Brazil: Santos Port Prepares for Large Vessel

Business Monitor International’s Brazil Shipping Report provides industry professionals and strategists, corporate analysts, shipping associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil’s shipping industry.

BMI believes 2012 will be another year of strong growth for Brazilian ports. The sector experienced growth of 7.1% in total tonnage throughput in H111. Although BMI expects this good level of growth to continue during its forecast period, it cautions that there are a number of risks to its outlook for the country’s booming shipping and freight transport sector, including the infrastructure deficit and signs of overheating in the Brazilian economy.

BMI notes that Brazil’s ports have not yet developed the infrastructure needed to handle increasing throughput levels, causing sever delays and increased costs for shippers. As such, it expects to see more investment in infrastructure, both public and private, as ports seek to deal with growing traffic and to capitalise on increasing trade opportunities.

BMI is also concerned that Brazil has some of the lowest saving rates in the region, and growth in real average incomes has been slowing for some time. These factors, combined with a recent uptick in nonperforming loans, point to the possibility of a slowdown in consumer spending in the coming months.

This could result in a repricing of Brazil’s previously unstoppable consumer growth story, hitting container imports.

Headline Industry Data

- 2012 Port of Santos tonnage throughput to grow 12% year-on-year (y-o-y) to 120mn tonnes.

- 2012 Port of Itajaí tonnage throughput to grow 15% y-o-y to 13mn tonnes.

- 2012 Port of Santos TEU throughput to grow 16% y-o-y to 3.3mn TEUs

- 2012 Port of Itajaí TEU throughput to grow 9.2% y-o-y to 1.1mn TEUs

Key Industry Trends

Dredging to allow Santos handle larger vessels as it struggles to cope with demand work has begun to improve access to the Brazil’s Port of Santos. A dredging project will give some terminals at the facility a deeper draught and a much wider turning circle, enabling them to handle larger vessels. This will improve efficiency at the port, which suffers from severe congestion at times of high demand.

Flood Damage Presents Downside Risks To Itajaí Forecasts

Heavy rain again disrupted operations at the Brazilian port of Itajaí in the state of Santa Catarina in September 2011. Dangerously high river levels and strong currents caused serious flooding at the port, suspending operations for almost a week and causing substantial losses at Brazil’s second busiest container terminal. Although the port’s throughput levels have made a strong recovery after being badly affected by floods in 2008, BMI cautions that the possibility of further damage presents downside risks to its forecasts.

Sunny Outlook For Salvador As Box Volumes Boom

Investment in Brazil’s booming port sector is continuing apace. Tecon Salvador has signed a loan agreement to finance the expansion of its container terminal in Salvador, in the northeast of the country. BMI believes the new terminal will be well positioned to handle the port’s increasing container volumes, which should be bolstered by both rising consumer demand and a new initiative to ship soybeans in boxes.

Risks To Outlook

Potential downside risks to BMI’s outlook include the possibility of reduced Chinese demand for Brazilian commodities exports, such as iron ore, in 2012 due to monetary tightening. This would have a knock-on effect on its demand for raw materials. China replaced the US in 2009 as the biggest importer of Brazilian products, therefore any slowdown in Chinese spending would have a negative effect on Brazil’s port sector.

A second downside risk is the possibility that Brazil will not be able to improve its port infrastructure in order to keep up with global demand for its main exports. The poor state of Brazil’s port infrastructure has been a cause of concern for BMI for some time. Investment in infrastructure has not kept up with the rapid progress made in other areas of the economy. The chronic infrastructure deficit was clearly demonstrated in mid-2010, when ships queued for as long as a month to load sugar from local ports, as a record crop, high demand and wet weather combined to slow loading. These kinds of delays raise questions as to whether the country will be able to meet rising demand in the run-up to the 2014 World Cup and the 2016 Olympic Games.

Brazil has some of the lowest saving rates in the region, and growth in real average incomes has been slowing for some time. These factors, combined with a recent uptick in non-performing loans, point to the possibility of a slowdown in consumer spending in the coming months. This could result in a repricing of Brazil’s previously unstoppable consumer growth story. If this scenario plays out, BMI could see a drop-off in container volumes, which would hit ports such as Santos and Itajaí hard.

Brazil’s economy benefits from an almost perfect commodity mix, a rapidly rising consumer base and a government committed to improving the country’s investment climate, suggesting that it will continue to grow at a robust pace over the coming years. However, a reluctance by monetary policymakers to tighten credit conditions for fear of hurting growth and sending the currency higher against the US dollar – thus hurting exporters – has resulted in signs of overheating in the economy. Over the long term, BMI cautions that Brazil’s economy faces a lack of diversification and an increasing dependence on high commodity prices, threatening growth rates and employment if policy makers are unable to boost domestic export competitiveness.