Last week the port of Santos was disrupted by strikes yet again, this time by stevedores protesting at the Government’s revised legislation for the national port sector. Congestion, it seems, is far from over. Despite modifying its national port liberalisation strategy recently, the Brazilian Government still has some major hurdles to cross, including how private container terminals should be manned. This is because last week’s stevedore strike in Santos erupted on confirmation that the port’s recently opened DP World/Odebrecht/Coimex backed Embraport private terminal was not obliged to use unionised casual dock labour organised through the OGMO agency system. It culminated on 11 July with the invasion by a group of stevedores of a 7,450 teu Maersk Line vessel which was berthed at Embraport, forcing it to move to the nearby public Santos Brasil terminal.
The conflict stems from the curious fact that common-user terminals in Brazil’s public ports have to employ casual dock labour through the so-called OGMO system, but private terminals (located outside the geographical limits of the public ports) can employ their own stevedores. These ‘private’ terminals were originally, and in theory, only meant to be for the internal use of the companies operating them, thereby excluding the handling of significant third party cargo.
Major incumbent ‘public’ container terminals, such as Santos Brasil, therefore fall under the auspices of OGMO, whereas more recently established private container terminals in Itapoa (backed by Hamburg Sud) and Navegantes/Portonave (backed by MSC/TIL) do not, having convinced the authorities that they were private facilities – despite performing a similar role to Santos Brasil.
OGMO argues that, as the playing field is officially no longer level, further change to the Government’s legislation is required. The “public” terminals have concessions which, by and large, were won at high prices in heated bidding wars in the 1990s, so find it challenging to compete with “private” terminals which were agreed more easily. OGMO labour is also claimed to be more expensive.
The Government’s recently established regulations have only formalised this inconsistency by explicitly stating that private terminals do not fall under OGMO restrictions, and can handle third party business. This has the unions up in arms, as well as the incumbent private concessionaires of the public terminals. For Santos Brasil and Libra Terminals, the existing main operators in Santos, this challenge is now right on their doorstep.
The difficulty, along with several others, badly needs to be resolved as more capacity is needed. It is argued that, until this happens, port investors and operators will continue to regularly face too many strikes and seemingly endless bureaucratic, legal and environmental licensing hurdles when seeking to add new port capacity. Government influence also has to be made more predictable, as it has seemed heavy handed on occasions – but too light on others.
Growing cargo volumes have made the resulting congestion worse. In 2012, Brazilian container port traffic increased by 3.5% to 8.3 million teu, double that of 10 years ago. Of this, Santos accounted for nearly 40%, with volumes growing by over 7% in 2012. Port capacity is consistently running behind demand, so congestion is commonplace – both in terms of waiting ships, and huge queues of waiting trucks on the roads surrounding the ports.
Despite this extremely challenging environment, there is no shortage of investor interest in the Brazilian port sector. One reason is that investors who have the bravery and stamina can, once they finally establish operational terminals, generally make good money. Santos Brasil for example consistently generates EBITDA margins in excess of 40%. It is no surprise, therefore, that besides the local Brazilian terminal operators, international players such as APM Terminals, MSC/TIL, ICTSI, DP World, Hamburg Sud and Gulftainer are present in the country – and looking for more opportunities along with other international investors.
Our View:
The real responsibility for meeting Brazil’s future port needs will lie with private sector investors and operators. Those with sufficiently broad shoulders and stamina should be able to reap the financial rewards, providing they are not defeated by the institutional structures under which they have to work.
Source: Drewry Maritime Research