In Q411 BMI believes that growth in the Brazilian freight transport sector will continue on the back of exports to Asia, particularly China, and rising domestic consumer spending, which should see increased demand for containerised goods. The pace of growth at Brazilian ports in particular has been rapid and BMI notes that Brazil's transport infrastructure has not kept pace with the country's economic growth. More investment is needed to handle increasing volumes. As such, we stress the need for more investment in infrastructure, both public and private, as Brazil seeks to deal with growing traffic and to capitalise on increasing trade opportunities.
Key Industry Data
?? Air freight tonnes to grow 6% in 2011. Over the medium term, to 2015, we predict that growth will average 7% a year.
?? Air freight tonnes/km are set to grow 5% in 2011.
?? Total tonnage throughput at the port of Santos to grow 12% in 2011. To 2015, we predict average annual growth of 11%.
?? Rail freight tonnes to grow by 9% in 2011. To 2015, we predict average annual growth of 9%.
Key Industry Trends
International Companies Rush For Piece Of Superporto Action The trend of international companies getting involved in Brazil's biggest ongoing port project is continuing, with Netherlands-based Royal Boskalis Westminster (Boskalis) the latest company to claim its slice of the pie. Boskalis has won a US$280mn contract for dredging and other work related to the construction of port terminal TX2 at LLX's Superporto do Açu in Brazil.
Nothing Sweet About Santos Delays, As Disappointing Sugar Harvest Leaves Ships Waiting BMI expects more delays at Brazil's main sugar exporting ports during this year's harvest. While last year's crippling delays were exacerbated by a record crop, this year vessels have been left waiting as a result of a slow start to the harvest and poor crop yields, meaning there is simply not enough sugar to load. BMI believes that although the harvest may well pick up, resulting in quicker loading times, vessels are still likely to experience delays due to Brazilian ports' antiquated infrastructure.
LatAm Rail On Track For Much-Needed Improvements, Thanks To Chinese Investment The trend of Chinese investment in Latin America's rail infrastructure in order to secure access to the region's rich reserves of raw materials and agricultural produce is continuing. The latest in a series of large-scale investments is likely to be a railway designed to transport soybeans from Brazil's Matto Grosso state to Santarém port in the northern state of Pará.
Risks To Outlook Potential downside risks to our outlook include a possibility of reduced Chinese demand in 2011 due to monetary tightening, which would have a knock-on effect on its demand for raw materials. As China replaced the US in 2009 as the biggest importer of Brazilian products, any slowdown in Chinese spending will have a negative effect on Brazil's port sector.
A second downside risk is the possibility that Brazil will not be able to improve its infrastructure in order to keep up with global demand for its main exports. Brazil supplies 54% of the world's sugar and it is currently vying with Australia to become China's main supplier of iron ore. Infrastructure deficits limit expansion and we believe that if the country does not improve efficiency and capacity there is a possibility that importers will look elsewhere for their supplies. We acknowledge, however, that importers are traditionally repeat customers and supply contracts take some time to develop, therefore this is a mid-term rather than short-term risk.
A final downside risk comes from the possibility that recently introduced credit-cooling measures will serve to prevent private consumption from repeating the 7.0% year-on-year (y-o-y) real growth rate posted in 2010.
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