible monopoly situation in force at the Navegantes port complex.
“Itajaí competes with several other terminals in the region, among others Itapoá, Imbituba and Santos. Furthermore, many shipping lines are currently using ports in Santa Catarina, operating diverse routes and offering different services for the end users,” says the APMT spokesperson. “Itajaí is handling many different shipping lines - so it’s up to the customers to choose which facility best fits their transit time needs, connections, cost terms, and so on.”
For its part, Portonave hopes that serious attention will be given to both the construction of the much needed new turning basin and to measures to bring draft back to previously higher levels. This, says Mr Castilho, will help to complement good productivity, whereby Portnoave has held the South American record for this ever since October 2014, when 270.4 moves per crane hour were recorded in an operation involving six ship-to-shore gantry cranes that were deployed on a single vessel.
Part of its success comes from investment in infrastructure and facilities, he suggests. In 2015, for example, yard capacity at Portonave was doubled from 15,000 teu to 30,000 teu. The following year, major investment was made in the electrification of the Rubber-tyred gantry crane fleet, reducing diesel consumption in the terminal by 62%.
At present, the customer base consists of ten long distance container lines and one cabotage service.
“This hasn’t changed drastically in the last few years, although some alterations have been made to call patterns due to market needs,” says Mr Castilho.
FOCUS ON ATTRACTING FOREIGN INVESTMENT
In recent years, the Brazilian federal government has been promoting a policy of port expansion, particularly targeting overseas investors. Few so far have felt sufficiently comfortable to buy into new port projects in the country.
Asked what he thought is holding them back, Glauco José Côrte, president of the Federation of Industry for Santa Catarina State (FIESC), is adamant that the main issue is that the Brazilian legal and institutional environment needs to be improved to further stimulate the participation of private investors, be they foreign or domestic.
“We are making progress, but we have to go further, because the Brazilian government has exhausted its own capacity to make investment in this sector. Bureaucracy, lack of clearer rules in the environmental licensing processes, tax environment and centralisation of decisions in Brasilia are the main issues that need to be addressed in order to reverse Brazil's infrastructure deficiencies, not only for ports, but also for highways, airports and railways,” he says.
The inability of the state to bankroll future port development has to be seen as an opportunity for the private sector, he says, not ruling out investment from either domestic sources or those overseas to fill the funding gap.
“It is very important to note that the overall scenario is definitely improving. The passing of extensive labour law reform and clear government signals that the private sector should increase participation in infrastructure investments are examples of this. The existence of new projects and surveys of international groups interested in the Brazilian port sector also reinforce this conviction,” says Mr Côrte.
In respect of what he sees as the main challenges facing the Brazilian ports industry going forward, Mr Côrte cites difficulties with the legal and institutional environment for the management and expansion of both existing ports and also when attracting new investment.
“Another challenge is land access, which requires planning, expansion, maintenance and modernisation. In this sense, FIESC is working to try and see transport diversified. At present, road transport predominates, undertaking 68% of all movements in Santa Catarina. Again, this challenge is also an opportunity for private sector participation,” he says.
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