Swimming in the big league

Competition on South America’s west coast is keeping parties on their toes. Fierce investment, targetted drive for growth and high hopes dominate. Rainbow Nelson explains

While transhipment options on the east coast of South America remain limited by high costs, red tape and low productivity, competition is heating up on the Pacific coast of for regional and sub-regional hub status.

The most eagerly anticipated of a list of new entrants is DP World’s Callao terminal Muelle Sur, due to open in May.

As the gateway to Latin America’s stellar economy, Peru, Callao has been the main bottleneck for shipping lines keen to introduce non-geared vessels on the west coast of South America.

The completion of the first phase of DP World’s US$617m investment program in the port – with six post-panamax STS cranes and 18 RTGs – is set to open up new options for shipping lines determined to deploy bigger tonnage on the west coast of South America.

"The first three gantry cranes and nine RTGs have already been delivered and landed in the terminal," says Michael Bentley, DP World’s business development director for the Americas. "The other set of three gantry cranes and nine RTGs will arrive in early April, in advance of opening. Maersk Line has already announced that they will be one of the launch customers for DP World Callao." Maersk’s decision to call in Muelle Sur is similar to its early move to capture capacity in Balboa, which it converted into the region’s largest transhipment terminal, handling more than 2m teu.

The arrival of ever larger vessels on the Pacific coast of Latin America – Maersk Line now calls in Mexico and Balboa with vessels with 6,500teu nominal capacity, opting to turn the vessels in Balboa on its Asia to Central America service – is set to shift further south when important destinations can support bigger tonnage.

Post-panamax vessels already call regularly in Lazaro Cardenas and Manzanillo in Mexico and Balboa in Panama.

DP World’s Muelle Sur is expected to be the next port of call for post-panamax tonnage. Peru was the star performer in 2009, a terrible year in terms of economic growth. While economic activity in the region shrank by 1.8%, Peru’s economy grew by 0.8%. Notably, confidence remains high in the country, with direct investment up 28.1%, compared to a regional decline of 40.7%.

With 1.3m teu moving across the quays in Callao each year, captive cargo makes the port an attractive point for transhipment, says Tim Stout, Hamburg Sud’s west coast regional operations, logistics and finance director.

"Monte-class [5,500teu] is our ambition on the west coast. While in Buenaventura and Guayaquil it is always going to be difficult to deploy these ships, maybe Callao is not that far away that we can have a ship like that calling Peru and Chile," he says.

DP World is prepared to bet even bigger on Callao as the future for the west coast of South America. It has plans to invest $1.3bn to develop the publicly operated berths to the north of Muelle Sur and take its total investment to $2bn.

Even before it had gantry cranes, Callao handled around 200,000teu a year of transhipment, notes Bentley.

Peru’s privatisation body, Proinversion, sent out requests for proposal to independent analysts in January to assess the merits of DP World’s proposal after it failed to get other rival offers from the sector.

DP World’s grand designs for Callao are an effort to create another Dubai in the heart of Latin America, a key point for cargo consolidation, but the extent to which other countries will be relegated to feeder ports is far from clear.

Alberto Borquez, general manager of San Antonio International Terminal (STI) clearly does not support the prospect of Callao becoming a sub-regional hub consolidating cargoes from Chile, Ecuador and Colombia for ships calling only in Mexico, Panama and Peru.

"Chile already has very efficient ports with more gantry cranes in San Antonio and Valparaiso than Peru. Why would lines consolidate their cargoes in Callao, which still has to prove its efficiency?" he asks.

Chilean terminals, STI and Terminal Pacifico del Sur Valparaiso (TPS) have 11 gantries between them. With six post-panamax cranes available, the ports already have the infrastructure in place to handle larger vessels and have received Hamburg Sud’s Monte-class vessels without any problems.

San Antonio has become an important gateway in itself for Maersk Line’s service to Europe, Asia and the US and the company has built a specialist reefer distribution network around the port.

Callao’s capacity leap is expected to revive historic tensions between the two fierce neighbours, but Mario Arbulu, president of Peru’s publicly owned port operator, Enapu, sees Callao’s future rival as Balboa, not ports further south.

"We need to enter into healthy competition to be able to position Callao as a sub-regional hub as we know that the regional hub is in Panama and this is our first objective," he says.

There is added competition in the shape of Buenaventura, Colombia’s only major port on the Pacific coast.

Buenaventura is also gearing up with a new terminal, TCBuen, which will add two gantries to the five operating in the port’s main terminal, Sociedad Portuaria Regional de Buenaventura.

With a capacity of 200,000teu in its first phase, TCBuen is aiming to win two or three small customers before embarking on further phases, which it hopes will take its development to 1.2m teu.

"Buenaventura port was always blamed for its inefficiency but what we have achieved with years of work is to make the government understand that Buenaventura is only really a point in the logistics chain," says Gabriel Corrales, TCBuen’s general manager. He is confident that the government now realises that the port’s efficiency depends on the draught of the navigation channel and the quality of road networks. Government investment to dredge to 12.5 metres and to build a double highway to Buenaventura’s hinterland – Cali, Bogotá and Medellin – will make the port even more attractive to bigger ships, he says.

TCBuen will be operational by the end of 2010, opening up competition for important clients, like Mediterranean Shipping Co, which uses Buenaventura as an important point to consolidate cargoes from the west coast of South America. Most of MSC’s transhipments in Latin America happen in Manzanillo, Mexico but the line also started to call in Balboa in June 2009, where it has followed Maersk’s lead in building up transhipment operations either side of the Panama Canal.

In the medium-term the options available to lines are likely to increase in Mexico following the award of a second container terminal concession to ICTSI in Manzanillo, due to inject new capacity in 2012.

The Manila-based port operator won the concession to develop a $565m container terminal at Mexico’s largest port in December. With a 34-year concession, ICTSI plans to invest peso2.54bn ($197m) including the construction of 1,080 metres of linear quay with a depth of 16 metres alongside and 72ha of storage area.

Total investment in the project, including government spending to build rail links and dredging is expected to reach $565m and add 2m teu of new capacity to Mexico’s Pacific coast.