The past year has seen the final demise of Libra Terminals. The private container port operator controlled by the Rio de Janeiro based Torrealba family, has seen Libra Rio sold to International Container Services Inc (ICTSI) and its flagship Santos operations (Terminals 35 and 37) close down.<\/p>\n
On top of this there have been strong rumours, circulating in Santos, that Santos Brasil \u2013 South America\u2019s largest box terminal operator \u2013 was also up for sale and both China Merchants Port Holdings and APM Terminals had shown an interest. <\/p>\n
Leandro Carelli Barreto, a Sao Paulo-based consultant with Solve Shipping, says Santos Brasil is the last \u201cnoiva\u201d (bride to be), of significant size in the Brazilian panoply of port terminals still in Brazilian hands and so will be much coveted by potential buyers.<\/p>\n
Plus there is also Wilson, Sons, another of the few surviving Brazilian based port operators, which saw the \u201cwriting on the wall two years ago\u201d and went through a long and tortuous process of evaluation \u2013 deploying several international audit and consultancy firms\u2013 and searching for a buyer, but in the end decided, in the middle of 2019 to continue with its two box terminal operations, in Salvador (in northeast Brazil) and Rio Grande (in the far south on the border with Uruguay) \u2013 see Wilson, Sons Removes Terminal from Market, for Now panel.<\/p>\n
\u201cIt\u2019s becoming more and more difficult for the independent Brazilian port operators to make a profit because of the continuing concentration of the shipping lines,\u201d said Robert Grantham, a director of Navegantes based consultancy Solve Shipping, who used to be Brazil country manager for China Shipping and commercial director at the Port of Itajai, before explaining the outcome. <\/p>\n
\u201cTherefore Wilson, Sons and Libra had sensed an opportunity to cash in their assets while they still have some value to prospective buyers, be they units connected to shipping lines or international Terminal Operating Companies [TOCs].\u201d (See Wilson, Sons Panel below).<\/p>\n
THE PRIVATISATION PROCESS<\/p>\n
When the Brazilian port privatisation push began back in the 1990s \u2013 initially with Grupo Libra winning the concession for Terminal 37 or 35 in 1995 \u2013 it led to the eventual creation of a number of efficient, profitable companies that started to invest in modern, up-to-date equipment and offer good services for highly profitable rates. <\/p>\n
Santos had two large (Libra Terminais and Santos Brasil) and two small (Rodrimar and Tecondi) box terminals, but with little outside competition terminal handling rates remained artificially high until 2013.<\/p>\n
The privatisation process in Brazil continued into the 2000s and by 2010 Wilson, Sons (two operations, one in Rio Grande in the far south of Brazil and one in Salvador, in the northeast), Grupo Libra (also with two, one in Santos and another in Rio de Janeiro) and Santos Brasil (with operations in Santos, Imbituba and Vila do Conde), which had become the biggest national TOC in all South America.<\/p>\n
There were also individual terminal operators, including Tecon Sepetiba (in Itaguai, Rio de Janeiro state and owned by Brazilian steel giant CSN), Terminal de Conteineres de Paranagua (TCP) in the southern port of that name, Terminal Vila Velha (owned and operated since 1998 by Log-In Logistica, the last Brazilian owned container ship operator), Teconvi (in Itajai, which was eventually bought by AP Moeller Terminals in 2007) and the two mavericks in Manaus (Superterminais and Porto Chibatao).<\/p>\n
Aside from market leader Santos Brasil, and Libra Terminais, the port of Santos, the biggest in South America for containers with an estimated 4.2 million TEU handled in 2019, also hosted Tecondi (now called Ecoporto Santos) and Rodrimar, which, as recently as 2012, handled 16.4% and 5% of Santos\u2019s overall traffic of 3,171,685 TEU. <\/p>\n
That year, Tecondi handled a record 324,987 TEU while market leader Santos Brasil took 54.7% of the market, with 1.733million TEU and Libra handling 755,000 TEU for a 23.3% share. <\/p>\n
However, during the first 11 months of 2019 (the latest figures available from Santos Port Authority), Ecoporto handled a mere 0.45% and Rodrimar close to zero \u2013 with all of those boxes lifted from ro-ro vessels.<\/p>\n
NEW CAPACITY FOR SANTOS IN 2013 \u2013 AS PERFECT STORM ARRIVES<\/p>\n
Embraport (a joint venture of Odebrecht, the Brazilian owned construction giants and DP World, plus Coimex Trading) and BTP (another joint between Terminal Investment Limited (TIL \u2013 Mediterranean Shipping Company\u2019s terminal investment arm) and APMT) opened for business in mid-2013. <\/p>\n
A total of 2.4 million TEU of extra capacity was added, taking overall capacity to 5.5 million TEU per annum. The demise of Rodrimar and Tecondi occurred promptly, although at the time managers at both installations insisted: \u201cWith the economy expanding the way it is there will be enough business for everyone.\u201d<\/p>\n
