Don’t stop the carnival

IT IS a sign of the worrying times in which we live that a gathering of top executives from the Brazilian maritime sector discussing an end to the queues of ships at Brazilian ports is not a matter for frenzied, Carnival-esque celebration.
After years of bemoaning Brazilian ports for the costly delays associated with calling in Latin America’s largest economy, congestion from Manaus to Rio Grande do Sul is now a thing of the past, washed away with more than 40% of the country’s imports and 20% of its exports as a result of the global downturn.
The soft landing so many predicted ahead of the Olympics in China has been anything but, leaving shipping lines almost pining for the bad old days.
“In the first three-quarters of the year, we had 15,298 hours of delays to ships along the coast and as a result we had to cancel 187 calls. All this reflects the lack of capacity in our terminals,” Hamburg Sd’s managing director in Brazil Julian Thomas said.
“With the crisis, this is a thing of the past. Whereas we used to have to wait in line the terminals are now waiting for the ships.”
Investors
For Mr Thomas and many others, the downturn is a golden opportunity to correct the problems that have held back the country’s infrastructure for two decades.
“It is important to remember that the crisis will pass,” Mr Thomas said. “Brazil will start to come out of this crisis with growth again we do not know when, but we have to take the opportunity to do the investments needed in infrastructure.”
He is concerned that a long-running legal dispute between new and existing port investors may have cost Latin America’s largest economy dearly.
“The positive characteristic is that Brazil has the money. It will be at the disposal of those investments that are being seen as viable, but we missed the time when money was cheap,” Mr Thomas said.
“The laws were not clear enough to make investments viable when that investment was needed.”
Many global port developers were now reluctant to invest, APM Terminals’ regional manager for new investments in Central and South America Henrik Pedersen said.
“Nobody is investing right now. No matter where the market is, especially in greenfield developments, which to a larger extent is what is needed here.
“Financing is extremely tight, it is getting more and more expensive, you have declining revenue for your other terminals, so saying that new investments will not be affected would be very optimistic,” he added.
Others disagree, arguing that Brazilian and international private equity infrastructure funds are sitting on the cash needed.
Alongside development banks like local partner BNDES and the multilaterals, the Inter-American Development Bank and the International Finance Corporation, infrastructure funds are screaming out for opportunities to invest in roads, rail and ports.
Miguel Noronha, executive director of private equity group AG ANGRA, believes that a shortage of funds is far from the biggest problem in Brazil.
“The crisis is not circumstantial, it is structural,” he said.
“It is a crisis of management of infrastructure projects. This has a bigger impact on us than the financial crisis.”
While the US, China and the rest of the developed world are embarking on their own infrastructure-driven impetus plans, Brazil has been at work on its stimulus plan since 2006.
The slow pace with which the government’s Plan for Accelerated Growth in Brazil has advanced nonetheless serves as a timely reminder of the speed with which such measures can have an impact.
“We have a series of problems that have nothing to do with the financial crisis. We have funds available, BNDES, Inter-American Development Bank, there is a lot of support but these projects do not happen,” Mr Noronha said.
His fund has R$687m (US$308m) of funds committed but has been restricted in its ability to invest, blaming a “lack of integration in the executive powers and the authorities in control” for the lack of investment.
Mechanism
The investment required is substantial. VKS Partex estimates that Brazilian ports will need to add 81 berths and 34,800 sq metres by 2020 at a total cost of US$31.4bn.
In the next two years, US$3bn of investment will be required to add 10 new berths.
Total volumes in Brazilian ports are set to grow from 700m tonnes a year to 1.3bn tonnes a year by 2020, VKS Partex director Marcos Vendramini said.
In the short term, the funds required are already there, Mauricio Endo, a director for KPMG in Sao Paulo said.
“The banks affected by the crisis are not having any significant impact on infrastructure [in Brazil],” he said.
“From infrastructure funds, which we founded to participate in infrastructure projects, I would say that there is R$10bn (US$4.5bn) available captured for investment and R$5bn for PAC which is money committed.”
Mr Noronha agreed: “What we see in a lot of cases is the money cannot be allocated [because of ] a lack of integration in the executive powers in the authorities in control”.
The proliferation of 17 different government entities engaged in controlling all aspects of ports has become the major obstacle to their development, Ricardo Antunes, chief executive of LLX, the ports and logistics brainchild of Brazil’s serial entrepreneur Eike Batista, said.
“Today one of our biggest problems is the mechanism, the execution of the project. If you want to do a project you have to fight with all the rules,” he added.
Five months after a port law was issued that has eliminated the possibility of private container terminals and set out the framework for future development via concessions, the private sector is still waiting for major movement.
Privatised
Brazil’s special secretary for ports Pedro Brito has said the first of a new wave of box tenders will be offered in the second half of this year.
The ports of Suape, Itajai, Ilheus, Salvador, Sao Francisco do Sul, Sao Sebastiao and Santos are all lining up new container terminal concessions under the new guidelines.
The concessions cannot come soon enough for private investors and developers.
With the exception of Imbituba – a small container terminal privatised last year – the only new container terminals being brought on stream in the last five years, Portonave, Itapoa and Embraport, have been developed privately with the projects taking up to eight years to come to fruition.
Embraport and Itapoa have yet to be finalised, meaning that existing terminal operators have been responsible for keeping pace with soaring demand over the last five years.
A more dramatic expansion, however, is now required, Mr Pedersen said.
The matter is particularly pressing in Santos, Brazil’s largest port, handling 85m tonnes of cargo a year.
“No matter what you do, you have to solve the problem in Santos and we are not any further on than when we were attending this conference [JOC Intermodal South America] this time last year. I would say that we have lost a year,” Mr Pedersen added.