Growing pains hampering Brazil

Brazil continues to be gripped by economic uncertainty and political turmoil, with current president, Michel Temer, embroiled in the Lava Jato corruption crisis and now also facing impeachment. Fundamentally, though, the country’s trading prospects are looking much better, as improving commodity prices, good harvests and rising levels of consumption are bringing about stronger cargo flows.

According to Antaq, the country’s national authority for waterborne transport, just over 230 Mt of cargo was handled at Brazilian ports in Q1 2017, up about 5% on the previous year.

As far as exports were concerned, Antaq said that iron ore accounted for over 62% of the total tonnage moved. On the import front, fertilisers performed very strongly, with the tonnage handled up almost a third on the corresponding period of 2016. 

Vital infrastructure

With huge potential in both the import and export trades, but generally poor infrastructure, it is vital that the government puts in place modernisation and investment programmes for its ports, railways, roads and inland waterways.

It is also important that the right connections and facilities are built or selected for refurbishment, so that Brazil’s main commodity supply chains can become more costeffective and efficient. There are increasing dangers, for instance, that Brazilian companies could lose out to suppliers in Australia and India for iron ore shipments to China, as well as to the US and Eastern European countries when it comes to supplying China with soya beans and maize.

A recent report published by the US Department of Agriculture (USDA) highlighted the issues. It said: “Many of Brazil’s main grain transport roads are still partially unpaved, and very few railways are available for agricultural transport.”

While the report noted that improvements to the country’s infrastructure were taking place and were leading to lower transport costs for moving grain, and other bulk commodities too, its authors stressed that “there are still many areas that need to be improved for Brazil’s exports to remain competitive, especially in Brazil’s north and centre-west regions”. 

Modal shift

USDA data revealed that, in the 2016/17 fiscal year, trucks carried 60% of all maize and soya beans produced in Brazil, with rail accounting for 30%, and inland waterway ships/ barges just 10% of production. 

The next decade is expected to see some significant modal shifts take place, as public bodies and private investors alike view rail and inland waterways as offering both competitive and more environmentally friendly solutions to Brazil’s current logistics challenges. Overall, northern corridors and gateways are expected to become more important.

Several projects are under consideration, including dredging and canalising sections of the Juruena, Teles Pires and Tapajós rivers, investing in modern barges and equipment, and developing additional river and inland ports.

In terms of the volumes of grain shipments, the numbers are impressive, with 114 Mt of soya beans and 98.5 Mt of maize harvested over this period. An estimated 85 to 90 Mt of output is exported, and, with this up more than 60% on the situation five years ago, grain handling terminals in the main ports have become congested. This is particularly the case in Southern Brazil and ports such as Santos and Paranaguá, as this is where the largest volumes of cargo
are handled (see table, p10). 

At certain times during peak shipping seasons, bulk carriers calling at Santos have had to wait at anchor before securing a berth, and this is costly. In April/May of this year, waiting times at the port rose to 19-20 days on several occasions, with 80-plus ships held offshore.

As far as maritime cargo handling facilities are concerned, that means the development of more ports in the northern part of the country, including on the Amazon River. It means designing and building more specialised cargo handling facilities, particularly to serve the energy sector (including renewables), and to process grain, bulk sugar, iron ore and fertilisers. The demand for dedicated container terminals is also increasing. 

This year has seen the Brazilian Government legislate on several fronts, the primary aims of which have been to instil investor confidence and attract future funding in the port sector. Of critical importance has been the decision to
increase existing concession periods from 25 years to 35 years for contracts that were signed after 1993, with extensions actually possible up to 70 years. Moreover, the new regulation allows facilities to be expanded beyond the  previous 25% limit.

Public bidding

Meanwhile, in September, the committee of the Investment Partnership Program of the Presidency (PPI), issued a list of projects that would be made available for public bidding, together with details on the planned privatisation of  Companhia Docas do Espírito Santo (Codesa), which owns the ports of Praia Mole and Vitoria.

The auctions, which are scheduled to take place in 2018, cover the development and/or improvement of dry bulk handling facilities in ports such as Paranaguá and Suape, liquid bulk terminals in Vila do Conde, Belem and Vitoria, and a fertiliser complex in Itaqui. 

One of the largest projects underway in Brazil is the BRL5B (US$1.58B) port and industrial cluster development at Porto Central (Espírito Santo) in south-eastern Brazil. The port will be built and operated by a joint venture comprising the Port of Rotterdam Authority and TPK Logistics, and it will handle all types of cargo.

It is hoped that construction will commence during 2018, with the first phase of the development scheduled for completion three years later. In Santos, Brazil’s largest port, several large-scale projects have been completed, with many more in the pipeline. 

