White Paper: the Future of Port Hubs in Brazil

The port sector is extremely dynamic and requires complex long-term planning. On the one hand, billion-dollar investments are needed to implement new infrastructures. On the other, the shipping industry – subject to periodic crises and constant adjustments – demands high flexibility and quick responses to remain resilient, ensuring no interruptions in the logistics chains of importers and exporters. In this scenario – where planning is needed to efficiently coordinate different demands – A&M Infra, Navarro Prado Advogados, and APM Terminals present the groundbreaking technical study Contributions to the Planning of the Consolidation of Hub Ports in Brazil.

The white paper evaluates how the profile of the container shipping industry, high market competition and other factors drive shipowners to seek initiatives to differentiate themselves amidst fierce competition. One of the main drivers is the pursuit of economies of scale, which relies on large ships capable of transporting greater quantities of cargo – a phenomenon that has been prevalent since the introduction of shipping containers.

The class of 366m long ships has been operating for years on fixed routes visiting international ports. In Brazil, however, it is a cause for celebration and much preparation to receive these vessels. The study points out that – historically speaking – new classes of ships generally begin to scale the Brazilian coast only 8 to 15 years after they begin operating in European ports. For 366m ships – which have been operating in Rotterdam since 2006 – this lag has grown, mainly due to a lack of infrastructure in Brazil to accommodate such vessels. If the appropriate infrastructure were available, these ships could theoretically have been calling at Brazilian ports since 2018.

On the global stage, for mega-ships to operate with high occupancy levels and reduced loading and unloading times, stops are limited to certain ports (hubs), which concentrate transshipment volumes destined for smaller ports. These smaller ports, in turn, are served by smaller ships: a cargo distribution system known as hub-and-spoke. This global trend in the sector optimises logistics as a whole. Despite this, due to structural issues in national ports, Brazil is lagging behind and still does benefit from such a structure.

The white paper also provides estimates of how much a hub port could positively impact the costs and competitiveness of Brazilian foreign trade and the regional economy. The use of large ships in a hub-and-spoke model in a typical service linking the ECSA (East Coast of South America) to Asia, for example, could reduce maritime transport costs by around 13%. As a practical example, if such a solution were adopted for the main services on this route (according to the “bold” scenario defined in Chapter 2 of the white paper), the total savings could be around R$ 600 million per year by 2030. This value does not consider the analogous effect for other trade lanes, for which cost reductions have not yet been quantified.

This model could also bring significant operational gains. The operation of an efficient hub – in close coordination with navigation services – would allow for reduced layover times (the connection times of a container between the long haul ship and the cabotage ship), which today are 5 to 7 days in Brazilian ports, maintaining competitive transit times for cargo.

Additionally, a hub-and-spoke system could minimise the number of stops for the main long-haul (international) services, reducing the risk of delays and the impact of any setbacks that might propagate across subsequent stops, increasing the chain’s resilience. Furthermore, by connecting feeder services to the hub more efficiently, the connectivity of smaller ports to a wider range of shipping lines and destination ports is expanded, fostering local markets and regions in which the the ports are located.

“The consolidation of one or more hub ports in Brazil would mean a potential increase of up to 4.6 million TEUs of transshipment (in 2023 volumes). In comparison, the total transshipment movements carried out in Brazil were approximately 2.4 million TEUs in 2023 – that is to say, in a more ambitious scenario for the implementation of the hub ports dynamic, the transshipment volume in Brazil could triple,” says Leonardo Levy, Investment Director of APM Terminals for the Americas. “This would mean raising the average transshipment incidence of Brazilian ports from the current 18% to something between 30% and 40%,” the executive adds.

Ports in Brazil with the potential to be hubs

According to Marcos Pinto, managing partner at A&M Infra consultancy, the Port of Santos (SP) is a natural candidate and the leading favourite to become a Brazilian hub. “Besides being the largest port in Latin America, accounting for about 40% of the national container movement, it is the only one that receives virtually all long-haul (international) lines passing along the East Coast of Latin America,” says the executive.  

According to the study, in addition to the Port of Santos (SP) – favoured for its proximity to the country’s largest production and consumption centre and its diversity of long-haul services – other ports that could also become hubs in Brazil include: Paranaguá (SC), Itapoá (SC), the Itajaí-Navegantes complex (SC), Suape (PE), and Pecém (CE). These are favoured due to factors such as the positioning of vertically integrated players, the possibility of significant capacity expansions, and the ease of adapting waterway access.

