Brazil: Next On The Sport Logistics Podium
As the host of the 2014 football World Cup and 2016 summer Olympic Games, Brazil is the next country to benefit from the uptick in freight volumes associated with these sporting events. BMI expects an uptick in interest in Brazil from logistics firms keen to either expand their existing operations or break into this market in order to gain exposure to the growth in freight transport demand associated with these events. Post World Cup and Olympics BMI believes there are plenty of opportunities to hold the logistics sector's interest, specifically Brazil's expanding consumer base. But the relatively underdeveloped transport network and high levels of bureaucracy, which serve to push up the cost of importing and exporting, will remain the key drawbacks to Brazil's logistic sector development.
World Cup Logistics Demand Kicks Off
The Brazilian 2014 World Cup, is due to start on June 12 2014. Over the next 12 months, in keeping with the final phase of preparation that we have witnessed within other countries hosting this tournament, we project an uptick in container throughput at the nation's ports. This uptick will be driven by the import of last-minute equipment associated with the event, for example, air conditioning units. As the World Cup nears, containers full of goods associated with the consumer sector will increase as Brazil prepares to welcome an influx of tourists that must be catered for, as well as the World Cup associated souvenirs.
BMI's throughput forecasts for Brazil's container ports highlight our view. Container volumes at all of the Brazilian ports that we forecast are projected to strengthen y-o-y in 2013 and 2014 as the sector benefits from its role in the World Cup logistics supply chain and the strengthening in Brazil's economic growth outlook, a key driver of container demand. The country's real GDP is forecast to grow by 3.3% in 2013 and a further 3.6% in 2014, following an increase of just 0.9% in 2012.
The wide selection of stadiums in different regions in Brazil ( see map) that will play host to the World Cup will ensure that a large number of the country's ports will benefit, hence all of the container ports that BMI forecasts for will witness a strengthening in their y-o-y throughput growth.
|Brazilian Football Stadiums Hosting World Cup Games|
Using the port of Santos, Brazil's largest container port, as an example BMI highlights that box volumes at the facility are forecast to expand by 7.34% in 2013 up from the 6.78% growth estimated in 2012, with a further increase in box volumes of 8.4% projected for 2014.
Olympics Freight Demand Focused On Rio
The country has a two-year break, until once again it becomes sports fans' prime focus, with Brazil set to host the opening ceremony of the 31st Olympiad on August 5 2016.
Just as with the World Cup we expect Brazilian shipping and freight transport to benefit, a trend we have noted in other countries that have held the Games. Using the container shipping sector as an example, we highlight that the country's port sector and freight modes associated with container transport will be major beneficiaries as the ramp up to cater for expanding consumer needs plays out on the back of increased tourist numbers.
Unlike the 2014 World Cup, which is a country-wide event, the 2016 Olympic Games are to be centred in Rio de Janeiro. Four main areas of Rio are due to boast venues for the Olympics: Maracana, Copacabana, Barra and Deodoro.
|Source: BMI Research|
|Joao Havelange Stadium||Marina Gloria||Olympic Training Centre||Olympic Whitewater Stadium|
|Sambodromo||Flamengo Parsk||Rio Olympic Arena||Olympic Mountain Bike Park|
|Maracana Stdium||Copacabana Stadium||Maria Lenk Aquatic Centre||Deodoro Arena|
|Maracanazinho Arena||Lagoa Rodrigo Freitas||Olympic Aquatics Stadium||Deodoro Modern Pentathlon Park|
|Fort Copacabana||Rio Olympic Velodrome||National Equestrian Centre|
|Olympic Tennis Centre||National Shooting Centre|
|Olympic Hockey Centre||Olympic BMX Centre|
The concentration of the Olympics in Rio de Janeiro, will in BMI's view lead to greater demand on the port of Rio to meet the city's Olympic supply chain needs. The port is the nearest maritime facility to the main stadiums where Games events will be held.
