End of the Slowdown?
This decade has had unpredictable results on the behaviour of the world and regional economy (optimistic predictions not fulfilled at the beginning of the Decade, bad behavior until last year, surprising revival this year and cautious optimism with respect to the following), which has affected the behavior of containers movement in the ports in the same way.
A ECLAC’s publication last October * shows encouraging figures for growth of the movement of containers during the first quarter of 2017 (6.7% vs. 1% per year on average over the past four years), which would not be cyclical because it provides a While some ports in the region may have excess capacity because demand has not reached the expectations of growth, other ports may be saturatedsimilar growth for 2018. In July BNamerica Intelligence Series article, Octavio Doer of ECLAC said that the growth for this year would continue in the medium term and, in reference to the bad behavior of the past years, added: “While some ports in the region may have excess capacity because demand has not reached the expectations of growth, other ports may be saturated and have failed to keep the pace of investment and demand. It is there where are the investment opportunities”.
* Growth Behaivor in Latin America (First Quarter 2017, ECLAC)
- 7% growth in containers (the same as at the global level but with disimil behavior by country*) vs. 0.9% by 2016.
- Among the most developed countries of the region, Mexico and Chile lead the growth with 10% each. Peru has also had significant growth (8%) but Brazil barely reached 1%.
- However, countries with less development exceed them: Dominican Republic (39%), Nicaragua (22%) and Panama (13%). In the case of Dominican Republic and Panama it is transhipment cargo mainly.
- Other countries with high level of regional development presented negative rates: Argentina (-9%) and Colombia (-5%)
As “there is no evil that lasts a hundred years…”, the growth of containers movement in the region is a product of growth whichit is unlikely that growth back at the rate of three times the global GDP had reached before 2008 began to be felt in the economy: 1.2% estimated for 2017 and 2.2% for 2018 (vs. 1% decrement in 2016), but rather below the expected growth of the world economy (above 3.5% according to the IMF).
Now, Alphaliner in October, coinciding with the ECLAC report on the positive performance of the first quarter of this year, and for the remainder of this and 2018 projections, said: “It is expected that this year the proportion rises of TEUs mobilization to 1.7 times GDP (vs less than 1.0 in recent years). However, it is unlikely that growth back at the rate of three times the global GDP had reached before 2008” (based on which many ports were planned)*.
However the article from BNamericas we made reference to the beginning, says that “projections to five years of Drewry Maritime Research show that the development of the port capacity in Latin America will continue to surpassing demand. While the average utilization of the ports in the region has fallen widely and, if compared with global utilization levels, which by itself are highest, is expected that the gap will increase in the next five years”.
Confirming the above, Latinports’ executive director Julián Palacio, also quoted by BNamericas, referring to the behaviour of the market in this decade (until 2016) said: “Latin America is overestimating the port demand, and there is a proliferation of there is a difference between want and need and that difference is that defines the priorities. The priority should always be the need for desire, but sometimes is not a very clear decisionterminals which has not taken into account the economic stagnation. The burden is not increasing, but terminals are expanding. Ships have also increased their size… The fact that a country build new terminals, or make larger ports, does not mean that it will have more cargo. This is a simple equation of market.”
In this same sense Oxford Economics published in July of this year the article Present and Future for Investment in Port Infrastructure in Latin America, in which pointed out that currently the port development is not a priority at the global level, and that since 2007 the global infrastructure spending has focused on two sectors: electricity and road connectivity, which dominate two thirds of the total investment. In contrast, the article says, ports (together with water and airports) have contributed only one-eighth of the total investment, and concludes saying that “there is a difference between want and need and that difference is that defines the priorities. The priority should always be the need for desire, but sometimes is not a very clear decision”.
A Bit of Recent History
Remember that after the 2009 world economic crisis, in which arose the worst fall in history (- 6.8%), unexpectedly 2010 grew in an impressive manner (15.9%) to return decrease recursively in the five years following up to reaching almost zero growth in 2016. Then, while we should rejoice by encouraging ECLAC’s figures for 2017 and its prediction for 2018 and 2019, the ups and downs so far run of this decade should be a call to prudence. Into context, a bit of recent history:
“Failing plan is planning failure”: In 2014 Container Management’s article, Latinports already heralded that “is vital to potential investors in the public and private sectors to recognize inherent limitations, particularly in the internal connectivity”, adding that the projections should take this into account as “to see the ports just like magnets attracting loads, runs the risk of creating a dangerous white elephant “.
According to the article Context for the Planning of Container Ports, prepared by OECD International Transport Forum also in 2014, “efficiency and capacity must increase in line with demand and not necessarily to the disproportionate growth of vessels size” reason why “port policy and container terminals operators responsable have to be very careful to avoid a costly “port policy and container terminals operators responsable have to be very careful to avoid a costly overinvestment”overinvestment”. In addition, “decisions to invest in the construction of new ports or expansion of current ones, need to pay attention to internal connectivity”.
It is so true the above that the financial sector began to see the port sector with suspicion, and was as well as InfraLatinAmerica, the sector will have winners and losers in the future: ports that will be able to attract business from shipping companies and others that do notin 2016 article related to Caribbean transshipment ports but that in our discretion applies to all container ports in the region, transcribed the following little encouraging reviews of BBVA and Astris Finance experts:
- An investor should understand the competitive advantage of a port: Often the projections are predicting more rapid growth that can be achieved is really.
- It is useful to know about the strategies of the shipping companies: ports usually attend two or three large shipping companies and if one is broken (or is withdrawn or merges…)*, you can have a great impact on the port benefits.
- High uncertainty inherent in these projects: the deals are structured with a ratio of 60-40 debt-equity, rather than a proportion of 70-30 most common in other operations of infrastructure (such as road connectivity)*.
- This means that the sector will have winners and losers in the future: ports that will be able to attract business from shipping companies and others that do not.
The above leads us to think that while we welcome the reactivation of the economy and of the containers movement in the region, given their unstable behavior over the last decade we should act with prudence in our investment plans.
* Annotations from Latinports