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New dawn for Latin American ports
(Lloyds List Via Thomson Dialog NewsEdge) THERE is no shortage of plans for investment in Latin American ports. After decades of neglect the region has been deluged with container terminal expansion proposals.
Even the world's largest box terminal operators are finally taking a shine to the region, which moves 31m teu a year, around two-thirds of the volumes in the US and Canada.
All told there are plans to invest more than $17bn in the region's container facilities, with major projects on the drawing board in nearly every country.
'The best business to be in is the container terminal business,' says Richard Klien, chairman of Brazil's most important container terminal, Santos Brasil.
'The second best business to be in is the container terminal business and the third best business is the container terminal business.'
Private sector investors are more than ready to seize the mantle and take Latin American ports into a new era, with facilities capable of handling post-panamax vessels.
On the east coast of South America some terminals are already receiving 5,560 teu vessels, while in Balboa and Mexico, Maersk Line is calling regularly with 6,500 teu vessels.
'The average size of vessels has almost doubled in the last 10 years,' says APM Terminals regional manager Soren Sjokstrand Jakobsen.
Restrictions on transiting the Panama Canal are forcing some lines like Maersk Line to adopt a different tack.
'Post-panamax vessels provide 20%-30% solid cost savings with the lower slot costs other lines will have to follow,' he told the TOC Americas conference in November.
The trend towards bigger vessels has prompted many in the private sector to forge ahead with ambitious proposals for new multi-million dollar investments.
In Panama at the heart of the Latin logistics network Hutchison Port Holdings, the country's largest operator, is ploughing ahead with a $500m investment package in Balboa and Cristobal.
Its rivals on the Atlantic coast, Manzanillo International Terminal and Colon Container Terminal, have similar expansion plans. On the Pacific coast, PSA International has received approval for a $150m investment at the former Rodman naval base.
Marine Terminals Corp and Cosco Group are looking to join the party as well as the two remaining bidders for a new concession for a transhipment facility in Palo Seco/Farfan, close to Hutchison's Balboa operation.
As a key choke point in international trade and handling more than 3m teu per year even before expansion, Panama has become the predominant distribution centre for the region. It is little wonder that total investment planned for its ports is around $1.8bn.
Carlos Urriola, managing director of MIT, is confident that Panama will maintain its dominant position. Other countries are playing catch up.
'What we want to do is basically convey the message that we are ready for business while before there were 150 million reasons, today there are $450 million reasons to believe in Panama.
'The future is bright, we just need to keep playing our cards correctly to be able to continue developing as a centre and a hub for world trade.'
Other countries are beginning to feel the gains from the decision to expand the Panama Canal.
Ecuador and Colombia have benefited significantly from the shift in container traffic towards the Panama Canal, securing important investments from operators unable to secure a position in Panama.
Colombia is expecting investment of $1.7bn in its ports in the next 20 years, with the majority of the investments being made in the next five years.
But investments in the ports alone is not enough and in places like Ecuador and Colombia there is a distinct disparity between the actions of the private and public sector.
Despite strong gains in productivity productivity has reached levels on a par with those in Hong Kong and Singapore in small terminals such as Terminal Pacifico del Sur Valparaiso the sector cannot rest on its laurels, says Ricardo Sanchez, the economic affairs officer of the United Nations' Economic Commission of Latin America and the Caribbean's division of natural resources and infrastructure.
'This improvement is not enough. We can't think about terminal productivity without thinking of the port as a whole.'
Paul Gallie, managing director of Hutchison Port Holdings' Manta subsidiary, Terminales Internacionales de Ecuador (TIDE), has been critical recently of a lack of support from the government which has held back progress on its $468m investment.
The port lacks the road links to the Ecuadorean capital and Guayaquil has lost most of its customers due to an ongoing legal case being pursued by Ecuadorean stevedores.
Political problems can make all the difference in the race to secure a place at the top table for the party when the widened Panama Canal opens for business.
Mr Urriolla says politicians in the region are in danger of becoming complacent.
'People are not reacting; they don't feel that something is going to happen in Panama, that there is a date called 2014,' he says.
'What are rules going to be in the ports, what is the strategic planning?
'We keep forgetting that the company that invented the container industry was Sea-Land. We put in the sea but we keep forgetting the land.
'Latin American cities are very far from ports, infrastructure is still a very big issue, there are highways and there is infrastructure to be developed.' Private investment may be undone by its reliance on public sector funds and action.
