November 22, 2014
Brazil ports expansion, not Panama Canal’s, the real risk for Argentine trade
While the Panama Canal Authority and the Spanish-led consortium expanding the waterway’s capacity are locked in a dispute over costs that threatens to halt the works, further down the continent it is Brazil’s ports expansion what is posing the real challenge for the trade of Argentina, one of the world’s leading food exporters.
Experts talking to the Herald listed a series of reasons why it is not the Panama Canal US$3.2 billion expansion the main risk for Argentina, but Brazil’s US$27 billion plan launched year to quadruple exports by 2030.
To start with, only a very small percentage of Argentina’s soybeans — by far its main revenue earner — goes through Panama and the Canal’s increased capacity is expected to affect more Argentina’s containerized trade, which accounts for a smaller part of its trade.
Then, the same as most Latin American nations, Argentina face a serious port and transport infrastructure obsolescence which comes on top of its permanent need to dredge some of its leading ports, among them that of Buenos Aires City.
Other factors affecting the country are union conflicts that have led cargo from Bolivia and Paraguay to bypass Argentina’s huge Rosario port complex on the River Paraná and go rather to Montevideo, in Uruguay, which, besides, is some three to four feet deeper.
Finally, many experts argue that Argentina — that privatized its maritime and fluvial merchant fleets in the 1990s during the tenure of neoconservative Peronist Carlos Menem — actually lacks port policies.
The consortium led by the Spanish firm Sacyr has received US$2.05 billion for the 66 percent of the works it has completed, and US$784 million in advance payments. It said that it risks losing US$574 million in guarantees and advance payments if the dispute over its claims over US$1.6 billion in cost overruns is not solved. It added that the expansion would not be completed until June 30, 2015 at the earliest and that it would halt work as from Monday on a third set of locks unless the Canal Authority footed the bill. But it also sought to downplay the dispute, Reuters reported.
Maritime security analyst José Luis Pizzi told the Herald: "Beyond the conflict, the Panama Canal expansion has raised enormous expectations and has required enormous investments and, sooner or later, it will be completed."
Scant Argentine Trade Through Panama Canal
Pizzi said that only six percent of Argentina’s total trade goes through Panama. "The major challenge to Argentina’s trade does not come from the Canal, but from Brazil, which is restructuring its ports, both in the south, such as Santos, and the north, such as Santarém, on the Amazon River.
"Argentina is soybean-dependent and Brazil is commercially much stronger. If they complete the expansion of Santarém, soybeans from Brazil will be much closer to the Panama Canal and with vessels much larger than those serving Argentine ports. In an economy of scale that means much lower costs for Brazilian soybeans.
Even with thousands of potholes and major cargo delays, Brazil became the world’s biggest soybean exporter last year, Bloomberg News reported. Now it plans to blaze a short-cut through the Amazon forest in what would be its biggest export route for soybeans and grain, linking soybean farms in its hinterland to the Panama Canal and on to Asian buyers. Ships will shave two days off their route by sailing west over the Pacific instead of a longer journey across the Atlantic and Indian oceans. That could undercut futures prices in Chicago for soybeans, which are in high demand in China and used in everything from meat substitutes to industrial oils.
Pizzi said that while Santarém would mean stiffer competition for Argentina, the ports of southern Brazil are already a challenge for bulk cargo and containers coming from Argentina, and if Argentina does not take the necessary measures Buenos Aires will become a feeder port, that is, a port that sends cargo to be transhipped to larger vessels in Brazil.
Panama Seen Affecting More Container Trade
Alfredo Sesé, a Technical Secretary of the Rosario Stock Exchange, says: "I think that in the very short the Panama Canal expansion will not have a devastating effect on Argentine trade. To start with, the first impact will be on the container ships and not on the bulk cargo, and Argentina mainly exports grains and oilseeds.
"Also, let’s not forget that the new Panama Canal is being born already small and some of the larger container ships would be unable to cross it already now. In fact, the Canal authorities are planning to build facilities to allow containers carried by the vessels that are unfit to cross the Canal, be loaded onto other ships to reach the other coast."
Besides, Sesé said, the management of bulk cargo not only depends on the capacity of the ports where it is loaded, such as Rosario and Bahía Blanca, but also on the facilities at the ports of destination.
Many Asian ports like Singapore and Hong Kong are very well equipped to handle containers, but others in the region are not so well equipped to handle bulk cargo. Container handling requires large cranes and storage spaces while bulk cargo requires other infrastructure such as clamshell grabs, suction pumps or conveyor belts.
To illustrate the difference it is worth recalling that the Brazilian mining firm Vale do Rio Doce which, due to distance reasons is at a disadvantage with Australia to serve the Chinese market, built the Valemaxes with a capacity of hundreds of thousands of tons, but then they had trouble to unload in China and needed some port infrastructure re-adequation, Sesé said. Also, on one occasion, a US company considered to export soymeal to Asia in containers, given the higher efficiency of some of those ports to handle containerized cargo vis-à-vis bulk cargo.
Buenos Aires Just A Feeder Port?
