Kick starting Brazilian ports revolution

Santos New Codesp has big plans for the future of Santos

South America’s biggest container volume port, Santos, is forging closer ties with China and targeting profitability, as Rob Ward discovers.

Casemiro Tércio Carvalho is CEO for Codesp, the port authority for Santos and he is a man on a mission to forge closer ties with China and making South America’s largest
volume container port profitable through incentives that “internationalize and modernize” the facilities.

It is a mission to shake the foundations of the way Codesp has been operated for the past 30 years and it includes renegotiating dozens of expiring concession contracts, taking on the dockers and port authority unions, slashing costs, raising revenues and finding new revenue sources.

He also wants to formulate new dredging contracts that can guarantee a permanent draft of 15m for the arrival of the next generation of big vessels for the East Coast of South America that are larger than the 12,000 TEU maximum-sized capacity vessels handled today.

There are dozens of other “Tercio” initiatives in the pipeline and the process should end up, according to the ambitious Carvalho, with the privatisation of Codesp and it being floated, uniquely for a port authority in South America, on the Bovespa, the Sao Paulo Stock Exchange.

Last year, Codesp posted a loss of Reais 468.7 million ($125.3 million) and that, according to Carvalho, who was personally appointed by Tarcísio Gomes de Freitas, the Minister
for Infrastructure and Transport, was a “terrible state of affairs” and he argues strongly that the port should be making money not losing it.

Codesp and Carvalho have already made progress vis-a-vis this mission and for the first half of this year posted profits of Reais63.5 million, 16 times more than the Reais4 million made during the same period of 2018.

“We are increasing the fees we charge and although I don’t want to bite too much into the profit of companies operating in the port, I really have to make sure that we make our margin,” Carvalho told Port Strategy.

Codesp’s president has the full backing of Gomes de Freitas, one of the most powerful ministers in Brasilia, as well as President Jair Bolsonaro himself - the “Tropical Trump” who rules with a maverick flair and wants to cut back on public companies and encourage more privatisations.

Carvalho is not, however, supported by many companies working in the port of Santos, which accounted for 4.2 million TEU in 2018, some 45% of all Brazil’s containerised trade as well as about 32% of all foreign trade.

“One problem he has is that every time you increase your rates, the shipping lines, then the shipper and finally th consumer ends up paying for it and I am not sure Bolsonaro and
his government want to see an increase in transport costs,” said one box terminal manager. “In fact, it’s quite the opposite. Carvalho is rattling a lot of cages in Santos and not always to good effect. We need changes here but there is a correct way to do this and he doesn’t always grasp that. He has no experience of managing a major port and this is counting against him.”

Previously, Carvalho worked mostly for investment funds in the financial sector and served just two years as an executive at the small liquid bulk port of Sao Sebastiao. Despite the lack of experience, he is convinced his methods will work and that, being an outsider, this will help him to “clear the dead wood”.

“We want to cut costs and increase revenues and I began to do this almost from day one,” added Carvalho, confirming, “The idea is to make the dock company leaner and fitter and to do that we have to understand better the existing costs and then cut them, and this means firing people.”

BOTTLENECKS?

“In order to raise revenues we have been re-negotiating new contracts. The aim is to increase the fees, where possible, by up to twice what they are today. We will do all this in an open and transparent way.” Carvalho stated.

The Codesp president said he had already signed a new contract with port operator Tranbrasa that will bring in 32% higher revenues than the previous one and he was working on raising prices for other concessionaires.

He admitted, however, that negotiating increases with big port powerhouses like Petrobras (the state controlled oil giant) might “prove more difficult”. Carvalho confirmed that in return for higher tariffs, shipping lines and port operators would get to use a better infrastructure, with more money being spent on roads, rail and dredging and “we will also see better, more professional management systems put in place”.

Carvalho further stressed to Port Strategy that it was his intention to slash the number of employees at Codesp from 1300 to 500, maybe even less, but attempts by him to reduce some payments and work benefits to Codesp’s workforce have already been delayed after fierce resistance from the Sindaport trade union representing those workers.

A truce in that dispute has been called until the end of the year but Carvalho did have some success with his “intervention” in 21-day strike action back in March by the Sindestiva trade union (which represents the casual labour, or OGMO, workers in Santos).

Under his initiative Codesp obtained a “liminar” (an immediate court order) which restricted OGMO workers from “invading” any vessels in Santos - as they had done in the past to win previous disputes - by threatening them with a Reais 100,000 per day fine.

Since the days of Presidents Dilma Rousseff and Lula labour unions have been in retreat in all sectors throughout Brazil, but are still a potentially potent force.

The Codesp executive also has a mission to “internationalise the port of Santos and attract more foreign investment and business” and this received an extra boost when Carvalho attended the Shanghai for the 5th Maritime Silk Road Port International Cooperation Forum”, Prior to the conference he met logistics operators and shippers in Hong Kong and Shanghai and has declared an intention to set up an office for Codesp in Shanghai.

Once new contracts are in place and more revenue is forthcoming Carvalho hopes, in about three years’ time, to “propose an IPO on the Bovespa, our stock market” for about 40% of the shares.

He added, “Because of the share structure, Codesp will still be in the control of Government hands but this will create an environment where the private sector has a much greater say, on compliance and transparency and it can also share in the profits of a revitalised Codesp and a new way of governance. Also, if we get more people on the board from the private sector we can protect the dock company from the politicians.”

Carvalho has also commissioned a study into a long-term concession for dredging operations in the port of Santos, to reduce the expensive short-term maintenance contracts that have dominated dredging in recent years.

He told Port Strategy that dredging contracts in recent years had been “expensive, erratic and not sharply focused on the port’s needs” and that the best solution would be to have a dredger positioned permanently in Santos for both maintenance and deepening dredging.

“I think the best solution to achieve and keep a regular 14m would be to have a long-term contract, a concession of 30 or 35 years. This is what I will be working on,” he explained.

However, not all parties in Santos are pleased about potential developments. One Santos-based shipping agent told Port Strategy that Carvalho’s actions this year have, ironically, often been political and are having the opposite effect to those intended and he is not at all optimistic that the private sector will be interested in buying shares of a state
controlled entity.

“It saddens me to say it, but the new Codesp president has upset a lot of people when he tried to force CMA CGM into taking out a temporary contract at Libra Terminais in April, when the carrier was moving its Asia joint service to DP World and Libra had its financial problems,” said the Santos veteran, who was lived and worked his whole life in the port city.

“He’s supposed to be trying to reduce political interference but that move smelt very strongly of political meddling. Also, I have no idea who will buy the 40% of the new company without knowing the whole set of rules. While the government has the majority of shares this would be a bad investment,” he stated, before concluding, “Some of the projects Carvalho is promoting might arouse the interest of Cade, the monopolies commission, in my view.”

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