From Santiago to LATAM
Logistics, the backbone of the chemical and petrochemical industries
After six years, Santiago de Chile was once again the host city of the annual Latin America Logistics Meeting organized by APLA. During the 11th and 12th of June 2024, the 26th meeting gathered industry representatives and different companies across the petrochemical and chemical value chain to discuss the latest developments in these segments and key topics, such as GDP evolution of the Latin America region (LATAM) and its comparison with the rest of the world, trends related to freight and regulations, and the role of green energy solutions amid the war against climate change.
The 26th Latin America Logistics Meeting kicked off with an economic outlook on Latin America and a special focus on Chile. Tomás Rau, the director of the Department of Economics at the Pontificia Universidad Católica de Chile (UC), commented that LATAM is experiencing a slower recovery compared to the global average, with a growth rate of 2%, while other regions are experiencing an average recovery rate of 3.2%. Although nominal interest rates are decreasing, they are doing so more slowly than anticipated, making project investment challenging.
2023 was an election year for Argentina, bringing Javier Milei as the new President. In early June 2024, Mexico also held presidential elections, with Claudia Sheinbaum being the elected candidate, providing continuity for Andrés Manuel López Obrador's party (the Morena party). Chile will also hold elections in October 2024 at the municipal level. However, one of the most relevant from a macro perspective is the US' presidential election, set to be held in November this year.
The US is one of LATAM's most important trade partners, often via Port Houston. Sergio Ojeda, Port Houston's Central and South America representative, commented: “The Port of Houston stands out as a crucial hub for the trade of polypropylene, a product that flows in and out in significant quantities. Houston exports resins or polypropylene in large amounts to all world regions, including LATAM. Although there are imports, the volumes are not comparable. Our resin exports amount to approximately 400,000-500,000 TEUs annually.”
According to Rau, during the pandemic, there was an uptick in costs and a disruption in supply chains, leading to a minor recession across several countries. Thus, Chile, Brazil and Colombia injected capital into their economies. While this contributed to economic growth, it also raised concerns about inflation. For instance, Chile injected around US$80 billion, which came from national sovereign savings and pension funds.
Antulio Borneo, vice president PET & polyester chain at ICIS, commented that the global manufacturing sector stabilized in January 2024, and is showing signs of growing again. For his part, Rau cautioned that while the US economy, particularly in manufacturing and service, shows signs of resilience, China faces one of the worst economic performances over the last 40 years.
So, how is China shaping the current state of the industry? China was one of the biggest demand drivers of petrochemicals and chemicals. After COVID, and until 2022, Borneo stated: "When the world needed it, China was there, demanding chemicals, but this has changed.”
From a peak of 25 million tons of chemical imports in 2020 by China, the number fell to 14 million tons in 2023. If we couple this with a robust domestic supply, Beijing implemented not-so-fair economic policies to incentivize its exports, such as dumping prices. This tactic raises ethical questions about competitiveness and fairness, but more specifically, what will LATAM countries do to overcome this situation?
“Global prices for chemicals tankers have surged by 30-75% over the last four years due to a shortage of liquidity.”
Matthias Dümmer, Market Analyst, Ultratank
In the current cycle in the petrochemical and chemical industries, companies have had to adopt new routes and various strategies to maintain profitability. For example, QC Terminales Chile has focused on managing competitive rates and providing tailored solutions: "We dedicate ourselves to providing solutions tailored to each client's business model through customized contracts that specifically address their needs. This strategy has enabled us to succeed in a fluctuating and demanding environment," commented Pedro Vásquez, terminal manager and commercial manager.
QC Terminales is part of a group of companies with operations across Central and South America, specializing in logistical solutions for various industries, including chemicals. The company manages bulk liquid cargoes in Chile and both liquid and solid bulk cargoes in Ecuador using tankers, bulk carriers, ISO tanks, and flexibags. Another strategy implemented by QC Terminales was diversification: "Over the past five years, we have diversified our offerings to include a wide range of products such as polymers, oils, lubricants, fertilizers, asphalts, and even fuels. This diversification has enabled us to strategically cover nearly all logistical needs for liquid bulk handling in our region. It serves as a buffer against industry cycles," concluded Vásquez.