Then the impact of what veteran Tecondi\/Ecoporto executive Luiz Araujo called \u201cA Perfect Storm\u201d, of more capacity becoming available exactly as the Brazilian economy began to stall, before it eventually tanked. Hence, shipping lines began to cut or merge services as the alliance system (2M, Ocean Alliance and The Alliance) began to take hold.<\/p>\n
FIRST SUCCESSFUL INTERNATIONAL TERMINAL OPERATOR ARRIVES – ICTSI<\/p>\n
The first international TOC to enter Brazil was ICTSI, back in 2002 when it began operating Tecon Suape at the Suape Industrial Port Complex near Recife, in Pernambuco state. It now hosts a 750,000 TEU annual capacity terminal with a deep draft of 15.5 meters and the Philippine company has recently completed the takeover of Libra Rio (from Libra Terminais).<\/p>\n
ICTSI has shown an interest in bidding for\/taking over various other port facilities in Brazil to add to its other South American operations, which include Tecplata, in La Plata, 50km from Buenos Aires, Puerto Aguadulce, in Buenaventura (Colombia) and Contecon Guayaquil (Ecuador).<\/p>\n
Then APMT increased its share in Teconvi Itajai (taking 100% in 2006) and did the same at APMT Pecem on the north coast, and of course it also has a 50% share in the BTP joint venture with Terminal Investment Limited, the MSC stevedoring arm.<\/p>\n
Mid-2013 was clearly a watershed time in Brazil. BTP (consisting of two shipping lines in Maersk Line and MSC) plus Embraport (then 50% owned by DP World now 100% owned) opened for business. This led to immediate handling rate cuts of 20% and many rates falling to between $100 and $150 per move, after Libra became desperate to keep CMA CGM on board.<\/p>\n
SQUEEZE ON INDEPENDENTS CONTINUES<\/p>\n
The pressure on independent Brazilian port operators has been exacerbated by the expansion of shipping line activity into port operations and it began with Alianca Navegacao (a subsidiary of Hamburg Sud originally, now part of Maersk Line) taking a 30% share of the Porto Itapoa project, just outside the southern port of Sao Francisco do Sul (70 km from Itajai). The project took a long time to get to fruition, with the first vessel not operated until May 2012, allowing MSC to become the first pure carrier to operate a box terminal in Brazil, via its share in Portonave, which opened for business in October of 2007.<\/p>\n
APM Terminals always claimed it was an independent entity from Maersk Line, although the two companies have drawn even closer in recent years.<\/p>\n
The third major shipping line in the port and terminal business in Brazil is CMA CGM. The French line has retained a keen interest in port concessions since around 2000, from Belem and Vila da Conde in the north, to Suape in the northeast and Santos in the Southeast regions.<\/p>\n
At one point it looked like the French carrier, via its subsidiary Terminal Link (TL) would take over the two Santos terminals belonging to Libra Terminais (T-35 and T-37) when it switched several of its services there, saving the facility from closure. Ultimately, the ocean carrier moved to DP World Santos anyway.<\/p>\n
Jan Hoffman, the head of the Trade Facilitation Section of UNCTAD (the United Nations Conference on Trade and Development) and former executive of ECLAC (Economic Commission for Latin America and the Caribbean) in Chile, says that events in Santos during recent years are typical of what has been playing out all over the world.<\/p>\n
\u201cOver the past few years we have seen shipping lines increasing the amount of vertical integration in their logistics chains,\u201d explained Hoffman, \u201cand this has seen them buying into and developing port terminals all over the world. This and the purchase of logistics companies like CEVA [by CMA CGM] has led to a large degree of Verticalisation occurring in key ports around the world.\u201d<\/p>\n
Hoffman said that the UN had carried out several studies into the effects of \u201cvertical integration\u201d of carriers and the effect it is having on both multinational and national TOCs, and especially the way that \u201ctransfer pricing\u201d is leading to carriers shifting tax liabilities to lower cost tax jurisdictions.<\/p>\n
There is also the issue of preferential pricing for \u201coutsiders\u201d. \u201cWhatever APM Terminals charges to Maersk Line will not necessarily be the same as it charges others,\u201d suggested Hoffman. He added, \u201cIt will not necessarily be a market price but what\u2019s more convenient as to who pays more taxes in that jurisdiction.<\/p>\n
He is sure of what has since occurred. \u201cThese scenarios were not taken into account when the concessions were drawn up and bid for and it\u2019s very difficult for Competition Authorities to regulate this,\u201d before also stating, \u201cThe big question is the Alliances. They are clearly strengthening the negotiating positions of the carriers.\u201d<\/p>\n
The UN stalwart pointed out that a few years ago when independent TOCs went into negotiations with carriers to bring in their services if one declined there were plenty more options available to entice in, but this is no longer true.<\/p>\n
