A work in progress

A work in progress

The U.S. West Coast has Los Angeles-Long Beach. The East Coast has New York-New Jersey. Europe has Rotterdam. Asia has Hong Kong. Load centers, all.

But South America? The only port that comes close is Santos, and that's only because it serves as the access point for the huge population center of Sao Paulo. In fact, Santos is little more than a transshipment port, albeit a large one.

And therein lies the continent's port industry in a nutshell: A number of regional transshipment facilities that have grown with privatization, but that lack the necessary compo-nents - labor stability and a strong inland intermodal network among them - to raise them to a world-class level.

That's not to say that ports haven't improved in the decade since the privatization effort began. The private terminal operators have invested hundreds of millions of dollars in port facilities, enabling ocean carriers to boost productivity and lower handling costs. "There have been dramatic improvements up and down the coast," said Jim Brennan, a partner with Concord, Mass., consulting firm Norbridge Client Services.

But with trade surging, especially northbound, carriers more than ever are focusing their attention on the ability of ports and terminals to accommodate the increasing size of their vessels. That, coupled with the lack of inland links and frequent labor uprisings, means carriers must remain flexible in their scheduling, regularly shifting vessel calls from one port to another.

Hamburg Sud, the largest carrier serving South America's east coast, expects northbound volume on its deep-sea routes to increase 5 to 7 percent in 2004, said Michael da Silva, the company's director of operations for the east coast of South America. He said southbound growth should be in the 3 to 5 percent range, and cabotage traffic should soar 30 to 40 percent annually for the next two to three years.

While infrastructure at the ports themselves has improved - most now have at least one modern container terminal with cranes that can handle Panamax-sized vessels - productivity is hindered by labor problems and by the continuing interference of public port authorities in port operations. "Political considerations drive the public sector's role in port management and oversight, though this varies by port," Brennan said.

Where ports have been privatized, productivity has improved, but modernization is still very much a work in progress. "Privatization has meant that we've gained guaranteed berthing slots that allow us to adhere to strict schedules that we couldn't offer before," da Silva said. He estimates that the private terminal operators have invested $800 million in infrastructure improvements at Brazilian ports. "As a result, we've seen productivity go up by anywhere from 90 percent to 180 percent at east coast ports, and our operating costs cut by 20 percent to 60 percent," da Silva said.

Other carriers report similar results. Privatization of South America's east coast ports "has been very helpful to our services," said Tom Boyd, a spokesman for Maersk Sealand. "Our customers are seeing higher service levels and improved vessel schedule integrity. Plus, we're able to call more ports."

But the imbalance between north and southbound remains a problem for carriers. That "obviously poses a logistical as well as financial problem," Boyd said.

It's also another reason carriers must be flexible in their scheduling. Complicating matters is that each port has its own advantages and disadvantages, which could change at any moment. Carriers, for example, may have to switch from one port to another because of variables such as changing costs, berth availability, labor unrest and even weather.

Hamburg Sud in April pulled its east coast South America coastal service out of Buenos Aires because of what it called "exorbitant port-transit costs." The carrier shifted its weekly service - operating under the Alian?a Navegacao e Logistica label - across the River Plate to Montevideo. From there, it ran a feeder service across the River Plate to serve the Argentine capital.

Some ports still do not offer guaranteed berthing, while others are still being transformed from breakbulk ports to container ports.

In Brazil, most of the ports serve regional markets. No port has inland transport connections with intermodal capabilities that make ports such as Long Beach or New York-New Jersey load centers in the U.S. Although Brazil's railroads have been privatized, most cargoes are still not containerized. Many ports are still not served

by railroads that can carry cargo all the way to the terminals. Rio Grande do Sul has no rail connections at all. "The trains are inefficient," da Silva said.

That means shippers to and from the U.S. cannot deliver cargo door-to-door with a single multimodal bill of lading. Such deliveries require bills of lading for each segment of the shipment. Only cabotage shipments can be delivered door-to-door with a single bill of lading.

