Diego Rodríguez Paez
Director of Logistics and Industry Practice
AMI
In the next decade, ports will play a greater role in Latin America’s economy as the region looks to position itself as a manufacturing destination for global firms aiming to produce closer to the US market. With the region heavily reliant on exporting natural resources like minerals, agricultural products, and energy, efficient and well-developed ports will become essential for the region’s future.
Ports all over Latin America face substantial challenges in their throughput and digital and physical infrastructure to facilitate the movement of commodities, making it a significant obstacle for the region to integrate into global supply chains in the following years. Ports play a significant role in supporting industries like mining and agriculture as Latin America becomes a pivotal player during the energy and economic transition the world will undergo in the next three decades. The reality is that ports today impact the region’s competitiveness and impede economic growth in places like Central America and the Caribbean.
In this context, strategically located ports will be the focus of investments from governments and private investors to reap the benefits of shifting supply chains. Deep-water harbors offering connectivity to significant transportation networks will help Latin America secure its position as a key player in global trade, ensuring the efficient export of goods to markets in Asia, North America, and Europe. As demand for Latin American commodities grows, private port operators will find governments needing private capital as the region faces a looming fiscal crisis. The implication for port operators is tremendous as governments will be willing to offer substantial concessions to develop and modernize their outdated ports.
For instance, Cosco Shipping—a Chinese state-owned company—gained exclusive rights to operate all port services in Chancay, Peru, for 30 years after the country amended its Port System Law.
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LatAm Ports Are in Bad Shape…
Wars in the Middle East and Europe, the geopolitical rivalry between the US and China, climate change, and decarbonization goals drive tectonic shifts, pushing shipping lines and cargo owners to evaluate new adaptation methods. New locations and ports get attention from governments, multinational companies, and others to develop new infrastructure.
Today, most ports in Latin America need updated infrastructure and sufficient handling equipment to improve their capacity, speed, and performance. Governments need help with the conundrum of investing in modernization and expansion while simultaneously facing fiscal challenges.
Ports in the Caribbean and Central America have significant infrastructure deficits because of limited land availability to simultaneously serve general cargo, cruise ships, liquid and dry bulk, and containers. For instance, ports in the region force container vessels to anchor at sea while cruise ships are docked, lack berthing windows for carriers during which services will be provided, or have severe draft restrictions. Most of the ports with these issues are controlled by governments.
China and the US, amid their geopolitical rivalry, will probably offer funding only for port projects in Latin America if they are aligned with their strategic goals. The days when China indulged third-world countries with loans unlikely to be repaid are gone. China is now interested in building or financing port complexes where mineral or essential resources are found, like the Strait of Magellan, to grow its presence in and influence in Antarctica, as the sea ice melts, or in Chancay, where copper and lithium can easily be transported out of South America. At the same time, the US policy towards critical assets like ports or minerals in Latin America will become more active and assertive to keep China away and Chinese state-owned enterprises from its sphere of influence.
…But LatAm Governments Probably Can’t Afford to Fix Them
Before the COVID-19 pandemic, the World Bank, IMF, and credit agencies had already cautioned that numerous Latin American nations were grappling with severe fiscal issues due to increased borrowing and sluggish economic growth from 2012 to 2019. The pandemic exacerbated these challenges as governments boosted expenditures to support their economies and public health systems, resulting in more significant budget shortfalls and higher debt levels.
While fiscal deficits shrank somewhat in 2021-2022 as economies recovered, they grew again in 2023. Limited revenue growth and rising borrowing costs spark concerns about the region’s fiscal deterioration and the growing obstacles to investing in critical infrastructure projects like ports. The slower pace of economic growth forecast for 2025, lackluster government revenue, and interest rates not returning to the low levels that prevailed before 2022 will offer significant leverage to private operators in business-friendly jurisdictions needing infrastructure investments.
So how can governments solve this? By working with private companies that are willing to inject cash into the region.
