Brazil’s export bottleneck

Economic contraction has led to a systemic container imbalance in South America’s biggest economy    Brazil’s ocean trade remains stuck in an economic spin cycle that is hindering potential export growth.
   Imports for auto parts, electronics and other products have plummeted as South America’s largest nation deals for the third year with its worst recession ever, leading to shortages of container equipment and vessels used to deliver products to overseas markets.
   Officials at Maersk Line, the world’s largest container shipping company, say shippers can expect more capacity shortages if demand doesn’t improve because rising freight rates are eroding profits in low-margin Brazil trade lanes.
   “Brazil is bouncing off two extremes: the all-time high experienced in exports last year and the all-time low in imports,” Nestor Amador, Maersk’s commercial director for the east coast of South America, said in a new country report released this week. “While we are encouraged by what looks to be the start of an economic recovery, we are taking a very sober view on Brazil.”
Maersk forecast Brazil’s imports and exports to remain flat in 2017, after imports dropped 13 percent, to 1.95 million forty-foot equivalent units (FEUs) last year and exports grew 5 percent, to 1.24 million FEUs.
   The fourth quarter saw a reversal of fortunes, with imports bouncing up 13.8 percent as firms replenished inventory levels and exports declining 4.1 percent, according to statistics compiled by Datamar from all carriers operating in Brazil.
   The strengthening of the Brazilian currency, the real, has begun to act as a drag on exports. Refrigerated container exports experienced the largest drop, declining 11.1 percent in the fourth quarter compared to 1.7 percent for dry containers. Prior to that, Chinese demand for Brazilian meat helped drive export growth.
   Brazil was a net importer until the first quarter of 2016 and had a surplus of containers for outbound cargoes. Reduced import demand forced Maersk, which primarily utilizes 8,000- to 9,000-TEU Sammax-class vessels capable of navigating shallow Brazilian ports, to cut vessel capacity in the first half of 2016.
   The trade imbalance is creating challenges for domestic shippers, who may not find available containers to move their goods to Asia or Europe, or face increased transport fees, Joao Momesso, Maersk’s trade and marketing director for the east coast of South America, told the Adam Smith Project.
   Most exports from Brazil are commodities that require low freight rates to remain competitive on world markets, especially in the agriculture sector. Produce and meat products are extremely price sensitive, with buyers able to quickly switch to cheaper sources.
   As bunker fuel prices rise, Momesso said Maersk can’t afford to reposition containers from locations such as Argentina and Europe to Brazilian ports to meet export demand because shippers can’t pay the incremental cost. The Port of Santos, for example, is a major import destination and a center for reloading boxes with soybeans and cotton.
   “If import volume doesn’t pick up then we won’t have the conditions for all the export containers to be delivered,” he said.
   The cost of bunker fuel to power commercial vessels has more than doubled in the past eight months, to about $315 per ton, according to Amador.
   Company officials said carriers cannot be expected to swallow increased operating costs at a time when the shipping industry is hemorrhaging billions of dollars as it copes with slow trade growth and surplus vessel capacity.
   Soy producers could revert to bulk vessels to move their products, but a growing number of customers in Asia demand containerized shipments to reduce spoilage and separate special identity-preserved soy products.