Brazil has been in the spotlight lately. With the conclusion of the highly popular 2014 World Cup, all eyes are now on the 2016 Olympics that will be held in Rio de Janeiro. Given these two worldwide sports events, it would appear that this South American BRIC nation – one of the four fast worldwide moving economies that also includes Russia, India and China, is in the catbird seat for economic development, global expansion and international trade.
A recent article by Paul Kiernan that appeared in the Wall Street Journal, however, indicates that while the month-long World Cup tournament drew a million foreign tourists to Brazil, economists feel its impact on other economic sectors in Brazil was decidedly negative. In fact, Brazil’s National Confederation of Industry reported that its leading indicator of industrial production fell to the lowest level since 2010.
Reports also indicate that China is slowing its investment there, largely in part to a slowdown in its own economy.
Greg Howard, CEO of CaroTrans, takes a longer view of the situation. “I don’t think the World Cup had an impact one way or other,” he told this AJOT reporter in an exclusive interview. In fact, he contends that it’s more the political environment within Brazil that is impacting trade there today, say nothing of the over capacity of vessels in the trade.
Greg Howard, CEO of CaroTrans
CaroTrans is a leading non vessel operation common carrier (NVOCC) and ocean freight consolidator that, since 1979, has been operating through a network of offices in Asia, South America, Oceania, and the United States, along with strong local partners. “Over capacity is having a big impact on pricing and margins – particularly on the East Coast of South America,” he said. “South America’s West Coast is not much better.” This situation is not helped by the fact Maersk is rolling out its Triple E Class of container ships, the largest vessels on the water. “Such large ships are introducing new competitive factors in the environment and creating challenges,” he stated. “Plus there’s no new business being brought to the market. All business is under enormous price pressure.”
Trade Policy Impact
Besides overcapacity impacting trade in South America, politics in each country and a leaning toward negative policies regarding international trade are having an effect as well. “This is creating an air of uncertainty,” he said. “What’s happening in Brazil is not too different to what happened in Argentina and Venezuela.”
Currently, these economically unstable countries employ fiscal policies that are unsuccessfully controlling runaway inflation and overvalued currencies. Consequently, a black market for US dollars has emerged in both Venezuela and Argentina. Meanwhile, Brazil, along with the other three BRIC nations, is considering partnering in setting up its own version of the World Bank so as to control those nations’ infrastructure investment.
“The outflow of money from Brazil is an indicator of the future economic direction of that country,” remarked Howard.
Nevertheless, Howard is bullish on Brazil and South America in spite of these challenges.
Whether or not Brazil’s fiscal policies will impact trade with the United States and other South American countries is yet to be seen. Right now Brazil could benefit from a change in Russia’s trade policy. Recently, Russia President Vladimir Putin put in place a full embargo on most food being imported to Russia from the United States and European Union. Since Brazil is a big exporter of chicken to Russia, and one of its BRIC partners, farmers and exporters will benefit. In fact, chicken exports to Russia could be increased by 150,000 tons.
Brazil is the world’s largest chicken exporter and currently exports 60,000 tons of chicken to Russia. Russia is among the top three export markets for US chicken, accounting for $303 million in 2013. Russia, however, currently accounts for about 7 percent of total U.S. chicken exports.
Howard regards this policy change by Russia as one that will provide opportunities for his company in Brazil, as well as in Argentina, Chile and Peru. The reason: CaroTrans has operations in Russia. “We have been able to position ourselves quickly to take advantage of those opportunities that might present themselves,” he said.
Being Nimble Helps
As an NVOCC, CaroTrans can be more nimble than companies that own their vessels. “We also have a network of agents and relationships with carriers that allow us to do just that,” Howard added.
CaroTrans is also well positioned to handle trade between South America and other parts of the world such as Asia. In 2012, CaroTrans introduced four less than container load (LCL), direct services from China (Shanghai, Ningbo, Shenzhen, and Hong Kong) to Valparaiso, Chile. CaroTrans established a wholly owned and operated office in Santiago, Chile in 2011 to strengthen its global infrastructure and support significant trade growth in South America.
In China, the company operates local offices in Guangzhou, Hong Kong, Ningbo, Shanghai, Shenzhen, Tianjin, and Xiamen.
“There has been a strong increase in terms of trade in between Asia and South America,” Howard said. “We are right in the middle of that and have benefited with our operations in China and our network throughout all of South America.”
