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TOC Americas – Conference Review

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TOCAM2013Private sector holds the key to closing the transport infrastructure gap in North and Latin America

Private capital is the only realistic option to address a huge deficit in freight transport infrastructure funding and the public sector need to adapt to this new reality, heard delegates at the recent TOC Container Supply Chain Americas 2013 conference in Miami

London,  22.10.2013 – Has the time arrived where the need for transport infrastructure capital has outpaced the ability of most governments to fund it? Judging from debate at the recent TOC Container Supply Chain Americas 2013 conference in Miami the answer to this question, posed by one of this year’s opening presenters, is a resounding yes – and it will be private capital and enterprise that pick up the slack.

Some 400 industry executives from 30 countries gathered at the Miami Airport Convention Center on 1-3 October for the 13th edition of the annual Americas industry gathering, where big ships and the cascade effect, Panama Canal expansion, ocean carrier alliances, transhipment versus direct port calls, carrier-shipper relations, port productivity and inland container flows were all on the agenda. But it was the topic of money that dominated the proceedings.

The conference, which in apt irony opened on the morning of the US government shut-down triggered by political infighting on the budget, heard from multiple speakers that traditional public mechanisms can no longer be relied upon to fund vital infrastructure developments both in North and Latin America.

“Given the state of government finances, the consensus is that public private partnerships are the only viable solution, ” said keynote speaker Walter Kemmsies, Chief Economist at Moffatt & Nichol. However, the public sector has “often struggled to be a good partner” to private enterprise and money. The challenge now for government and other public agencies is to “uncork the bottle” and facilitate the flow of private capital and expertise into ports and inland transport infrastructure, asserted Mr Kemmsies. The issue of whether port authorities and economic development agencies will be able to coordinate their efforts to adapt to this new reality is also crucial, he added.

US needs to embrace PPP

Partnership with the private sector was one of the key themes pressed home by Bill Johnson, Director at PortMiami, host for this year’s TOC Americas. Mr Johnson told delegates that PortMiami is spending over $2 billion to get “big ship ready” for the expanded Panama Canal, including new super post-Panamax cranes, 50ft deep dredge and construction of the Port of Miami tunnel. Due to open in 8 months, the tunnel is “one of the largest PPP projects in America today, ” said Johnson, with a consortium of private investors funding the $1 billion development in a design-build-finance-operate-and-maintain (DBFOM) arrangement.

Ports America, the largest US private stevedore and terminal operator, is also championing PPP. “Significant infrastructure investment in addition to what US ports and their private partners are forecasted to spend will be required to close the funding gap, ” said Marlene DaCosta, VP Strategic Marketing for the company. Citing the 2013 US infrastructure report card from the American Society of Civil Engineers (ASCE), which forecasts that $3.6 trillion needs to be spent by 2020 and gives ports a mediocre C+ rating, Ms. DaCosta said that Ports America’s recent PPP deals to fund infrastructure upgrades in Oakland and Baltimore could become a future “model for the industry”. In terms of port-centric capex committed for 2013 alone, the “big five” are Los Angeles/Long Beach at $1 billion, New York at $345 million, Houston at $220 million, Charleston SC at $157 million and Georgia Ports Authority at $100 million, she noted.

“Infrastructure funding is the critical issue for economic growth, but US ports have lost funding for system preservation projects, let alone infrastructure projects, ” concurred John Martin of analysts Martin Associates. Some $64 billion needed to be pumped into the US port system over the next 5 years, he said, and with the economic crisis reducing state and municipal public funding, not enough federal money to fund dredging/deepening and other infrastructure needs, and security projects competing for cash since 9/11, private sector investment is now key.

However, added Mr Martin, labour issues and uncertainty over navigational projects are contributing to a “high level of perceived risk in US port investment”. Combined with reduced returns and multiples compared to the heady days of 2006-7, he argued, this is leading more funds and private investors to turn their attention instead to emerging markets, including Caribbean and South America.

Brazil ‘not for the faint-hearted’

Private investment in Latin America is not without its own challenges, however, as highlighted by Michel Donner of Drewry Maritime Advisors in his update on the changing framework for Brazilian port and logistics infrastructure funding. Over the last decade, Brazilian container traffic has grown at an average CAGR of 9.5%, with port traffic reaching 8.8 million TEU in 2012, up from just under 3 million TEU in 2001. Added to this for the port sector has been the global ‘cascade effect’ displacing ever larger ships onto the Latin trades. As a result, said Mr Donner, Brazil’s road, rail and port infrastructure are now all under intense pressure, especially around harvest time, when extreme congestion and delays are the norm.

With the exception of the new BTP and Embraport terminals just opening this year in the Port of Santos, there have been no new public port concessions since 2008. Instead, pure private terminals – in the shape of Itajai and Itapoa – have been the main source of new capacity injection. In their first phase, BTP and Embraport should add a much-need 1.2 million TEU capacity between them to the country’s most overstretched port, which has been running at 95% plus utilisation with average ship waiting times of 2-7 days. But both terminals have started on a “small footing”, said Mr Donner, due to labour and dredging issues – echoing Mr Martin’s observations on US ports.

Recognising the need to square the circle between international trade growth on the one hand and a jammed ports and logistics network on the other, Brazil’s new 2013 port reform bill is belatedly designed to facilitate and encourage private sector involvement, said Mr Donner. The bill is intended to untangle the current web of laws governing private and public sector involvement in Brazilian ports and logistics, which has created a very uneven playing field.

While applauding the efforts to remedy historic problems, Mr. Donner warned that there is a long way to go. Recent concessions in Brazil’s highway sector have been unsuccessful and the market has “little confidence in government agencies’ ability to deliver their part of concession agreements in a timely manner.” Some major issues, such as environmental licensing are also not addressed by the new bill. “In view of the current market mood, Brasilia will probably need to prepare tender models that are able to attract private investors by reducing perceived risk, avoiding legal uncertainties and allowing returns more in line with market expectations, ” he said. In conclusion, Brazil is “a market of opportunity, but not for the faint-hearted.”

Are private port authorities the future?

“Regardless of size, all ports are grappling with how to finance expansion and modernisation. The solutions will come from the private sector and port authorities need to better understand private sector capital markets, ” said Franc Pigna of port property specialist Aegir Ports. Pigna argued that port authorities around the world need to be “depoliticised” and liberated to “act like a business, ” with management of port and port-related property and land portfolios being one of the main commercial roles. “Infrastructure funding will come from private capital markets and port property represents the security for expanded, low cost borrowing, ” he said.

Corporatisation, as has already happened in Europe and other parts of the world, is an important step towards giving port authority management and staff the mandate to become “more entrepreneurial and competitive, ” said Pigna. Aside from finance issues, he argued that port authorities are the natural ‘transport leaders’ in the logistics chain, best-positioned to manage port communities and clusters to create more efficient, broader and competitive load centres, including a more vertically-integrated and deeper hinterland.

Beyond corporatisation, Pigna said that Australia, where “the privatisation of Melbourne, Sydney and others is raising billions”, is in the vanguard of the next wave of development. Following in the footsteps of the container terminal industry, the future for the port authority sector could include the rise of private port operating groups, with the specialist skills and financial muscle to manage multi-national portfolios.

TOC Container Supply Chain Americas moves to Colombia for the first time next year, taking place in Cartagena during October 2014.

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