CARNIVAL TIME SQUEEZES PORT CAPACITY

Brazil's remarkable success in the expansion of soya, grain and iron ore exports is in danger of being undone by capacity problems in its leading terminals, according to brokers and shipowners.

In the movement of soya alone it is estimated that by 2010 the country will be producing 60m tonnes a year of the crop, almost a third of total global production.

Congestion in Brazil's agribulk terminals combined with soaring freight rates has forced shipowners to hit the country's agricultural exporters with growing premiums to cover the mounting risk of runaway costs during loading.

Costly delays due to record harvests have been exacerbated this year by strike action in key ports. Unless there is extensive investment in facilities the situation is unlikely to change. "The main problem has been a return to the bad old days of heavy congestion, " says Oceanbulk Shipping & Trading md, Mark Trickett. Earlier this year due to strikes, he says, "Paranagua was getting close to a month waiting time and Sao Francisco Do Sul actually reached one month."

At the height of a week-long stoppage in Paranagua, Brazil's leading export point for soya, at the end of March, up to 30 ships were left waiting to load. "With daily demurrages reaching as much as $50,000 on the modern Panamaxes and around $25,000 on the smaller 27,000 dwt range Handies, the cost to the exporters of these delays has been huge, " says Trickett.

Companhia Vale Rio Doce, the world's largest iron ore exporter has seen its demurrage costs more than double to $46m as a result of congestion at its terminals. Already congested due to the volumes being moved through the ports, Paranagua, Recife, Santos and Sao Francisco do Sul agribulk facilities are similarly all badly in need of additional investment to ease the logjams.

Paranagua, Brazil's largest grain port, is investing $52.4m to increase the total length of its berths from 2,600 to 3,400 metres.

It will also dredge the port to 12 metres alongside all berths.

Expansion is due to be completed within the next two years.

North American food specialist, Bunge also has plans to invest $1.3 billion in Brazil, $300m of which is being aimed at its port and logistics network in an effort to reduce the bottleneck.

Bunge president Alberto Weisser has said the company will invest $100m in its facilities in Santos, where it has a stake in a new grain terminal TGG being built next to Tecon 1 container terminal. It has also earmarked $30m for Sao Francisco do Sul and additional funds for Paranagua. Bunge estimates that Brazilian soya exports will increase by at least 6% a year over the next six years.

In Sao Francisco there are plans to widen the berth by 6 metres and strengthen the structure to allow the berthing of Panamax vessels of up to 65,000 dwt.

And in Santos, the region's largest port, the port authority, Codesp has issued a tender for dredging works. The port has lost up to 1.6 metres of its draft in some places taking its depth to 12.4 metres in some parts of the port. Plans to dredge are designed to take the draught back to a minimum of 13 metres. In the future there are plans to increase the depth to 14 metres to accommodate larger vessels. The local government and Codesp are both determined to increase the port's share of the grain trades leaving the country.

Codesp has backed expansion of three grain terminals in the port that will see capacity expand by almost 1.4m tonnes over the next ten years on the back of investment of more than $10.6m in three facilities. Itamaraty Agenciamentos e Fretamentos has been awarded 4,700 sq metres of terminal space at Warehouse 12-A for the construction of new warehouses with a storage capacity of 60,000 tonnes. Codesp has also awarded 3,500 sq metres at Warehouse 13 to Cereal Sul Terminal Maritimo, a joint venture between Portway and Spartacus, which will see the establishment of a new operation capable of handling 500,000 tonnes of grain a year. The port's largest grain operation, TGG, has also announced plans to increase its capacity to 1.5m tonnes a year.

Plans being developed within the boundaries of Codesp are also being complemented by new developments proposed by the state government. One of the proposals to develop Sao Sebastao outside Codesp's boundaries has been approved by the local government. The terminal currently operates with a small 200 metre berth but a first phase of expansion will create safe berthing of larger vessels and the construction of modern warehousing facilities. A second phase will create two piers with a patio allowing four vessels to berth simultaneously. Total investment by the government owned body Dersa, will be more than $23.3m.

CHINA FUELS IRON ORE FIESTA As well as the phenomenal success of the country's agribulk business, Brazil's largest mining company, Companhia Vale do Rio Doce (CVRD) has also been driving port developments to keep up with the insatiable international demand for iron ore. CVRD's total iron ore and pellet exports reached 186.3m tonnes in 2003, more than a third of the world's total seaborne volumes, allowing the company to report net profits of $1.55billion.

While global seaborne volumes rose by 10.3% in 2003, reaching a record 537m tonnes, CVRD saw its exports jump 13.5% from the previous year's figure of 164.2m tonnes. The growth is being driven by a 32% increase in Chinese iron ore consumption. The company will continue to profit from this apparently insatiable demand, through rising prices, and the opening of a third pier at its privately owned, Ponta da Madeira bulk terminal in the north of Brazil in January is set to add to growth in export volumes this year.

Investment projects such as this should ensure that 2004 production increases are significant but they are unlikely to be enough to keep pace with global demand, according to Nelson Silva, CVRD director for the company's iron ore division. Increase in the port's capacity coupled with investment in new mining equipment enabled the company's largest mine, Carajas in the north of the country, to increase its production capacity from the 58.9m tonnes of iron produced last year to 70m tonnes in 2004.

The increased production will be handled by the opening of the third pier at Ponta da Madeira. At a cost of some $40m, the improvement has increased the port's handling capacity by 18m tonnes a year. The company has earmarked $11.8m for the second phase of the Pier III expansion, which is due to be completed in 2006 and will lift capacity to 85m tonnes a year.

PPP BASED ON UK MODEL As Brazil seeks to resolve the issue of investment shortages the country is pushing ahead with a groundbreaking public-private partnership to help improve facilities in the port of Itaqui, Sao Luis, through which much of CVRD's volumes move. The government of Luis Inacio 'Lula' da Silva is close to approving a PPP bill based on the model used in the UK in a bid to accelerate private investment in the country's most urgently needed infrastructure projects.

As part of the bill, the government has drawn up a list of 23 different projects where the PPP model could be applied. The list comprises road, rail and port development projects as well as irrigation schemes in key agricultural areas. The PPP model encourages private sector investment in infrastructure projects in return for long-term secure service contracts guaranteed by the federal or state governments.

In the case of the port of Itaqui, in the northeast of the country, the government is seeking $55m in investment to add 300 metres in new quays and an additional 250,000 sq metres of storage area.

The port is a key export point for grain, steel and iron ore commodities. CVRD, which rents one of the quays at the government-owned facility for its operations, is believed to be interested in participating in any potential bid.

Chinese steel producer, Baosteel as well as Acelor and Alcoa also have an important presence in the port. The facility, according to the government, has a potential for 1,616 metres of quay with a depth of between 10.5 and 20.5 metres.

CVRD has also started to build its copper export business through the port this year after completing its greenfield copper mine Sossego, also located in the Carajas region. The operation was inaugurated in July following the first shipment on June 3. With an initial export capacity of 140,000 tonnes a year, by 2010 the port forecasts it will be handling 650,000 tonnes of the commodity each year.