Oscar Vecslir, who has just been appointed by the government of the City of Buenos Aires as general coordinator of the Port Management Authority, says: “Buenos Aires’ core business are the containers, followed by cruises and fuel transport. Buenos Aires and the neighbouring Dock Sud account together for 95 percent of Argentine imports in containers and between 65 to 70 percent of exports in containers. Buenos Aires has over 68 seafaring services a month that would be at jeopardy if its port does not adapt to the size of the large vessels. Panama is far from the concern for the containers,” he said.
The three leading terminals operating in Buenos Aires, Hutchison, that operates Terminal 5, Dubai Ports, which operates terminals 1, 2 and 3 and Maersk, which operates the number 4, want to continue making investments in infrastructure so ships larger than 300 metres long can come more fluently. Over the past few years some ships of 304, 305 and even 330 metres have come, but they had to do so with great care, and closely watching weather conditions. The infrastructure of the port does not support the routine arrival of this type of ships, Vecslir added.
Regarding grains and oilseeds, he said that before the soy boom of the 90s, the Argentine markets for grains and oilseeds were Brazil and some international ones, served by vessels of 30,000 tons up to 40,000. But ships currently taking soybeans to China have a capacity of 50,000 or 60,000 tons.
As the Hidrovía waterway of the rivers Paraná-Paraguay in the Argentine section until Rosario has a draft of 34 feet, it does not allow ships of over 40,000 tons and those ships must complete the load (to reach 60,000 tons) in two sites, Bahía Blanca, or Brazil.
With significant delays affecting Brazil’s grain exports, Argentine exporters find that it is still convenient for them to complete load in Bahía Blanca or sometimes in Quequén.
Soy cargo in Bahía Blanca is completed even if the soy does not come from that area. Exporters send it by truck and railway to Bahía Blanca, where they have storage space. The case of oils is different. They are transported in vessels of between 30,000 and 40,000 tons, that are fully loaded at the very waterway, Vecslir said.
Sesé said for his part that the main market of the east coast of South America is Brazil, and that the fate of the containerized trade of Argentina — at the end of the continent and with a relatively small population — is linked to the development of routes to Brazil. Probably the biggest container ships will arrive mostly to Brazil, and vessels departing from Argentina will become feeder to the larger ships that serve the southern Brazilian ports.
Besides, there are large differences in the way contracts are done in the container and bulk trade. Container ships are somewhat comparable to airplanes. They have a date of departure and arrival and must abide by a specific itinerary. Bulk carriers are usually chartered by time or voyage and without set schedules. For example, if a ship is going to San Nicolás to download come cargo such as iron ore, the charterer may send it later to Rosario to load grains or flour.
Separately, Sesé added, it is not that bulk carriers may not become bigger, but that seems more a medium-term occurrence. However, Argentina should prepare itself not to be taken by surprise. After the Second World War the Liberty type with fore and back holds appeared but then they disappeared and larger ships appeared. However, those growing the most were container ships.
The Political Factor
Vecslir says: “Today, for Argentina, the capacity expansion of the Panama Canal is a minor issue — obviously not due to the magnitude of the canal — but because Argentina has other major problems as a priority, such as its lack of a ports policy.
“It has to define whether it wants a concentration port and if that would be that of the City of Buenos Aires, or a set of ports in the metropolitan area, or, looking seriously into the future, think of a new deep-water port,”he said.
“The country has also to carefully consider how to develop the port of La Plata, which will be operational this year, and that has similar draft limitations to those of Buenos Aires. Due to its size La Plata cannot replace Buenos Aires,” added Vecslir.
Pizzi said that if Brazil completes the restructuring of Santarém, Argentina will have to work hard to be up to the challenge. “Argentine entrepreneurs are up to the challenge but the political and economic conditions are lacking.”
The obsolescence of port infrastructure is a problem not only for Argentina but, in general, for all of Latin America. Not enough investments are being made.
“We need deeper draft. The 34 feet depth is a strong limitation to Buenos Aires, that has to play with tides, and is also a limiting factor for the ports on the Paraná River. Santos is already projected to have 40 feet,” he said.
And not just the big ports in Brazil pose a challenge for the Argentine trade but also Montevideo, that is three to four feet deeper.
The solution to this issue would be integration with Uruguay, not competition. The President of Uruguay José Mujica has just said that relations with Argentina, governed by the progressive Peronist Cristina FernÁndez de Kirchner, are tense.
Uruguay is better positioned as a competitor. It is closer to consumption centers. If it finally completes the expansion La Paloma, it will be a deep-water port.
Paraguay and Bolivia are already taking cargo through the Paraná- Paraguay waterway to Montevideo bypassing Rosario, mostly due to high union conflicts in Argentina.
In Argentina the ports of Bahía Blanca and Quequén are deep-water ones, but Mar del Plata also struggles with limited draft, while Puerto Madryn is more oriented to aluminum, not grain, exports. La Plata is a very good port, but always limited by the depth. Pizzi said that Argentina should perhaps focus on a trade from Bahía Blanca to Pacific Ocean markets through the Straits of Magellan and Drake.