\u201cIn the past a port operator would negotiate with a shipping line and if no agreement was reached on price their commercial people move on to the next, then the next until a deal is made. Now there are really only three clients among shipping lines – the three alliances – so you cannot do that anymore and this greatly strengthens the negotiating positions of the carriers.\u201d<\/p>\n
Hoffman and other specialists, including Grantham and Barreto, have stated that the demise of national terminal operators will continue in Brazil, at least for now. There is a need for the economy and box movements to picks up.<\/p>\n
Meaning the likes of Santos Brasil and Wilson, Sons can will wait until the \u201cright offer\u201d is made. When negotiations begin again it will be carriers v international terminal operators all over again.<\/p>\n
Wilson, Sons Removes Terminals from Market<\/p>\n
After more than a year of discussions, Wilson, Sons \u2013 the Brazilian shipping group with 180 years of experience in South America \u2013 took its two container terminals, Tecon Rio Grande (TRG) and Tecon Salvador, off the market due to the lack of a suitable offer.<\/p>\n
Reliable sources in Brazil told Port Strategy<\/em> that Wilson, Sons directors felt the time was \u201cnot quite right\u201d to sell off the two strategic box terminals, which they had valued at around Reais 1 billion (US$240.6 million) for the pair about one year ago.<\/p>\n It is also understood, from sources within and without Wilson, Sons that a solid bid was made for Tecon Salvador but not for TRG and also that a number of potential bidders \u2013 among them APM Terminals, China Merchants, DP World, Hutchison and PSA Singapore \u2013 were also put off by the \u201cincerteza Juridica\u201d (or juridical uncertainty) and the negative things said about Muslim countries and China by new President Jair Bolsonaro (when he came to power in December of 2018) \u2013 this fed back into the juridical uncertainty that emanates from a fragile government without crystal clear policies and legal processes.<\/p>\n That was the view of one veteran Sao Paulo based consultant and he added that although TRG might be considered the more valuable asset \u2013 strategically located as the last Brazilian port before an extra day\u2019s sailing to the River Plate ports of Montevideo and Buenos Aires and larger with 1.4million TEU annual capacity compared to Salvador\u2019s 430,000 TEU \u2013 the strategy among carriers might be that they can save on the number of vessels in a string if they tranship from Salvador, in Throughput at TRG was approximately 780,000 TEU and Tecon Salvador handled around 320,000 TEU. Not willing to split the two terminals, Wilson, Sons has indicated that it will consider its options at the end of 2020 or early 2021.<\/p>\n In August of 2017 CMPH paid Reais2.9 billion ($694 million today but was $924 million at the time of the transaction) for 90% of TCP in Paranagua, equivalent to 13x the EBITDA (Reuters) of Brazil\u2019s second biggest terminal for containers. MSC paid 11x EBITDA for the 50% of Portonave (in the Itajai port Complex) that it did not own. These ratios have, seemingly, set the perceived value among prospective sellers such as Wilson Sons and Santos Brasil.<\/p>\n One experienced analyst for an international consultancy said that the increased competition for TRG cargo emanating from Porto Alegre, in the guise of Santa Catarina operators Portonave, APMT Itajai and Porto Itapoa, could be another reason for carriers valuing Salvador more than TRG. \u201cThere seems to be considerably less competition for Tecon Salvador and that is bound to be a key factor,\u201d he told Port Strategy<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":" Home-grown Brazilian container port terminal operators could soon be extinct, as they face increasing competition. Rob Ward charts the transition.<\/p>\n","protected":false},"author":8,"featured_media":914,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[56],"tags":[],"sponsor":[],"class_list":["post-913","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-south-america"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/913","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/comments?post=913"}],"version-history":[{"count":1,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/913\/revisions"}],"predecessor-version":[{"id":915,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/913\/revisions\/915"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media\/914"}],"wp:attachment":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media?parent=913"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/categories?post=913"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/tags?post=913"},{"taxonomy":"sponsor","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/sponsor?post=913"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
the northeast rather than turning in Rio Grande. <\/p>\n