The port already plays a container shipping role in Brazil's supply chain, but it is one of the smaller container ports that BMI covers. Within the six Brazilian container ports that BMI offers historic and forecast data for, the port of Rio ranked fourth in terms of container throughput in 2012 (based on historic data and BMI estimates).
Although BMI predicts that Paranagua, the port that is ranked third, just above the port of Rio, will retain its position (the port of Paranagua handled 743,825TEUs in 2012 compared with the port of Rio's throughput of 476,340TEUs in 2012) the port of Rio will, however, witness a strengthening in its y-o-y box throughput growth.
|Boxes Building Up For Games|
|Port Of Rio Container Throughput, 2007-2017 (TEUs)|
In 2013, BMI forecasts the port of Rio's container throughput to increase by 4.3% up on the 2.5% y-o-y growth recorded in 2012. The strengthening in y-o-y growth will continue, with box throughput projected to increase by 5.8% in 2015 as preparation for the Games intensifies and by 6.5% in 2016.
Network and Bureaucracy The Major Challenges
As a BRIC nation Brazil is already on the radar of freight transport and shipping firms and big name logistics operators already boast operations there. The dual sporting events offer these existing operators expansion opportunities and impetus for new players seeking to enter the market.
Brazil, while offering considerable rewards for shipping and freight transport firms, is also a challenging market for the logistics sector, with operators facing the twin issues of a poor quality transport network and relatively high levels of bureaucracy. BMI compares Brazil against its regional peers for both of these factors and finds that the country falls consistently into the lower percentile.
Brazil suffers from an underdeveloped transport network. According to the World Economic Forum's Global Competitiveness Index, Brazil's port infrastructure scores low out of its regional peers, with the country ranked 13 out of 17 states in the region.
Placing further pressure on the country's port sector and inducing the likelihood of congestion, is the high demand stemming from container lines wanting to be able to access the country's ports. Brazil's BRIC status has induced greater demand for container shipping, with the country's ports well connected in comparison with the country's regional peers. According to UNCTADstat's Liner Connectivity Index, Brazil is the third most connected nation by container shipping in the Latin American region after Panama and Mexico.
|Port Development Can't Keep Pace With Box Growth|
|LHC: Latin America Port Infrastructure Ranking. RHC: Latin America Liner Connectivity 2012|
While Brazil's highly connected nature is a positive for the development of the country's supply chain, the threat of congestion at the nation's ports will be viewed as a negative by logistics operators, as congestion generates extra cost and damages delivery reliability.
The underdeveloped nature of Brazil's transport network is a problem further up the country's supply chain, negatively impacting the country's freight transport links to and from the country's ports, but also hitting Brazil's internal transport sector.
Brazil's road and rail networks also score low when compared with its regional neighbours. The country's road network ranks below the regional average and the World Economic Forum ranks it 13 out of 17 regional peers. Brazil's rail network scores higher in regional comparison, with the World Economic Forum ranking it eighth out of 17 states in the region, but once again Brazil falls below the regional average for rail infrastructure.
|Internal Transport Network Needs Development|
|LHC: Latin America Road Infrastructure Ranking. RHC: Latin America Rail Infrastructure Ranking|
The country's relatively poor transport network negatively impacts the time it takes for Brazil to import and export goods. Logistics firms interested in expanding their Brazil operations or breaking into the country in preparation for the World Cup and the Olympics, will be concerned by a burden on the imports procedure.
The lead time for Brazilian imports on average stands at 3.9 days according to World Bank data, placing it 13th out of its 17 peers in terms of the time taken to import goods. As highlighted this is in part due to the country's relatively poor transport network, but relatively high levels of bureaucracy also play a role.
|Bureaucracy A Major Challenge|
|LHC: Lead Time To Import (Median Case Days) & Regional Average Lead Time To Import (Median Case Days). RHC: Number Of Documents Required To Import & Regional Average|
The World Bank ranks Brazil in eighth place out of 17 states regionally in terms of the efficiency of the countries customs procedure. The burden of the Brazilian customs procedure is highlighted by the number of documents that are needed for the import of goods. Eight documents in total are required placing Brazil below the regional average of seven documents needed for the import of goods.
|Costly To Import|
|Cost To Import (US$ Per Container) & Regional Average Cost To Import (US$ Per Container)|
These factors make the import of goods into Brazil relatively expensive, when compared with other Latin America states. Brazil is ranked third out of its 17 peers in terms of the cost to import a container, with an average cost of US$2,275 per container, placing it just below Venezuela and Colombia. The cost of importing a container is well above the regional average of US$1,616 per container and the expense is perhaps best illustrated by the fact that the World Bank records that it costs just US$880 to import a container into Peru, the regional outperformer.
