In August, Brazil’s government announced a stimulus package worth R133 billion ($66 billion) designed to improve its already outdated transport infrastructure, in which only 6% of the roads are paved, the rail network is a woefully inadequate and there have been few concessions or significant developments for port terminals in recent years.
Up to $21 billion of the sum will be used to build and rehabilitate 7,500km of roads over the next 25 years, of which $12 billion will be spent in the first five years. For rail, $45 billion will be used to build 10,000km of track. The plan has been welcomed by carmakers and logistics providers, but is long overdue compared to progress being made in other BRIC countries. For example, India invested 5.6% of its GDP in infrastructure between 2000 and 2010, while in Brazil it was 2.1% over the same period.
Furthermore, the announcement on the much needed investment for airports and ports has been delayed, despite these being areas in which the greater problems lie, according to Michel Donner, senior advisor at Drewry.
There has been speculation on the port spend, with figures ranging anywhere between $15 billion and $25 billion expected to be directed at new ports and terminal developments, as well as revamping or expanding existing ports to make them more efficient.
Recurrent congestion at the ports has been causing problems for carmakers for some time even before the customs strike action that kicked off this past June. Importers face tight port capacity, onerous clearance procedures as well as increased customs duty when moving cars into Brazil. Furthermore, it is still unclear whether Dilma Rousseff ’s government will ease the 30% increase on foreign vehicle imports as had been suggested at the beginning of the year.
The good news is that the government is stepping up the investment in infrastructure at a time when Brazil has faced volatile vehicle demand, with production of commercial vehicles in particular sharply lower this year compared to 2011. Not only will the investment help maintain future growth, but it could help to further kickstart the economy as well. However, the success of this strategy means overcoming a densely bureaucratic regulatory and legal framework that could slow down the process of turning the package of incentives into working projects.
Donner pointed out that China is more adept at realising the infrastructure projects its government deems necessary for growth, while in Brazil even good measures can be torpedoed by vested interests and a high level of jurisdiction in many areas, such as labour or competition.
“[Brazil] does not have the agility that China has to translate this into real action and real projects,” ssid Donner. “[In Brazil] you never know when someone is going to turn up at the last minute with a court injunction stopping you from proceeding.”
As with investment at the country’s container ports, any big development project has to first present a preliminary study that includes environmental licensing, which Donner said is often very slow and detailed. The preliminary study forms the basis for the government to decide on the tender package to be issued, including the market study and business plan, but the study itself has to be tendered first. The port of Manaus should have issued a tender package for development two years ago but it is still delayed.
“In the case of Manaus, APM Terminals was chosen to conduct the preliminary study and you would expect such a big operator to know how to do it,” said Donner. “But they have been delayed because of the environmental licensing and have been obliged to obtain two extra six month extensions, and the study has still not come out.”
This likely delay would be even more frustrating considering that the industry has already been waiting around a year to see the details of the government’s incentive package, which will also outline the new approach to doing concessions. But the good news is that there will be port investment – eventually.
“There is light at the end of the tunnel,” says Donner, “but the tunnel is very long.”
Car carrier freight rates for new cars between Europe and Asia continued to decline from the spike seen in February when prices hit $64 per cubic metre. By August the rate was down to $49 per cubic metre in line with the same period last year. This fall is diverging from a jump in high-and-heavy rates (see p10), which Drewry has attributed to less carrier shipping capacity for the agricultural equipment and machinery sector than for the general car segment.
While all car carrier operators offer services for new vehicle shipments, comparatively few have a meaningful presence in the high-and-heavy segment, a number that has been decreasing each year, according to Jan Maes, Daimler’s manager of passenger cars and commercial vehicles, Europe.
Car carriers have been reporting improved revenue thanks in part to a recovery in vehicle shipments following the impact of the earthquake and tsunami in Japan last year, as well as the flood in Thailand. However, the financial crisis in Europe and slower growth in North America and Asia, along with a strong yen, have prompted carriers to review outlooks for 2013.
Bunker oil prices were also higher, this year, averaging $716.78 per metric tonne compared to $625 last year.
Höegh withdraws services
Höegh Autoliners has gone as far as withdrawing passenger vehicle transport services between Europe and mainland China because the passenger car rates to the country are just not good enough to cover the investment to go there, according to the company. Höegh is still carrying trucks to China, however.
“With vessels that already sail full in the trade to the Far East, it does not make sense for us to take off well paying cargo to take onboard cargo for China that will not cover the costs,” said a company spokesperson.
China has nevertheless been a major driving force in the car carrier business in recent years – the country is now the leading market for German luxury vehicles and US exports. Imports have remained steady, however should a slowdown in the Chinese economy impact sales of luxury vehicles, there would likely be a further drop in rates.
Nevertheless, ro-ro service from Europe to China is still expanding. SEAT is now exporting from Barcelona to the ports of Huangpu and Xingang with Eukor Car Carriers. Peugeot has also started small volume shipments of European-assembled models with Höegh to Hong Kong and Macau to stimulate interest for imported models in what it considers a showcase market for the wider Chinese region.
There has been a significant rise in the rates for high-and-heavy cargo on the Europe to Asia route between April and August this year compared to the same period last year.
In 2011, rates per cubic metre dropped from $155 in April to $150 and they continued to drop before levelling out between December 2011 and February 2012 at $140 per cubic metre, before a sudden increase in April this year to $161. This has continued to rise (see chart above) to $182 in June to $185 in August.
According to Drewry, the recent increase in freight rates for high-andheavy on the Europe to Asia lane was caused by a capacity shortage for this cargo, with a backlog of agricultural and construction equipment at European ports waiting to load.
UK-based commercial equipment maker JCB confirmed that it was experiencing some tightly managed capacity on the Far East and Middle East trade lanes and that it was seeing cost pressures on contracts outside those on which it had already agreed fixed long-term rates. The company is now negotiating contracts for 2013 and beyond and according to Joannes Van Osta, JCB’s head of logistics, highand- heavy is once again “the icing on the cake”compared to a base load of passenger vehicles.
“It is becoming a reality again because of tight capacity. Shipping lines have strategies for assigning capacity to [cars] or [high-and-heavy],” said Van Osta. “That will link into the contracts they have with one or the other.”
Drewry believes, however, that highand- heavy freight rates may decline as soon as ship owners add tonnage.