Earlier this year Santos based  Luiz Antonio Mesquita Integrator Port Terminal (Tiplam) opened three new berths, and diversified its operations to include the handling of grain and sugar. With dedicated wharves for each, Tiplam has the capacity to handle 5 Mtpa of soya beans and 4.5 Mtpa of bulk sugar. The new terminal, which cost over US$690M to build, has also allowed the group to strengthen its position in the fertiliser sector, as the third berth is dedicated to handling this type of cargo. 

At its existing 1,225m terminal, Tiplam’s main business was focused on handling sulphur, phosphate rock, fertilisers and ammonia, with volumes currently totalling over 2.5 Mtpa. Tiplam is managed by the logistics operator VLI, a company controlled by Brazilian mining giant Vale SA, Brookfield Asset Management, based in Canada, Japan’s Mitsui & Co Ltd, and a local investment fund FIFGTS. 

Elsewhere, ADM do Brasil completed its US$85M expansion programme at its Ponta de Praia grain terminal in Santos, raising its annual capacity from 6 Mtpa to 8 Mtpa. The work involved ADM increasing the covered storage area for grain from 172,000t to 194,000t, while the installation of new equipment has reduced dust emissions by up to 80% and significantly cut noise levels. 

Meanwhile, ADM is quadrupling the handling capacity of its grain terminal in Barcarena (Pará state) in Northern Brazil. Currently, the terminal can process 1.5 Mtpa of grain. 

Willing and able 

The company is also willing to invest in infrastructure immediately outside of the ports, as it sees enhanced levels of connectivity as being vital to improving the country’s agrisupply chains and, therefore, Brazil’s overall competitiveness globally. 

Currently, the large commodities trading group is in discussion with various partners and the government concerning plans to upgrade the rail link to/from its facility in Santos. In return, ADM, which recently renewed its concession on the terminal for another 25 years, wants a further 10-year extension as justification for the investment and as cover for the risk.

In the north-eastern port of Suape, considerable investments are planned to increase the port’s liquid bulk handling capabilities, including: ?

• Italy-based liquid bulk storage group Decal SpA spending BRL283M (US$86.4M) to expand its existing 156,000 m3 capacity liquid bulk terminal. 
• Pandenor Importacao e Exportacao Ltda investing BRL70M to build eight new liquid bulk tanks. This will more than double the facility’s storage capacity to 122,000 m3. 

Up the Amazon

However, it has been developments along various tributaries of the Amazon River, especially in the state of Pará, that have been among the most transformational in Brazil over the past two/three years.

At the port of Miritituba, which is located on the river Tapajos, over US$1.5B has been invested by agri commodity traders, such as ADM, Bunge, Cargill, Bertolini and Hidrovias, in developing dedicated grain terminals.

Six private terminals are now operational in Miritituba, including the Bertolini-operated floating terminal. This facility is capable of handling approximately 400 trucks a day, which is equivalent to about 90% of the land-based  terminals, but it costs much less to develop, and it has the flexibility of being able to move along the river, and hence be positioned in places where it is most needed. 

It services barges, which then run in convoys that are able to transport 50,000t on single voyages to the main Amazon river ports, such as Santarem and Barcarena/ Belem. Here, the grain is transferred into Handymax, Supramax and Panamax bulk carriers for destinations mainly in Europe and the Middle East.

While considerable investments have taken place in facilities in Santarem, the channel’s limited draught means that any Panamax ships calling at the port cannot be fully loaded.

An estimated 4.5 Mt of maize and soya beans will be handled at Miritituba this year, with traders expecting volumes to exceed 11 Mt by 2021. Moreover, developments under consideration could result in the port’s handling capacity being increased to a massive 32 Mtpa by 2026. 

Chinese investors

Elsewhere in the north eastern-region, China-based entities are pursuing a number of projects. China Communications Construction Company (CCCC) has concluded a deal with the Brazilian Government to fund the planned expansion programme at the port of Itaqui (Maranhão state), located close to the city of São Luis, about 900 km northeast of Fortaleza.

CCCC will invest US$700M to develop facilities that handle grain, chemicals (including fertilisers), and various oil products. The Chinese firm will work with Brazil’s Thorell group to build the complex, and then, through its 51% equity holding in the port, will have responsibility for its operations.

In other moves, a consortium comprising as many as five China-domiciled engineering companies, the state of Bahia and Kazakhstan headquartered Eurasian Resources Group (ERG), will bid for the build-and-operate concession for the Ferrovia de Integração Oeste-Leste (FIOL) rail line and the Porto do Sul development in the city of Ilhéus. 

FIOL will link the giant Caetité iron ore mine, which is majority owned by ERG, and has an annual output of 20 Mtpa, with Ilhéus. This is a distance of about 550 km. The auction is due to take place in 2018.