Logistics
Traditional business cools off, bio-feedstock business heats up
As we wrap up this report, a deep dive into the logistics sector fittingly allows us to look at most of the mega-themes discussed throughout this book from a very practical lens: The availability of logistics determines the feasibility of investments (like those driven by nearshoring); the performance of the logistics sector tells where the region is at, for instance when we look at the critical chemical trade balance, negative in all countries; and the future investments planned by logistics providers, such as in new capacity for biofuels, is a good indicator of where the region, and its chemical industry, is heading to.
First things first, logistics costs are said to have dropped by about 40% compared to last year. This is a bitter-sweet figure for the chemical industry because, although it pays less for freight, for example, it cannot reap higher profits due to the low levels of demand. “2023 is the exact opposite of 2022,” said Murilo Costa, commercial manager for Latin America at Hoyer Global, a provider of ISO and flexi tanks for the chemical industry. “Last year, demand surpassed supply, shipping and trucking capacity became extremely scarce. This year, products can be moved easily and cheaply from A to B, but there are just not enough contracts being closed," he said.
In 2023, both chemical suppliers and manufacturers in various end industries are sitting on high inventories and looking to destock. This has led to lower demand for the transportation of chemical goods, both imports and exports slowing down, as ISO operators were quick to notice. However, a bearish consumption market has pushed up the demand for storage, benefitting terminal and warehouse operators offering storage services. For example, Vopak, the world’s largest tank storage company, saw a 14% increase in EBITDA in the first half of the year compared to the same time last year, and occupancy rates at 91%. Andino Holdings, which also offers storage through its Anditerminals business, also noted high occupancy and little available tank space in the industry.
Quoting the Spanish saying “A río revuelto, ganancia de pescadores,” literally translated as “Troubled waters, fisherman’s gain,” Andino’s CEO, Peter Staartjes, indicated that there are opportunities even during difficult times. “The fish we catch during these periods are often very important to our growth,” he added. One of these “fish” that the current times brings closer to the surface is in bio-based feedstocks, which Andino, Vopak, Hoyer, as well as other logistics players are capitalizing on. While the traditional markets like oil and chemicals see lower volumes, demand for animal fats, ethanol, used cooking oil, soy oils, and also hydrogen and ammonia, is on the rise. Even local policies indirectly favor bio-stuff, while restricting the traditional petroleum-based imports: “The Brazilian government has put barriers on the importation of fuels by keeping Petrobras prices below international prices; this has made it difficult for independent traders to import diesel and gasoline, even as Petrobras runs shortages,” said Marcelo Schmitt, general manager for Brazil at Stolthaven Terminals, one of the leading terminal operators in the world, and with a presence at the Alemoa Terminal, Port of Santos.
At the same time as making imports more difficult, government tenders for biodiesel production in Brazil continue to ask for higher purities, stimulating the production of by-products or sub-products like glycerin and fatty acids, used in cosmetics and foods, informed Murilo Costa, representing Hoyer in Brazil. For that reason, biodiesels became a hotspot for the ISO and flexi tank provider. Its peers are taking a similar approach, prioritizing growth in biodiesels and bio-based feedstocks. But to be able to capture these emerging opportunities, they need to reconfigure their infrastructure.
Vopak, for example, has allocated a global capex of US$1 billion in new energies and sustainable feedstocks by 2030. In Brazil, specifically, it has commissioned multiple expansions at its Alemoa Terminal, where it stores fuels, ethanol, chemicals, base oils, but also vegetable oils and renewable feedstocks. By 2024, Vopak will operate a capacity of 300,000 cubic meters. The player also holds a dominant share of 80% in heated capacity at Alemoa, which allows it to handle bio-based feedstocks.
Also operating the Alemoa Terminal in the Port of Santos, Stolthaven Terminals is investing in two new piers at the Port, as well as exploring opportunities in feedstocks for biodiesel production. “To compensate for import challenges, we occupied our tanks for exports, particularly of soy oil, ethanol, and animal fats. We are increasing our heating capacity at the terminal since such products require 47 centigrade and higher. New boilers, new heated tanks, new insulation of pipelines and new energy savings are required to boost our capability to store and handle heated products,” said Marcelo Schmitt, the general manager of Stolthaven Terminals in the country.
Brazilian ports are similarly running big projects to accommodate for the low-carbon fuels, notably at the Pecém Port, which is planning the creation of a hydrogen corridor between Brazil and the Netherlands (Port of Rotterdam). With the feed located in Latin America, major biorefineries being built across the world (with the largest most recently announced to be based in Panama - Biorefineria Ciudad Dorada, 180,000 bdp), and the US as the fastest growing end-market, demand for the transportation of green feedstocks is set to increase in the coming years, with a spotlight on origin markets like Brazil. Some companies are already moving used cooking oil from Brazil to Rotterdam or Houston, to be converted into sustainable aviation fuel. Air carriers might be using Brazil’s converted (waste) cooking oil on its next flight, although it is only a small percentage of its total fuel mix.
"There is a strong paradigm shift in the industry, as we cannot simply talk about the cost of a container transport without talking about the CO2 associated. Our customers are increasingly asking us about our sustainability strategy."
