Lack of consensus stalls Port of Santos container capacity growth

Container operators at the Port of Santos are embroiled in a heated dispute over plans to enhance the port’s capacity, which is now critically constrained. Shipping giants Maersk and MSC, stakeholders in Brasil Terminal Portuário (BTP), are lobbying the government to carry out the auction for the proposed new terminal, STS 10. In contrast, Santos Brasil and Ecoporto, under Ecorodovias, oppose the auction, suggesting instead the expansion of existing terminals to boost capacity.

The discord is fueled by a whirlwind of accusations concerning the vested interests each party holds in either scenario, say insiders familiar with the discussions.

Critics of Santos Brasil argue that the company seeks to thwart the auction process to maintain high tariffs that inflate its market capitalization, potentially positioning it attractively for acquisition. On the flip side, Maersk and MSC, both users and owners of BTP, allegedly advocate for unnecessary expansions to drive down costs and potentially secure an independent terminal in Santos, thus lessening their reliance on neutral operators like Santos Brasil. Amidst these strategic plays, rumors swirl about the shipowners’ desires to dissolve their BTP partnership, though this is refuted by those close to the companies.

This long-standing dispute has impeded the expansion of the Port of Santos, analysts claim. A government official emphasized the urgency of finalizing a strategy to alleviate the port’s burgeoning crisis, regardless of the chosen approach.

Tensions between the operators intensified in 2022 concerning the STS 10 project, envisioned as a mega terminal for containers. At that time, Santos Brasil and other stakeholders filed a lawsuit with the Administrative Council for Economic Defense (CADE), the antitrust regulator, challenging the fairness of allowing Maersk or MSC to bid in the auction. Their concern centered on potential unfair competition, fearing that these two dominant shipping lines might prioritize their terminals while sidelining independent ones. In response, the shipowners countered that such accusations were merely attempts to stifle competition, asserting they had never engaged in anti-competitive practices.

Ultimately, the project was stalled, and with the advent of the new government, the plans for STS 10 were abandoned. The current administration in Santos has since proposed alternative uses for the designated site.

The Santos Port Authority (APS) has proposed a division of the STS 10 area: part of it would enhance the BTP, another segment is earmarked for the new passenger terminal, Concais, and another portion would extend to Ecoporto, which is currently in a contentious bid to renew its contract. This renewal has sparked controversy among technicians, as past attempts have been denied. Despite this, the concession remains active under a court injunction.

Furthermore, APS’s strategy includes several expansions for container operations: one involves enlarging the Santos Brasil terminal by annexing an area currently occupied by unauthorized housing. Additionally, there are plans to construct a new terminal on another site presently encumbered by illegal settlements.

These APS initiatives have come under scrutiny. In March, a report from the Federal Accounting Court’s technical department critiqued the expansion proposal for proceeding without a competitive bidding process and highlighted the absence of comprehensive studies supporting the plan. The report also censured the renewal process for Ecoporto. The resolution of these issues now awaits judgment from the reporting justice.

Anderson Pomini, president of the APS, stated that the authority expects to finalize its studies on port issues within a month and will then submit them to the National Water Transportation Agency (ANTAQ). He expressed ongoing concerns about the proposed STS 10 terminal, arguing that it would exacerbate congestion in road access to the port. “If STS 10 were operational today, traffic on the right bank of Santos would be paralyzed, as current road infrastructure is inadequate,” Mr. Pomini explained, noting that necessary road improvements are expected to take five years to complete.

Despite these concerns, Mr. Pomini believes that the planned capacity expansions at the port are adequate to meet anticipated demands until 2035. Contracted expansions are already underway at terminals, including Santos Brasil, BTP, and DP World’s private terminal.

Please refer to the chart below to see how the Port of Santos fared regarding container exports and imports between January 2021 and May 2024. The information was derived from DataLiner. The expansion of the Santos Brasil terminal in the Port of Santos is expected to help ease congestion issues and increase container traffic.

Container Exports & Imports at Santos Port | Jan 2021 – May 2024 | TEUs

Source: DataLiner (click here to request a demo)

Contrasting with this optimistic view, Luis Carlos Montenegro, head of Neowise and a consultant for TIL in Brazil (a subsidiary of MSC), critiques the current situation as already critical, with conditions expected to worsen. He highlighted that ship queuing times have soared to 24.3 hours this year. “We’re already operating at an 87% occupancy rate; this level of congestion is unparalleled globally and leads to chaos. It severely affects numerous product chains with broad impacts,” Mr. Montenegro explained, advocating for an ideal occupancy rate of 63% to prevent such ship queuing.

Mr. Montenegro’s analysis suggests that, despite the contracted expansions and potential densification of BTP, the port’s capacity will still fall short of future demand. Even with the STS 10 project realized, he forecasts that significant relief may only be achieved by 2035.

“STS 10 could provide a ten-year respite for Santos,” observes Patrício Júnior, director of TIL. He believes that incorporating the Concais terminal into the STS 10 design, as proposed in the APS plan, could preserve the terminal’s original capacity and help alleviate congestion.

Antonio Carlos Sepúlveda, head of Santos Brasil, favors expanding existing terminals as a quicker and more effective solution. “Operating three terminals is more efficient than four, as it focuses transshipment cargo, speeding up operations,” he argues, noting that STS 10 would be a longer-term project.

Mr. Sepúlveda refutes claims that his opposition to STS 10 is driven by self-interest. “Our stance isn’t about hindering port development for competitive advantage. We’re advancing our investment plans to prevent queues at the port,” he asserts, dismissing accusations of self-serving motives as a tactic to stir uncertainty.

Industry analysts are divided on the most effective strategy for expanding the Port of Santos. Marcos Pinto, managing director at Alvarez & Marsal, argues that a new terminal might not lead to increased cargo volumes. “It could simply redistribute existing volumes from other terminals. The tender won’t ensure that the volume is additional.” Mr. Pinto believes Brazil lacks the legal framework to guarantee this.

Roberto Levier, coordinator of the MBA in port management at Fundação Getulio Vargas, suggests that multiple strategies might coexist, especially given the anticipated rise in demand. “In the current situation, every possible response should be considered. We can’t risk a shortage of supplies for the industrial sector,” he explained.

Maersk highlighted in a statement that congestion at the Port of Santos is a long-standing structural issue, emphasizing the need for “systematic planning and capacity expansion to maintain Brazil’s competitive edge. The STS10 project represents the largest undertaking in the Brazilian port sector’s portfolio.”

Ecorporto, in its statement, argued that relocating to a new area would not hinder the expansion of container operations and could enhance efficiency. “Ecorporto is currently the only multipurpose terminal in the region experienced in handling special and oversized cargo,” the statement added.

The Ministry of Ports and Airports has not issued any comments on the matter.

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