The only Brazilian port that comes close to being a load center is Santos. The Brazilian port is the key transshipment center for feeder lines serving the Mercosur countries of Argentina, Brazil, Paraguay and Uruguay. Santos officials expect the port to handle 1.4 million TEUs this year, up 14 percent from 2002. By comparison, Los Angeles, the United States' largest container port, handled 6.1 million TEUs last year.

In addition to frequent labor strikes, Santos has "no single port authority to watch out for all the players down there," Brennan said. Despite this, Santos will remain the largest port in Brazil, he predicted.

Suape, in northeastern Brazil, aims to become a major transshipment center. But its ambitions were thwarted by labor problems last year that drove many carriers, including Hamburg Sud, Maersk Sealand and P&O Nedlloyd, to the nearby, government-run Port of Recife. Suape has since resolved its labor problems and those carriers have returned, said Jorge Cano, senior vice president of International Container Terminal Services Inc., the Philippines-based port operator that has run the port since 2001.

ICTSI plans to invest $60 million to establish Suape as a transshipment hub for the rest of Brazil and Mercosur by 2006. Suape currently serves only the regional market, although Hamburg Sud uses it to transship cargo to its cabotage services. "We will need to make major investments in post-Panamax cranes and additional yard cranes and space," Cano said. "We plan to top Santos in productivity in the next year."

But that would still leave it far short of the international productivity standards at Rotterdam or New York-New Jersey, da Silva said. Hamburg Sud measures productivity by the number of containers a crane loads or unloads each hour. "In most world ports, a single modern crane can handle 25 to 30 picks per hour, but we're getting only 37 at Santos, and that's with at least two cranes," da Silva said. "That's about half the standard rate in the rest of the world, and I'm very concerned about that."

Brazilian ports are "wallowing" in an "extremely mediocre range" of 25 to 30 picks per vessel with two cranes, he said. This hurts productivity and means that vessels have to spend more time in port. Most ports only have two cranes per berth, while most ports on a global standard can offer at least four for larger vessels. "They'll have to get over their stubborn reluctance to work two or three cranes per vessel," da Silva said.

The Port of Sepetiba, which serves the region around Rio de Janeiro, and Santos are likely to make the investments in new container cranes that can collectively provide the 75 to 80 picks per hour rate needed to handle the larger vessels, he said.

The ports in the region that have seen the biggest improvements and the largest increases in productivity are in Argentina. "Buenos Aires is cranking out at least 52 picks per hour per vessel," da Silva said. "It's on a world standard."

Norbridge's Brennan agreed. "Buenos Aires has modular wharves and cranes that can handle Panamax vessels."

In a twist, though, the equipment has been utilized fully because Argentina's economic crisis has devastated port throughput. Buenos Aires, which had been gaining traffic throughout the 1990s and even toppled Santos as the top port on the east coast, has been losing traffic for three years to Montevideo and Rio Grande do Sul on Brazil's southern border. In 2002, Buenos Aires handled 482,800 TEUs, down from 650,300 TEUs a year earlier.

But business has picked up recently. Five of the six terminal operators that serve Buenos Aires in the Janu-ary-June period recorded their first increases in five years, with total throughput increasing 15 percent over year-earlier levels. Still, traffic is far below what the port handled five years ago.

"Argentina is getting back on its feet, but new investment in ports has stalled and we're concerned about that," da Silva said. He questioned whether Buenos Aires would be able to acquire post-Panamax cranes by 2005 when Hamburg Sud plans to put vessels of that size on its mainline services to ports on the east coast of South America.

The lower volumes have caused Hamburg Sud to reduce service to Argentina. The carrier now terminates its U.S. Gulf Coast service in Rio Grande do Sul instead of Buenos Aires. But it continues to run its mainline services to and from the U.S. East Coast and Europe to Buenos Aires.

Even when Argentina's economy begins to recover, traffic through Buenos Aires will be constrained by the depth of its channels. Because of the economic crisis, the government has not had the funds to invest in dredging.

But Buenos Aires' loss is Montevideo's gain. "Until recently, Montevideo has been a rather secondary little port that had feeder services up and down the Plate," da Silva said. "But now you see more lines going direct."