Global News Sourcing shift causes surge in South American logistics investment

Forwarders and carriers are investing heavily in South American ports and logistics businesses, and are adding services to the region to capitalize on growing trade volumes and sourcing shifts from diversifying supply chains.

The risk-based approach being adopted by manufacturers in adding sourcing locations to their global production is increasing import and export volume from regions such as Latin America, despite the difficulty in replicating deeply established supplier and production networks in China.

“Countries we see investment to move manufacturing operations include Argentina, Brazil, Colombia and Peru across a wide spectrum of industries, encompassing textile, pharmaceutical, renewable energy, and information technology sectors,” Tobias Bartz, CEO and chairman of the Rhenus Group, told the Journal of Commerce.

Germany-based Rhenus earlier this month acquired BLU Logistics, a Latin American forwarder with operations in Argentina, Colombia, Ecuador, Mexico, Paraguay, Uruguay and China with more than 180,000 TEUs of ocean freight volume. Rhenus also acquired a majority share in LBH Group, a port agency present in six South American countries. Financial terms of the acquisitions were not disclosed.

“Latin America's distinct advantages lie in its strategic combination of geographical proximity, strong partnerships with developed economies and the maturity required to deliver high-quality services,” Bartz said.

“This has not only meant that new companies are entering the market but also that there has been an increase in the production of companies that were already established in the countries,” he added. Focal point for development Brian Schaaf Martinez, senior trade lane manager for trans-Pacific eastbound at Hellmann Worldwide Logistics, said Latin America was a focal point for development within the forwarder’s portfolio, noting that Hellmann’s North America and Latin America divisions were combined in July 2022. However, even with the growth in demand for logistics services, it was a difficult market, he added.

“Although the pace of development in this region continues to be positive and steady, the high concentration of commodities, and them being traditionally linked to direct BCO [beneficial cargo owner] participation, makes it a tough market where exponential growth can be seen,” Martinez told the Journal of Commerce.

Once business was secured, a series of challenges in the region had to be managed.

“There’s the lack of an efficient infrastructure if compared to some of the European and Asian ports, political-governmental factors playing a role in the way we operate, tedious documentation processes that can lead to additional costs and delays, as well as security concerns in some areas across the region,” he said.

While Hellmann unifies its Americas network to manage these issues and Rhenus makes large acquisitions to cater to the growing volume, global rival DHL Supply Chain has targeted the development of fulfillment centers and infrastructure for customers looking to diversify their sourcing into the growing market. The German-headquartered logistics provider will invest $551 million in Latin America by 2028 to boost its presence in the region.

Improving access to container terminals and inland depots is also on the investment list, with Hapag-Lloyd in August finalizing the acquisition of Chile-based terminal operator and logistics group Saam for $1 billion, giving the carrier stakes in 10 container terminals in the Americas.

APM Terminals, a unit of the A.P. Møller-Maersk group, is investing $500 million in a new terminal in Suape, Brazil, and has committed another $700 million to four other terminals and inland depots in the country. Terminal control important Hapag-Lloyd spokesperson Tim Seifert said Latin America was one of the carrier’s main markets, and strong growth in both import and export markets was making control of terminal infrastructure increasingly important.

“The recent acquisition of Saam Terminals will help us to further strengthen our business while building up a robust and attractive terminal portfolio,” Seifert told the Journal of Commerce.

“Although we have seen a 3% decline in volumes on the Latin America trade in the first half given weaker markets compared to the prior year, trade lanes from and to Latin America are expected to further increase in attractiveness, for example due to e-commerce demand from Asia and export of perishable goods to Asia,” he added.

The latest carriers to enter the trade are Ocean Network Express (ONE), Cosco Shipping Lines and its Hong Kong-headquartered subsidiary Orient Overseas Container Line (OOCL), which launched a weekly ECSA-Europe-Mediterranean service from Montevideo on Sept. 16 targeting South American exports.

Container volume on the South and Central America to North America trade of 1.45 million TEUs was a drop of 6.6% year over year from January through July, but reefer containers at 522,434 TEUs was slightly up on the same period last year, according to Container Trades Statistics (CTS). Export volume from North America to South and Central America fell 7.7% in the first seven months to 1.6 million TEUs.

Liner metrics show both the number of services and vessels deployed between South America and Europe and the Mediterranean have risen in the last four years, but have dropped on the South America-North America corridor.

Container shipping data compiled by MDS Transmodal for the Journal of Commerce shows quarterly deployed capacity on South America-North America services rose 6.8% to 395,572 TEUs in the second quarter compared with four years ago, although the number of ships deployed on the trade fell from 47 to 42. Europe overtakes US as main export market However, the volume of deployed capacity to Europe and the Mediterranean is overtaking the US as a key container trade for East Coast of South America (ECSA) exports, especially from Brazil, with carriers launching new services and deploying more vessels on the corridor.

A total of 43 vessels were deployed on Latin America-Europe-Mediterranean services in the second quarter this year, up from 39 in the 2019 second quarter. The number of services increased from five to six in the same period.

“We have detected new growth in the routes (from Latin America) to North America and Europe due to the new services that the shipping lines are incorporating, improving transit times and placing additional connections to cover more markets,” Bartz said.

“Trade between Europe and Latin America, especially in perishable products, is substantial,” he added. “Trade between Asia and Latin America is booming. Ports like Callao in Peru and Valparaíso in Chile are crucial for refrigerated container trade between these regions.”

DHL Global Forwarding noted in a September market update that the strong import and export volume growth was keeping vessel utilization above 95% on the trades in and out of South America with some carriers rolling cargo.

"There was an influx of additional capacity during August on the Asia to ECSA trade, and several carriers are offering alternative services from Asia to the East Coast in transshipment through their European services,” DHL reported.

While the ocean shipping is growing, so too is the air cargo market, especially in the perishables sector, Bartz said.

“In Chile, we’ve diligently prepared over four consecutive months for the upcoming air export season for berries, such as cherries and blueberries, which play a crucial role in the region,” he told the Journal of Commerce.

“This year Chile anticipates a 10% to 15% increase (in Asian imports of cherries) compared with 2022, based on discussions with air carriers, as well as feedback from our customers who have already started receiving purchase orders and preparing for the harvests,” Bartz said.