Some carriers are increasing their tonnage in the China-South America trade lanes. Howard pointed to the recent preliminary agreement between CCNI and Hamburg Süd whereby Hamburg Süd intends to acquire the container liner activities of CCNI. The goal of Hamburg Süd is to strengthen its liner network to and from South America by integrating the CCNI liner services.
Meanwhile, Port operator APM Terminals is investing $2.5 billion in five Latin American port terminals between 2012 and 2018 to be prepared to escalating trade. APM has one terminal at Santos port in Brazil and another at Callao in Peru. The company is currently building a container terminal in Moín, Costa Rica and one at the Mexican Pacific coast port of Lázaro Cárdenas.
UPS is also expanding its footprint in Brazil by opening nine operating facilities in Sao Paulo. That expansion will boost the company’s network by 78 percent and cover over 200 cities in Brazil.
Market Potential
Regardless of the politics and fiscal struggles, the market in South America is enormous. South America encompasses 12 countries with well over 380 million inhabitants, 204 million of which are in Brazil. Inward and foreign direct investment in South America has been robust.
Cartagena, Colombia offers a good example. Argos Cement Company, based in Medellin, Colombia, is spending $400 million on its Cartagena plant to meet increased demand from Central America and the United States. More so, Refinería de Cartagena S.A. (Reficar), owned by Colombia’s national oil company Ecopetrol, is investing some $4 billion to extend its refinery in the Cartagena area. Not only is expansion bringing an influx of shipments of equipment to build the enlarged refinery, it highlights Colombia’s position as one of Latin America’s brightest locations for oil production, a status that shows no signs of abating.
An article in World Finance magazine indicates that Colombia’s oil and gas industry brought in $7 billion in 2012. Helping are recent improvements to the Port of Cartagena – some $640 million in local port infrastructure.
As a result, Cartagena has become an effective transshipment hub for a number of shipping companies between the East-West routes. “It also serves the North-South trades from Cartagena from both coasts of South America,” Howard said.
Peru has also experienced an improved investment climate. The China National Petroleum Corp. (CNPC) expects to invest $2 billion in Peru’s economy in the next decade and potentially build a gas pipeline in the country. Peru’s mining sector continues to be fast growing. Peru is the world’s third-largest producer of copper. Estimates call for the red metal to double by 2015 to almost 2,000 metric tons.
Brazil also continues to hold promise for growth.
“But Brazil is still an issue because of the simple fact that country does not have adequate rail infrastructure,” Howard remarked. “As a result, container traffic on and off the piers, coupled with growth in trade, have resulted in enormous congestion and inefficacies. Port congestion and infrastructure problems in Brazil still are a major issue that has got to be tackled by the government – both local and federal.”
Further south, Argentina has also gone through enormous change. “It’s experiencing strong, profitable and growing trade,” Howard commented. “But, again, government policies have restricted and scaled back much of what incredible opportunity there is.”
Long Term Investment
Despite complicated situations, South America remains and will continue to remain a dynamic market for international trade. For those considering doing trade in the market, Howard advises: Look for opportunities for the long run. “This market will always have its ups and downs, depending on government policies,” he said.
Particularly important to remember, South America is a continent made up of vastly differing countries. Regions even vary widely.
“We’ve been through a number of challenges in Latin America,” Howard continued. “It’s not for the faint of heart. It requires enormous perseverance and investment in time and resources. You have to do your due diligence, practice cultural sensitivities and be ready to adapt to how business is conducted in each country.”
Howard should know. South America was one of the first markets in which his company got involved back in the 1980s. The company, which celebrates its 35th anniversary this year, has been doing business there some 30 years. “It is one of our larger trade lanes, and one of our better performing markets – both on the East and the West coast,” he said.
CaroTrans continues to invest in its network in South America. Two years ago CaroTrans partnered with Craft Multimodal in the East Coast of South America trade region. They teamed up in Argentina and Uruguay, in addition to establishing an exclusive relationship in Brazil, to deliver high quality, customer-focused LCL and FCL (full container load) containerized shipping services.
Craft Multimodal is a Brazilian multinational company.
Last year, CaroTrans introduced direct, weekly LCL and FCL export service from Houston to Rio de Janeiro, Brazil. Earlier this year, the company expanded its services in Central America by announcing weekly, direct, all-water LCL service from the U.S. West Coast to all points in Central America including: Belize, Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador and Panama.
