A.P. Moller – Maersk Trade Report — page 1
TRADE REPORT
Brazilian Trade Expected To Grow Faster Next Year Ahead of Downbeat Christmas In 2018
Brazil – Q3 2018
• Imports and exports are seen growing as clients across all sectors are optimistic
about 2019
• Intermodal shows double-digit growth in third quarter after truckers’ strike
• Imports drop sharply year on year, growing just 3% in third quarter
• Machinery, appliances and electronics fail to expand in third quarter
• Coffee exports soar 36% but sugar collapses 42% in third quarter
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 2
Brazilian trade is expected to grow faster in 2019, overshadowing what is expected to be a grim Christmas for retailers following a weak third-quarter performance as Manaus, the electronics assembly hub of Brazil grinds to a near standstill. “The country is at a turning point. Industrial, agricultural and commodities producers are optimistic that 2019 will be a better year after a highly challenging 2018,” says Antonio Dominguez, Managing Director for Maersk East Coast South America including Brazil, Argentina, Uruguay and Paraguay, referring to the truckers’ strike and political uncertainty ahead of presidential elections in October. Maersk Line forecasts a stagnant result of just 1% in Brazilian economic growth in 2018 and 3% in 2019. For Brazilian maritime container imports and exports in 2018, Maersk sees more than 3.5% growth. For 2019, Maersk, which runs the world’s largest container shipping company, sees Brazilian trade growing 5%. This comes as Brazilian imports and exports in the third quarter grew just 3%, up from the second-quarter result of 1%, which was impacted by a nationwide truckers’ strike that brought the country to a standstill. All data is provided by Datamar to Maersk. For example, third-quarter imports increased just 3% - the lowest performance for imports since the third quarter of 2016 when imports declined 8.3%. Indeed, 2016 was the worst year for imports since Maersk started producing its quarterly trade report in 2012. In 2016, Brazil, traditionally a net importer, became a net exporter as consumption collapsed on the back of the country’s worst recession since the early 1990s. “We are expecting a very weak Christmas this year and are forecasting imports will grow just 1% in the fourth quarter,” says Matias Concha, Head of trade and Marketing East Coast South America at Maersk. “The Real traded above the BRL3.7 mark and went beyond BRL4.00 to the dollar in the third quarter, hurting Brazilian consumer purchasing power and prompting retail to take a step back from adding more stock to their inventories,” he adds.
Imports + Exports Variation
(% vs same quarter previous year)
Brazilian Trade Report – Q3
6%
Q3-2017 Q1-2017 Q4-2016 Q4-2017
6%
Q2-2017 Q1-2018 Q2-2018
3%
10%
13% 12%
1%
Q3-2018
3%
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 3
Companies are now looking at integrated intermodal transport solutions, prompting Maersk to grow more than 10% in this area alone in the third quarter (this is Maersk data and not Datamar). Companies are changing strategies on the back of the truckers’ strike, increasing financial pressure among exporters to cut costs and a slowdown on imports impacting exports further. “We are pleasantly surprised by how fast our intermodal services are growing after the truckers’ strike,” says Dominguez. “Companies want to avoid the headache of working with multiple suppliers that provide just one service like land transport, insurance or customs, for example. Many companies have struggled to secure trucks to move their goods since the truckers’ strike because of freight price volatility and now they want a one-stop shop that can provide all of these services rolled into one,” he adds. However, new investments in infrastructure such as rail are necessary to avoid the pains of the last truckers’ strike, which will hurt this year’s GDP result. Economists saw in January 3% growth for 2018. Forecasts are now around 1.3% for this year. “Dredging and customs challenges aside, it is clear Brazil needs to invest in infrastructure and develop a real rail network akin to the those seen in the US, China and Europe, whilst improving road access to the ports in the southeast and south,” says Dominguez. “All of these changes will make Brazil more competitive on the global stage whilst bringing down costs for consumers in Brazil, fostering economic growth,” he adds.
Third Quarter The third quarter represented a timid recovery as investors and consumers held back following the negative impact of the truckers’ strike in the second quarter. Political uncertainty ahead of presidential
elections in October took its toll on business and consumer confidence in the third quarter.