Privatizing ports can bring numerous benefits, such as improving efficiency, reducing operational costs, and enhancing infrastructure, with multiple successful cases in Central America, like the Port of Limon Moin in Costa Rica. Private management often has access to better resources and expertise, enabling ports to operate more efficiently and respond faster to market demands, as in the regional ports operated by DP World in the Dominican Republic, APM Terminals, and Hutchinson Ports in Mexico. For instance, in Mexico, the privatization of port terminals has significantly increased cargo handling capacity, reduced ship wait times, and improved trade flows. Private companies’ introduction of modern technologies, better logistics systems, and nearby industrial complexes has streamlined port operations, resulting in cost savings and higher competitiveness for export industries. For instance, DP World San Antonio is undergoing a pilot project to test the MoorMaster NxG, a mooring system that consists of automated vacuum pads that moor and release vessels within seconds, being the first terminal in the Americas to utilize this system.
In Colombia, for example, the port of Cartagena, which operates under a private concession, has transformed into one of the most important hubs for container traffic in the Caribbean. The influx of private capital from MSC has facilitated the expansion of port facilities and increased the port’s connectivity to global shipping routes, contributing to the country’s economic growth.
A clear example of the emerging opportunities for global players is the September 23, 2024 announcement that CMA CGM will acquire a 48% stake in Santos Brasil, a multi-terminal operator including South America’s largest container terminal in the Port of Santos. This terminal is the largest container terminal in South America, generating USD 458m in revenue and USD 230m of EBITDA in the fiscal year ending June 30, 2024.
Which LatAm countries offer the best opportunities for port companies?
There are two types of assets to be considered: ports with transshipment potential and those that operate more local cargo but with upside growth. Transshipment is typical of the Caribbean, representing a high percentage of the total throughput (for example, Panama, Bahamas, and Jamaica are around 90% transshipment). However, new facilities like Montevideo, Santos, El Callao, Manzanillo, or Chancay could emerge as transshipment locations in the region that are not at the top of investors’ minds.
Regarding domestic cargo, several ports in Central America, like Puerto Cortez, Acajutla, and Quetzal, move relatively small local cargo volumes, but considering the growing nearshoring potential in textiles and manufacturing, they could greatly benefit from upgrades and industrial complexes developed by port operators. As companies look to relocate textile supply chains closer to the U.S. market, Honduras, Guatemala, and El Salvador have experienced renewed interest in improving their infrastructure, efficiency, and capacity to handle the increased demand.
However, it’s not that easy. Here’s why.
Before investing in the region, companies and investors must deeply understand a country’s port infrastructure, market conditions and potential areas of opportunity. Evaluating the current state of infrastructure is critical, as outdated facilities or insufficient capacity can pose operational challenges.
Investors must also assess potential local partners’ reputations, financial stability, and operational capabilities. Staying informed with up-to-date market intelligence is crucial for identifying risks, spotting opportunities, and ensuring the investment aligns with long-term goals.
Next Steps
Contact us to learn more about how we can provide market intelligence on countries whose ports offer great opportunities and risks for port companies in Latin America.
Sources
- Wilson Center (2024, May 24). Key Challenges for Latin America’s Ports.
- WorldCargo News (2024, May1). Latin America’s ports post mixed results for 2023.
- Journal of Commerce. Latin ports need wider berth: Latin American harbors teeming with cargo but short on space.
- Garip, P. (2024, April 23). Why the U.S. and China suddenly care about a port in southern Chile. Americas Quarterly.
- Whiteman, A. (2024, March 14). Brazil’s ports 50 years behind the times, claims new report. The Loadstar.
- Nicholls, S. (2023, September 7). China’s rapacious port expansion in Latin America and the Caribbean. Diálogo Americas.
- orzecanski, A. C. (2024, July 15). Latin America’s renewed fiscal challenges. Americas Quarterly.
- Chávez Presa, J. A. (2023, November 20). Mexico’s 2024 public debt surge: Defying prudence, a cause for concern?. Wilson Center.
- DP World. (n.d.). DP World announces major investments in Latin American ports to boost capacity and efficiency.
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