“The chemical industry and logistics experience constant highs and lows influenced by diverse events, such as the pandemic, and global conflicts that we are always considering and integrating into our management.”
Pedro Vásquez, Terminal and Commercial Manager, QC Terminales Chile
An opportunity in disrupted oceans?
This year's Logistics meeting was different from previous ones. While post-panel discussions are common, the 26th annual meeting introduced "workshops" where attendees gathered in small groups and petite round tables to discuss various topics following specific panels, find common points, and hear from their colleagues what they would do when facing particular issues and challenges on logistics supply and rates control. "These meetings are a great opportunity to identify common points and facilitate the match between our solutions and the client's needs, essential to maintain relevance and competitiveness in the market," commented Vásquez from QC Terminales.
One of the focal themes was freight rates and supply chain disruptions. On the one hand, freight rates are directly affected by different variables like oil prices, availability, and environmental regulations. Mathias Dümmer, market analyst at Ultratank, shed some light on the current maritime freight market. During his presentation, he stated that according to MSI estimates, there will be a 3.3% increase in maritime transport demand for 2024, an uptick requiring a specialized fleet for chemical products. However, he commented that there has been a low order of new chemical tankers in recent years, primarily due to high asset prices, lack of capacity in specialized shipyards, and uncertainty over future propulsion regulations in the context of industrial decarbonization.
The result? The global fleet is aging, with a significant percentage of vessels operating beyond their optimal lifespan. The aging chemical fleet necessitates renewal, yet some operators may continue with older vessels due to favorable freight market conditions despite increasing difficulties posed by stricter environmental regulations.
On the other hand, over the last few years, the world has seen several wars and geopolitical turmoil in hotspots that have also affected logistics. One of the primary examples is the Israel-Hamas war, which led Iran-backed Houthis in Yemen to attack shipments trying to cross the Gulf of Aden on their route to the Red Sea. As a result, shipping companies began rerouting via the Cape of Good Hope in South Africa, adding an additional 10 days to the planned journey, and significantly impacting the ton-miles price. Additionally, Europe's embargo on Russian crude has increased the utilization of the Suez Canal.
According to Dümmer, freight rates are currently in a "super cycle", as are costs. The interplay between geopolitical events and their broad implications for the rest of the world, climate events like droughts in the Panama Canal, and weak supply fundamentals regarding vessel availability have contributed to this. However, these disruptions present an opportunity for Latin America, at least according to Oliver Houel, Eurotainer US' general manager – Americas: "While Asia, particularly China, has been the world's manufacturing hub, managing supply chains through the main canals like the Panama Canal and the Suez Canal remains challenging. This presents an opportunity for regions like Latin America to emerge as significant suppliers to certain parts of the world," he commented.
The state of the Panama Canal was also discussed at this year's meeting. The canal has been facing challenges due to decreasing rainfall in its watershed. In July 2023, the Canal authority reduced daily transit capacity from 36-38 vessels to 32; then, in November, it further reduced the capacity to 24 daily reserved spaces, and ultimately, in December 2023, to 22. Looking forward to 2024, the canal plans to gradually increase capacity, aiming for 34 reserved spaces daily by July 2024.
Gabriel Mariscal, agency business manager at CB Fenton, explained that since its transfer to the Panama State control in 1999, the Panama Canal has been a vital economic asset for the Central American country, contributing nearly US$20 billion to Panama's national treasury and amounting to 6% of Panama's GDP.
Given the scarcity of water, some alternatives have been brought to the discussion, like the construction of a new shipping route known as the "Nicaragua Canal," not so feasible due to the political instability of the country and a more complex geography, or construct a dam in the Indio River to supply water to the Panama Canal. However, Mariscal highlighted that this infrastructure project, if pursued, would take several years and would also pose socio-political challenges for the Panamanian Government, particularly concerning the displacement of local communities.
Article header by Seungki at Adobe Stock