All operators on board

Terminals on the east coast of South America have failed to become competetive transhipment hubs but major shipping lines are taking matters into their own hands, writes Rainbow Nelson

Low productivity levels and high costs in container terminals along the east coast of South America have held back the development of transhipment operations in the region for long enough.

That is the message from the largest shipping lines calling in Brazil, Argentina and Uruguay. As the region’s leading carriers take matters into their own hands, they are trying to send a chill through box port operators reluctant to reduce rates and make the investments required to lift productivity.

At the forefront of liner companies taking control of their port infrastructure needs are the world’s two largest operators Maersk Line and Mediterranean Shipping Co (MSC) and the market leader in South America, Hamburg Sud.

All three have plans to develop new terminal capacity that will break through some of the restrictions that have prevented hub and spoke operations developing on the east coast.

While carriers have networks for vessels of up to 5,900teu which call at as many as six ports in South America, the leap towards 7,100teu (Hamburg Sud) and 7,500teu (Maersk Line) capacity ships in 2011, will not support a continuation of this policy, says Julian Thomas, MD of Hamburg Sud’s operations in Brazil.

"With this increase in size, we will be seeing a lot more need for transhipment as it is ridiculous to go to so many ports," he says. "There is some measure of transhipment – 110,000teu along the east coast of South America – but that is peanuts compared with other regions. [There is] a need for development of hub ports to be able to run these larger vessels efficiently."

There remains a long checklist of improvements required, however, if ports and terminals want to cash in on a transhipment boom.

High productivity, adequate yard areas, sufficient capacity, highly developed feeder networks, simplified customs procedures and low handling costs all need to be introduced, says Thomas.

Hamburg Sud and MSC are driving home the need for changes in Brazilian, Argentine and Uruguayan ports by building their own.

Tecon Santa Catarina, being developed in Itapoa by Hamburg Sud and its local partner the Batistella Group is due to be open in the second half of this year. Transhipment operations are unlikely to start until the 300,000teu facility’s cranes are delivered and are fully operational in early 2011. Importantly, it will have a draught of 16 metres and none of the union issues that have limited vessel sizes and forced up costs in Brazilian ports over the last 20 years.

MSC, with its own local partners, has built a private 900,000teu capacity terminal in Navegantes, Portonave, and is also developing a second 1.1m teu facility in Santos, part of plans to more than double capacity in South America’s most important port in the next five years.

DP World is also investing heavily through the Embraport subsidiary it acquired with partner Odebrecht for more than R$650m (US$353m) in September. It has plans to invest another $500m to develop a private terminal with a capacity of 1.2m teu when the first phase is completed in 2012.

Brazil’s largest operator, Santos Brasil, added 11.2ha of additional area in January 2010 as it seeks to keep pace with demands from shipping lines in the port. Santos’ third largest existing terminal operator, Tecondi, is also doubling its capacity from 350,000teu to 700,000teu with its expansion, due for completion in the first half of this year.

Accounting for 2.4m teu, almost half of the total number of containers handled in Brazil, the port of Santos is clearly the most obvious point for consolidation of cargoes. But to-date infrastructure has not been able to keep pace with growth in gateway cargoes, let alone accommodate transhipment moves. Transhipment at Santos Brasil’s terminal accounted for 6% of volumes of more than 1m teu in 2009.

Arguably the biggest limitation remains the high terminal handling fees in South America’s largest port, which are as much as 77% higher than those in important Latin American transhipment points, including Hutchison Port Holdings’ Balboa and Cristobal facilities, Manzanillo International Terminal’s operation in Colon and Sociedad Portuaria Regional de Cartagena’s business in Colombia.

Handling costs in this region for a dry 40ft container are between $130-155 per feu compared to $190-275 per feu in Brazilian ports, $80 per feu in Uruguay and $155 per feu in Buenos Aires.

"Santos is a sure transhipment hub but they will have to change the rates," says experienced Argentine port consultant, Antonio Zuidwijk. "There are plans to double capacity in Santos; I do not have any doubt that they are going to do it," he says. Maersk Line’s sister company APM Terminals has also drawn up plans for its own terminal in Santos, although it will need to win a concession to construct a facility in the port under new legal guidelines introduced last year.

APM Terminals already owns Teconvi in Itajai, which until the end of 2008 was the second largest container terminal in Brazil.

The reasons for the liner company’s interest in Latin America’s largest economy are all too obvious: double-digit growth in cargoes between 2003 and 2008, achieved without any notable transhipment moves.

The stranglehold Brazilian companies have had over port operations in the country’s principal ports since terminals were privatised in 1996 has only sharpened their interest.

Productivity levels and costs in Brazil have improved considerably since privatisation but productivity remains lower than other countries in the region, says Thomas.

On the east coast, only one terminal – TCB’s Terminal de Conteineres de Paranagua – offers productivity levels above the 50 moves per vessel hour threshold required to facilitate transhipment business, he says.

"Others still have a lot of requirements in order to improve the productivity in order to be able to do efficient hubbing," he says. "The main issue has been the lack of sufficient investment in yard area. We have had fantastic investment in gantry cranes but the development of retro or yard areas has been way below what has been required."

Most of the transhipment on the east coast today takes place in Uruguay, where volumes from the south of Argentina are consolidated on vessels leaving Buenos Aires. Maersk Line, a pioneer in transhipping all of its volumes between Asia and the west coast of South America in Balboa has helped transform Hutchison’s operation into the biggest in Latin America, handling 2m teu in 2009, of which 90% is transhipment. As Maersk looks to reduce costs in a similar way on the east coast, it has been limited by terminal capacity, says Marcus Hansen, commercial director, Maersk Argentina.

"On the east coast we don’t have a Balboa today and that is what is keeping us back," he says, adding that red tape is another issue.

"At the end of the day the focus of the shipping line is how do you compete in this market with your lowest unit cost? This is not just the main trades this is every trade. We will push as much as we can to get bigger vessels to call where they can and the creation of direct products is what customers want but we believe that there will be a gradual transformation [to hub and spoke] on the east coast."

Buenos Aires, in particular is in danger of being reduced to a secondary port if it is not able to address the landside issues that limit productivity in its main terminals. "If Buenos Aires wants to grow then it is fundamental that we get rid of this bottleneck – 46 hours to deliver a container in a terminal is very far from world standard. If we can’t go to two to there hours then our customers are going to suffer. This is an infrastructure threat that has to be addressed," says Hansen.

A transhipment future is just around the corner, he adds, and terminal operators are going to have to be ready or will be left out.