If you had spent the past two years in South America, it’s quite possible you wouldn’t know there’s been a global recession. The continent’s major markets barely blinked in 2009, with GDP either flat or down less than a percentage point. Now those markets are roaring back as strong commodity exports, especially to China, fuel robust economic growth.
But unlike China, there’s much more behind the growth than just exports. For example, Brazil, by far South America’s largest market in terms of population, geography and GDP, has a burgeoning consumer market that is propelling growth and imports.
More and more, those imports and exports are coming from and going to newly developed markets as South America’s major economies diversify away from their longtime North American partners and toward new partners in Asia.
That helped GDP rates in South America to outperform the flat north-south containerized ocean trade volume in 2009. As trade picked up early this year, however, vessel space tightened in both directions, and the trade is largely balanced between imports and exports.
U.S. trade with the continent falls into two distinct regions, the east and west coasts, with the two trade legs following separate paths. U.S. imports from the east coast, including Brazil, Argentina and Venezuela, rebounded strongly in the first half of 2010, but appear poised to slow in the latter part of the year and then flatten, according to Mario Moreno, chief economist of PIERS Global Intelligence Solutions, a sister company of The Journal of Commerce.
Leading the slowdown will be U.S. imports from Brazil, Moreno said, but that will be partially offset by gains in imports from Venezuela because of this year’s devaluation of that country’s currency, the bolivar. Moreno forecasts full-year U.S. imports from the east coast of South America will fall 0.2 percent in 2010 and grow 0.1 percent next year.
U.S. exports to the region, which boomed in the first half, should continue to expand through the fourth quarter, but at a slower pace. Moreno forecasts U.S. exports to the east coast will grow 26.6 percent in 2010, but will drop 1.2 percent next year because of the tightening of monetary policy in Brazil, the main U.S. trading partner in the region.
U.S. container imports from countries on the west coast, including Chile, Colombia, Ecuador and Peru, were flat in the first quarter of 2010 compared to the same period last year, expanded rapidly in the second quarter and should remain positive during the second half of the year and into 2011, largely because of a strong demand for Chilean products, particularly fruits. Moreno forecasts U.S. import growth from the west coast to grow 6.7 percent this year and 7.1 percent in 2011.
U.S. containerized exports to the west coast, which expanded at double-digit rates in the first half, will slow in the second half because of falling consumption in Peru ahead of that country’s 2011 presidential elections and because of Ecuador’s anemic growth. Moreno put full-year 2010 export growth at 10.4 percent, but expects exports to drop 5.5 percent next year because of high unemployment in Colombia, and the gradual weakening of the Chilean peso.
Although growth is picking up, the continent will fall short of its potential until it upgrades its inadequate port infrastructure. Until then, the delays and lack of efficiency will be a major drag on South American trade growth.
“On the east coast, we have seen no improvements, and with volumes on the rise, we are starting to see ports being severely congested,” said Jonas Rosendahl Mueller, Maersk Line’s director of network and product for Latin America.
The region’s inland road connections also remain a work in progress and another obstacle to growth. But there are signs of improvement, as the privatization of Brazil’s ports attracts investment from global terminal operators, and as the government spurs public and private investment in ports and roads. Phase 2 of the government’s Growth Acceleration Program, known as PAC, targets $880 billion in public and private spending on infrastructure between 2011 and 2014.
APM Terminals, for example, in August acquired 50 percent of a container terminal under construction in Santos, Brazil’s largest port and the gateway for the country’s southeast. The terminal will have a water depth of 49 feet and capacity of 2.2 million TEUs when fully built out with three deep-water berths.
Santos, which has annual capacity of 3 million TEUs, will expand to 9 million TEUs by 2014, according to a recent statement by Brazilian Ports Minister Pedro Brito. The PAC program also aims to diversify Brazil’s ports away from Santos by expanding terminals in the fast-growing northeast, including Suape, Sepetiba and Fortaleza.
“The northeast of Brazil used to be very poor, and no one paid any attention to the region,” said Roberto Croce, general manager in Sao Paulo for BDP International, the large Philadelphia-based global logistics provider and non-vessel-operating common carrier. He said ports in the northeast will be ready to accommodate the large post-Panamax ships that will start coming through the Panama Canal in 2014 after it completes its third set of locks.
Croce, whose firm handles internal distribution as well as imports and exports, said his three biggest headaches in managing BDP’s business in Brazil are the difficulties of clearing cargo through customs, the poor condition of the roads and high taxes and duties on imports. “We need lots of paperwork to get the cargoes,” he said of the customs-clearance process, noting the government plans to eliminate paper by converting to an all-electronic system in the next two years.
Poor road conditions cause losses of cargo, especially perishables that spoil during in-transit delays. BDP, Croce said, builds extra time into its distribution network because of the roads, although “on-time delivery is our No. 1 priority.” He holds out hope the government will reduce the landed costs of importing cargo caused by high duties and bureaucratic delays. It’s formed an office to address them, and a study of the costs is under way. “The government now understands that it is essential to work on bureaucratic procedures,” he said.
Ocean freight rates on the southbound leg of U.S. trade with South America fell during the recession, and carriers say they lost money on the trade. As demand picked up and space tightened this year — carriers haven’t restored capacity they cut or consolidated in vessel-sharing alliances over the past two years — rates rebounded.
“Rate increases in 2010 have continued an upward trend started in 2009 in the southbound trade,” said Carlos Velez, vice president and managing director for APL in Latin America. He said northbound rates have remained more stable with few changes. “We continue to seek compensatory rates in both directions,” Velez said.
|“We saw some real basement level rates last year,” said Geoffrey Giovanetti, managing director of the Wine and Spirits Shippers Association, whose members import wines from Argentina, Chile and Uruguay. “They went up this year, but I haven’t seen what I feared — the nibbling to get a little more here and a little more there.” The WSSA negotiates freight rates for its members in March and April.
Giovanetti said carriers have been sticking to their contract rates, unlike in the trans-Pacific, where they have increased rates in mid-contract. The WSSA agreed to the increases asked by carriers in return for securing reserved vessel space.
“We have the luxury that we can anticipate the volume. We’ve told the carriers that if we don’t have the cargo at the loading port within 10 days of the ship’s departure date, they can sell the space to somebody else, as we do on other trades,” he said.
The expansion of South America’s ports, along with the continuous development of ports in Panama and the Caribbean, paves the way for eventual changes in the types of feeder vessels carriers use to serve the east-west and north-south trades, Velez said.
“It seems that they are now preparing for the eventual changeover to fully cellular, non-geared vessels. These are expected as larger vessels start coming to Panama and the Caribbean pre- and particularly post-canal expansion.”
Hanjin Shipping and Hyundai Merchant Marine are teaming up with CMA CGM to launch a new service connecting Asia with Mexico and the west coast of South America. “This comes on the heels of a growing number of newly opened sea routes bound for not only Latin America, but also Africa, because those emerging markets are becoming a force to be reckoned with,” Velez said. He expects carriers to start more north-south services between Asia and South America, a lane that has been largely devoted to bulk ships carrying mineral resources such as iron ore. Some now expect tougher competition among container ship operators, however, because of the market strength.
Contact Peter T. Leach at email@example.com.