Hector Midolo, CEO, Bolloré Latin America
One player, one region
Besides shifting their focus on transporting and storing cleaner products, logistics players, from freight forwarders to port operators, have also mitigated the global slowdown in demand by focusing more narrowly on intra-regional exchanges. Both Hoyer and Newport Tank Containers noted a higher export propensity, especially in Argentina, with a very active Argentina-Brazil route, but also new lanes between Brazil and Mexico. To serve the entire region, players must become more regional themselves, expanding their footprint into key countries of operation. For that reason, Leschaco acquired two of its former long-standing partners, TPL in Peru and Coltrans in Colombia, effectively doubling its size in Latin America. According to Martin Sack, regional head for Leschaco in the Americas: “A larger regional footprint allows the company to think and act even more as one integrated team… We receive many requests from our customers looking for that regional strategic alignment, offering end-to-end solutions between the major markets,” he told GBR.
Leschaco’s motto of “logistics from a single source” also resonates with PSA BDP, after the freight operator was recently acquired by PSA International, boosting its traditional services to offer an end-to-end solution, including imports-exports, customs brokerage, air and ocean management, among others. These added capabilities are particularly relevant when dealing with challenging regulatory environments like Argentina, but also in shortening lead times. PSA BDP wants to establish a regional hub in Panama, leveraging PSA’s terminal close to the Panama Canal, to reduce lead times between the Americas, but also between the Americas and Asia.
The shift from globalization to regionalization in the way that supply chains are organized is also favoring more neighborly transits. The nearshoring impacting Mexico and Central America has already driven a higher number of investments in transportation and warehousing in 2022, particularly sought out by the automotive industry, noted a report by Coatings World, a specialist magazine. Our interviewees are informing us of important investments themselves. Leschaco is to open a new warehouse in Querétaro, Mexico, as part of its strategy to establish its contract logistics infrastructure in the country. Digitalization projects, like Leschaco’s new “Lighthouse” advanced 4PL regional order management control tower system, are also pointing to a greater level of sophistication and complexity of the value proposition, that will allow companies to serve players intra-regionally.
At the same time as the industry invests in advanced digital infrastructure, basic road, rail, and port infrastructure will pose issues to the development of intra-regional businesses. “In Latin America, investments in infrastructure development that should have come decades, if not a century ago, never came, leaving many road and rail gaps. At Newport, experience thought us how to streamline our processes and overcome any existing gaps in the most efficient ways,” said Fabiano Machion, general manager, at NewPort Tank Containers for South America, one of the three largest tank container operators in the world, with a fleet of 40,000 ISO tanks.
Together with outdated infrastructure and sometimes poor connections, security issues have been equally concerning, especially in Mexico and Brazil. For Bolloré, one of the top 10 players in transportation globally, freight security is the biggest issue, said Hector Midolo, the CEO of Bolloré Latin America: “The risk management of our containers has added to total costs, and we continue to watch incremental additions in this space, with more incidents of containers being stolen or broken into recently.”
According to Solistica, a 3PL player in Latin America, three trucks carrying high value merchandise are stolen every day on average in the region. Brazil has the highest rate of carrier theft incidents in the world. Mexico comes third, after South Africa. It is believed many more cases go unreported.
"As a consequence of the decreased vessel draft limit at the Panama Canal, the loading capacities of vessels have been reduced, with large vessels potentially experiencing up to a 40% decrease. Additionally, conflicts such as the Russian invasion and its impacts on grain exports from Ukraine, but also tensions in the south China Sea, pose further risks to supply chains."
Eduardo Praselj, President, Logistics Association of Venezuela
Checking in on ESG
A recent slowdown in shipping traffic at the Panama Canal as once again demonstrated the clumsiness of global trade, which often depends on passages as small as 82 km as the Panama Canal connecting the Pacific with the Atlantic, or the 193 km Suez Canal connecting Asia with Europe. While the Suez Canal crisis was man-made, after a ship got stuck blocking the critical route, the issue in Panama is caused by one of the worst draughts in the last decade. Low water levels have created a chokepoint, forcing the authorities to limit the number of vessels passing each day and the vessel operators to limit the weight they load on the ship. As climate change continues to impact on weather conditions, with effects ranging from the inconvenient to the tragic, ESG is becoming harder to ignore.
In the shipping industry, we can see how a normally inconspicuous event like this (less rain in Panama) could push up freight rates in the short run. The upside pressure on freight rates in the long term remains high, particularly because of ESG. “I personally do not foresee shipping rates coming down any time soon, especially as the industry faces increased ESG regulations. Shipowners will require higher ROIs if they are expected to make investments to become carbon neutral,” commented Peter Staartjes, the CEO of Andino Holdings.
Among logistics players in Latam, the concept of green logistics – or offering a lower-carbon service, usually at a premium – remains in the realm of the theoretical, although most companies interviewed by GBR have noted an upward trend of customers asking more about such services. Though demand is selective, logistics providers are making the necessary preparations. For instance, Andino has launched AndiGreen, a new segment which handles the procurement and delivery of renewables but also offers data and carbon offset solutions, while Leschaco is on a path to become carbon neutral by 2030. Safe to say, those starting earliest should have the biggest advantage when ESG impacts tenders and contracts.