What Happens When The Party Leaves Rio?
The questions facing many shipping firms and logistics operators are; what happens after these sporting events? Yes, Brazil will benefit in the short term, but what is the medium term outlook for the country?
Following these sporting events, which in the run up offer many logistics opportunities, freight volumes traditionally dip. This was evidenced at the port of Richards Bay container terminal following the 2010 South Africa World Cup, when growth in box throughput at the port started to slow.
We highlight that in previous instances volumes at facilities that have catered for sporting events have seen a drop off in demand, but that throughput at ports has remained above that prior to the preparation for the sporting event.
We believe this is due to the fact that sporting events introduce shipping and freight operators to new facilities. In the case of the 2010 South Africa World Cup, the port of Richards Bay was closest to a number of stadiums hosting the football games and so introduced operators, who previously viewed it as a dry bulk hub catering for the country's coal exports, to the port's container facilities.
BMI projects that although growth at the port of Rio will slow following the Olympics, volumes will continue to increase. We forecast container throughput growth y-o-y to slow to 6.3% in 2017 down from a projected 6.5% increase in 2016, but at the 6.3% level growth is still robust.
Brazil: The Long-Term Logistics Play
BMI also highlights that there are a number of longer-term factors that will hold the interest of logistics firms and ensure that their expansion or entrance into Brazil is a long-term move. The country's macroeconomic growth will continue to expand. Over the medium term (2013-2017), we forecast Brazil's real GDP to expand by an annual average of 3.7%. Over the longer term (2018-2022), we project this growth to further strengthen, with an annual average increase of 4% projected.
In terms of container trade, Brazil's imports will continue to drive the growth in this sector. The macroeconomic growth outlook for Brazil will support increased import demand and bolster the expansion of the consumer sector. The country's population is continuing to expand, with a growth of 6.4% projected over the long term (2013-2022), with Brazil's population forecast to number 212.9mn in 2022.
|Long Term Consumer Indicators Looking Positive|
|Brazil Population (mn) & Brazil Active Population, % of Total|
Consumer demand will be further bolstered by the relatively low level of unemployment in the country, which we forecast to remain below 6% over the long term and the high level of the country's active population, which is also expanding.
In 2013, we project the percentage of the active population - those of between 15 and 64 years old, which is the key consumer age bracket - will account for 68.4% of Brazil's total population. By 2022, we project the country's active percentage of the population to have expanded to account for 70% of Brazil's total population.
Over the medium-to-long-term, BMI also projects the logistics demand for the export of containers to increase. The country will remain primarily a dry bulk goods exporter, with Brazil playing a major role in the iron ore supply chain, but its textile and footwear production sector is also expanding and with it the demand for container export logistics solutions.
|Easier And Cheaper To Export|
|LHC: Brazil Import and Export Lead Time & Documents Required To Import & Export. RHC: Brazil Cost To Import and Export a Container.|
Logistics firms will be the prime beneficiaries for Brazil's expanding container export sector, as not only will this drive demand for freight transport and shipping solutions, but the bureaucracy connected with exports is less acute than that witnessed in Brazil's import sector.
The lead time to export goods is on average 2.8 days as opposed to the average 3.9 days lead time for imports. The number of documents required to export is seven compared with the eight documents to import. This considerably brings down the cost of exports as opposed to imports. According to World Bank data the cost to export a container from Brazil stands at US$2,215 per container, compared with the US$2,275 you have to pay to import a container.