'We are concerned about some troubles in the relationship between the private sector and public sector to sustain this growth, and of the growing preoccupation about the public sector that it is not at this level of dynamism to respond appropriately to thesechallenges,' he says.
The success of container lines in moving commodities produced in the region into 20 ft and 40 ft boxes has created welcome challenges for Latin America's container terminal industry.
'On the east coast of South America there has been more than 20% sustained growth in the last five years, but there are a group of ports with performance higher than 20% in the last few years, higher than 30% year-to- year sustained for five years,' he says.
'On the west coast there is an 18% average increase in throughput, some ports are higher than 20% for the last five years.
'You have an increase in productivity indicators for ports and we are seeing very good performance, but our concern is if our countries are prepared to sustain this growth.'
Much of the private investment on the drawing board is contingent on the ability of port administrators to solve environmental problems and put the infrastructure in place that will ensure the success of projects. Driving forward new concessions is an important aspect of being ready for the opening of a widened Canal.
A suspension of new concessions in Chile formerly at the vanguard of South America's container terminal industry has shown how politics can throw a spanner in the works.
Delays in bringing on line infrastructure investments has impacted important developments including the Batistella Group and Hamburg Sud's $230m Itapoa container terminal among others, which was held up for almost two years waiting for a road concession to be awarded.
'Private operators are ready to invest but the port authorities need to progress privatisation plans for existing authorities and invest in road and rail infrastructure,' Mr Jakobsen says.
'For eight out of 10 of the markets where we have a significant trade the investments are not taking place at the pace that is required,' he says.
'The first thing that needs to be realised is that we have to realise that the changes that we are going to see are going to exceed those of the past and will exceed our imagination. As soon as there is the opportunity for a carrier to deploy bigger vessels and reduce slot costs they are going to explore it because rates are going to continue to go down, so there is pressure on the costs.'
He says delays in the past do not bode well for the container terminal industry's ability to keep pace with its customers.
'Callao was discussed for 10 years before it was carried through,' says Mr Jakobsen. 'If these countries want to develop they have to stop discussing and evaluating and start moving.
'In Brazil, eight to 10 years is not uncommon from when you start a project to get a terminal. That is an eternity in our industry and this has to be improved.'
Rating ports in the region on a scale of one to 10, World Bank independent port advisor Martin Sgut says port infrastructure and operations score around seven, while navigation channels score lower at five and areas such as road and rail access, the institutional framework surrounding Latin American ports and trade facilitation score as low as two or one.
Ghislain Lorthiois, deputy general manager of Terminal Link, CMA CGM's container terminal investing and operating arm, says: 'It takes at least 10 years to develop a port; if you look into our archives then you would see that it takes too much time.
'Wherever we go the local partner always knows the president, but the people that do not want to see that port also knew the president, the minister and the congressman.'
Mr Sgut says inefficient port authorities are accelerating a trend towards Greenfield port development.
'If I have a build, operate and transfer project in a port with an inefficient port administration and with high concessions fees, this scenario increases the risk of having close to the port a greenfield private port,' he says.
Projects such as Embraport in Santos, Posorja in Ecuador and Contecar in Cartagena are examples of the trend towards these private developments. Greenfield projects are often subject to more stringent environmental restrictions, adding to the time they require to bring on stream.
These issues have left many pessimistic that the plans on the table will materialise in time to accommodate the cascading down of post-panamax tonnage.
'Will port capacity keep pace with vessel capacity? From what we have seen today the answer is probably no!' says NYK Line North America president Peter Keller.
What has developed in Latin America is a two-stream port network with a handful of terminals capable of handling post-panamax tonnage and the remainder being defined as feeder ports, with shippers incurring the higher costs that transhipment entails. None of the major operators want to be left in the second category.
'Performance is going to be key for the next seven years,' says Mr Urriola. 'It is important that we are looking at what we are going to do before the Canal is expanded. In Panama we used to sell the ports separately. Now we are trying to sell ports, Canal and railway together and we are trying to attract more and more added value.
'We are trying to maintain the rates by giving additional value that other countries can't give. Panama is slowly doing the right things.'
The advantages of bringing in post-panamax tonnage, says Mr Jakobsen, is all too apparent to the shipping lines but only a few of the terminals are likely to win in this scenario.
'The main ports today lack the infrastructure to handle these vessels we are going to see a few winners and more losers in Latin America,' says Mr Jakobsen.
Copyright 2007 Informa Maritime Trade and Transport , Source: The Financial Times Limited
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