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Monday, February 3, 2014

Brazil ports expansion, not Panama Canal’s, the real risk for Argentine trade

In this January 11 photo cargo ships wait to pass through the Gatún locks at the Panama Canal in Gatún, north of Panama City. The Panama Canal is being expanded to accommodate a new generation of larger ships, known as post-Panamax, which have more than twice the carrying capacity of those able to pass through the canal today. But cost overruns are threatening a work stoppage.
By Guillermo Háskel
Herald Staff

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.

CANAL CONFLICT

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."

In your opinion, what should be the main guidelines to follow?

This new policy should begin by clearly defining whether to continue maintaining Buenos Aires (or alternatively a metropolitan area or another sea port area) as a concentration (hub) port operating as today with the usual trans-oceanic traffic, rejecting fundamentalist theories which argue that the Argentine market is Brazil-dependent and that large ships will only call on Brazilian ports without reaching Buenos Aires and that, as a consequence, Buenos Aires will become a feeder of Brazil’s southern ports. It is easy to infer that the lack of action and the lack of a national logistics plan and a of a port plan in particular, contributes to the loss of competitiveness of Buenos Aires — and, consequently, Montevideo’s port can capture the growth of Argentine load — and also timidly leads other minor domestic ports, together with shipping companies, to start implementing services with transshipment in Brazilian ports.

So far, albeit with some limitations, the larger vessels serving the east coast of South America manage to enter Buenos Aires, but if the works proposed by private terminals materialize, and the port authority co-operates by improving the accesses to the port, there will not be difficulties for several years in berthing those vessels.

Contrary to what the advocates of orthodox theory claim, as long as the participation of emerging economies in global trade continues to grow (they now represent over 60 percent of the total, according to the United Nations Conference on Trade and Development, UNCTAD), these markets and exporters and importers will be those discussing on an equal footing with the large shipping companies.

How dou you see the port of Buenos Aires?

Buenos Aires has the “weakness” of being the last stop-over of the journey and, therefore, can be lifted easily, but this today is cushioned because precisely for being the last stop, ships arrive very lightly loaded and need a lower draft than if they arrived fully loaded and, also, Argentina has a real “strength” of having available, for each port service, a significant volume of import or export containers in relation to the capacity of these vessels.

Besides, the cyclical fluctuations of the world economy over almost the last two decades taught the porta-container shipping sector, as well as terminal operators, to surf the general and also the particular crises, adjusting or expanding availability of transport capacity in line with the market. This ensures that there will always be shipping companies interested in maintaining ocean routes to Argentina, even at the current operational capacity of our ships because they will be able to compete in the face of the surcharges transshipping in Brazil involves today. In addition, the fact that the trans-oceanic route starts in a foreign port such as in Brazil or Uruguay, actually involves a loss of national sovereignty in the transfer of the freight policy decision-making centre to another country where, obviously, during logistics emergencies, in business opportunities and any possible foreign trade growth, domestic cargo will always have priority over Argentine. Proof of this is that even today the Brazilian ports are expensive, with serious operational problems handling their own cargo and are not interested in competing to capture regional transshipments.

Once again, the country must define which ones will function as hub ports. There is no doubt that in the very long term Argentina will have to think of a non-river port to fulfill this role. Its installation site should start being considered now as its planning, location, construction, and financing and will require 25 or more years. To achieve this goal without trepidation it is necessary to use Buenos Aires, with the mentioned infrastructure improvements, integrating it into a metropolitan harbour front with Dock Sud and La Plata.

What role should the Paraná-Paraguay waterway play?

Another basic pillar which the port and navigation policy must include is the correct use of the Paraná-Paraguay hidrovía. This is simply an extraordinary waterway linking the provinces of northeastern Argentina via ports even more than road and rail transport. But along this mainly arrival and exit path, a navigation precedent should be granted to regional productions, grain and fuel transport and increasing Mercosur traffic.

If to neutralize the metropolitan transshipment ports such as Buenos Aires or Dock Sud the upstream navigation of porta-container feeder ships grows without limit, it would mean an unnecessary conflict for the waterway.

Argentina complains that within Mercosur there are asymmetries basically favouring Paraguay...

The management of the Paraguayan load deserves special consideration. The container traffic of the Paraguayan foreign trade has been an eternal partner of the Argentine port system. Today, in the face of our indifference and their growth and the modernization of their river transport fleet, Paraguay is obliged to progressively replace us. Even less attention is being paid to participating in the growing traffic which Bolivia and Brazil have launched to take out their production through the waterway.

The waterway is a river corridor, how do you see the future of the maritime ports?

Broadly speaking, the further development of the national maritime waterfront, with the particularities that each area has, is the third cornerstone for a new port policy. The sea coastline is so varied that, to grow, it is only necessary that regional economies recover their significance and, accordingly, to plan their logistics to make them more competitive. In this growth two central items are involved: an appropriate shipping development policy, and an adequate Customs policy which matches the entrepreneurs’ efforts.

It is worth noting the smooth functioning of the port of Bahía Blanca and, to a smaller degree, that of Quequén, probably due to their management system based on mixed private-public boards and a good level of transparency. Both ports, with their own resources, maintain their infrastructure updated and make an orderly preparation to compete in the global markets they operate in.

The situation of the Patagonian ports is different.

They are linked to their regional productions or cruise tourism and/or Antarctic activities. Their competitiveness will depend more on the shipping policy the country adopts than on their own efforts.

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