According to Lucas Navarro Prado, partner at Navarro Prado Advogados, the Integrated Transport Planning and other official sectoral planning instruments should seriously consider the implementation of hub ports in the country. “Brazil has the potential to develop regional hubs, and the adoption of hub-and-spoke solutions would benefit foreign trade chains. Therefore, official planning should have a positive outlook on the issue – reflected in all its instruments – seeking to coordinate and generate predictability about actions, listen to civil society, and provide greater security to investment decisions, with a favourable impact in terms of attractiveness and resource mobilisation.”

A hub port system: positive impacts

The survey also states that the adoption of the Hub Ports system would positively impact various sectors of national logistics and infrastructure:

• Increase in revenue for ports & port authorities
  The increase in movements – attracting cargo from the Rio de la Plata region (Argentina, Paraguay, and Uruguay), which currently does not pass through Brazil, and additional transshipment operations for other Brazilian ports – should generate an increase in revenue for Brazilian Ports and Port Authorities through infrastructure usage fees and potential variable lease amounts provided for in contracts.

For example, considering the estimated additional transshipment cargo volumes and the current revenue parameters (tariff structure and variable leases) of the Port of Santos (SP), the estimated revenue increase could be around R$ 60 million per year in a conservative scenario, and up to R$ 160 million per year in a more ambitious scenario (for 2023 volumes).

• Reduction in CO2 emissions
  The use of larger ships with more modern technological content on long-haul voyages (90% of the navigated distance) can allow significant reductions in bunker consumption and, consequently, in greenhouse gas (GHG) emissions per container transported. Additionally, it can generate demand for low-carbon fuels on the Brazilian coast, as more modern ships are larger, some already sail with low-carbon fuels, and the appropriate infrastructure would allow them to use their full capacity.
• Development of the naval and fuel industries in Brazil
  The frequent calls of large ships (366m) and the increase in the number of cabotage ships/voyages could generate greater demand for docking/maintenance, sufficient to justify more investments in the specialised shipbuilding industry. Furthermore, it could create a scale that would make it feasible to structure a ship bunkering (refueling) industry, allowing Brazil to position itself as a producer/exporter of green fuels for navigation, for example.
• Optimisation of dredging investments
  With proper planning, the organisation of the shipping market under a hub-and-spoke model would allow for the rationalisation of dredging investments in one or a few ports, in a planned manner, avoiding redundant and/or poorly allocated investments without the expected counterpart in berths/demand.

“For these reasons, once a critical volume of containers is reached, the development of a hub in any port in the world is seen as a relevant opportunity and treated as such by public policy makers and those responsible for its development. This cannot be different in Brazil, and to a large extent, our legal and regulatory framework is already prepared to allow this development,” evaluates Marcos Pinto.

“It is essential that public planning for the port and transport sector includes the consolidation of hub ports in Brazil. The environment of Organised Ports must have the flexibility and appropriate tools to pursue the alignment of incentives and cooperation with shipowners/operators to make the successful implementation of a hub port possible,” concludes Lucas Navarro Prado.

About the contributors

Alvarez & Marsal

Companies, investors, and government entities worldwide turn to Alvarez & Marsal (A&M) for leadership, action, and results. Founded in 1983, A&M is recognised for providing consultancy, business performance improvement, and recovery management services. Established seven years ago, its infrastructure unit, A&M Infra, is a reference in Brazil and has already expanded its expertise to 10 other countries, assisting clients in capital-intensive and long-maturity projects through exclusive methodologies and specialised leaders in all infrastructure sectors.

When conventional approaches are not enough to create transformation and drive change, clients seek our deep experience and ability to provide practical solutions to their problems.

With more than 10,000 employees and service providers working on six continents, we deliver tangible results for companies, boards, private equity firms, law firms, and government agencies facing complex challenges. Our senior leaders and their teams leverage A&M’s restructuring heritage to help companies act decisively, leverage growth, and accelerate results. To learn more, visit: Alvarez & Marsal

Navarro Prado Advogados

Navarro Prado, Nefussi Mandel e Santos Silva Advogados is a law firm specialising in infrastructure projects, with a multidisciplinary approach, updated and involved in relevant sector discussions in Brazil. It develops comprehensive solutions for projects and supports conflict resolution, connecting multiple public and private agents to transform and improve people’s quality of life through professionals with diverse experiences and complementary profiles. To learn more, visit: Navarro Prado Advogados