Exports Variation
(% vs same quarter previous years)
Imports Variation
(% vs same quarter previous year)
Intermodal Growth
Q4-2016
7%
Q4-2017
Q1-2017
Q2-2017
Q3-2017
Q1-2018
10%
Q2-2018
2%
-4%
0%
-2%
6%
-6%
Q3-2018
Q3-2018
Q4-2016
Q1-2017
Q2-2017
Q4-2017
Q3-2017
Q1-2018
Q2-2018
14% 14% 17%
14% 17% 19%
10%
3%
Sep 2018 with 2% market reduction
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 4
Exports remained challenging in the third quarter as space on ships and container availability was scarce. This situation was exacerbated as cotton producers registered another bumper harvest. Dry cargo exports increased just 3% whilst refrigerated added just 1% in the third quarter.
“It was a very strong crop and we expect more of the same in 2019 and 2020, indeed, the outlook for the cotton sector is extremely positive and this is why imports need to make a comeback otherwise space on ships will tighten further as cotton crop volumes increase”
Denis Freitas Head of Safmarine East Coast South America, a subsidiary of Maersk.
Cotton Forecasts
Cotton Forecasts
Production in Tons / Millions
Absorbed Locally in Tons / Millions
For Exports in Tons / Millions
2018/2019 2.2 0.7 / 0.8 1.4 / 1.5 2019/2020 2.5 0.7 / 0.8 1.7 / 1.8 2020/2021 3.0 0.8 / 0.9 2.1 / 2.2
Brazil, once a net importer supported by strong consumption, is today a net exporter. This creates an imbalance in import and export volumes. Import volumes need to increase to fill up underutilized ships returning to Brazil. Once this happens and a balance is reached
between imports and exports again, Maersk will start to look at adding capacity. “Shipping lines are like any business, they cannot exist if they lose money and before we can start to consider adding capacity again, we have to see import volumes make a comeback. Ships returning to Brazil from Europe, Asia, Middle East and Africa need to fill up again,” says Concha (See Outlook). Q3'18 vs Q3'17 Industry Segment FFEs Q3'17 FFEs Q3'18 Diff (FFEs) Diff (%) Wood 20.690 26.283 5593 27% Coffee 8.214 11.149 2935 36% Chemicals 5.182 6.718 1536 30% Food & Beverage 11.163 12.665 1502 13% Pulp & Paper 20.989 21.673 685 3% Cotton 7.348 8.010 662 9% Machinery, Appliances & Electro 4.412 4.768 356 8% Metals, Mining & Construction 16.661 16.626 (35) 0% Plastic & Rubber 10.151 9.713 (437) -4% Sugar 16.392 9.545 (6.847) -42%
On the refrigerated cargo front, Europe declined 15% and Asia added 11% as the weight of the Russian and European Union bans took their toll on the Brazilian proteins industry, which continued to adapt and shift trade volumes to the Far East. “The proteins segment is highly complex at the moment, it is still trying to recover from a widespread ban on its meat in the first half of 2017. Restrictions continue in Europe and the Middle East for different reasons. That said, Russia has lifted its ban and while this is positive, we expect little or no Brazilian pork volumes to Russia going forward as they developed their own industry during the ban. Russia will not be as strong as market as it used to be,” says Concha. “What we can expect from pork producers is a continued shift to Asia to compensate,” he adds.
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 5
Exports – Reefer
Commercial barriers affect the results in Europe and Middle East
Far East
Reflecting this challenging scenario, beef added 15% but pork declined 3% in the third quarter.
Q3'18 vs Q3'17
Industry Segment FFEs Q3'17 FFEs Q3'18 Diff (FFEs) Diff (%)
Beef 13.999 16.120 2.121 15%
Chemicals 342 352 10 3%
Pork 4.506 4.385 (122) -3%
Fruits, Vegetables & Plants 9.793 9.417 (376) -4%
Other Meat 5.855 5.186 (669) -11%
Poultry 39.314 37.992 (1322) -3%
2%
Q2 2017/2016
Q1 2017/2016
Q1 2018/2017
Q3 2017/2016
Q4 2017/2016
Q2 2018/2017
-8%
6% 5%
-16%
-21%
Q3 2018/2017
-15%
Europe
Carne Fraca and Russia ban effect
Q2 2018/2017
Q4 2017/2016
Q3 2017/2016
Q1 2017/2016
6%
Q2 2017/2016
-5%
Q1 2018/2017
-6%
11% 19%
27%
Q3 2018/2017
11%
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 6
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 7
Imports lost traction in the third quarter as retailers were unable to keep up the pace after a blistering first-quarter performance when electronics volumes, for example, respectively grew 22%, 32% and 49% in January, February and March ahead of the World Cup. By August, electronics imports declined 15%, sending a worrisome signal that all was not well for Brazilian retail ahead of Christmas. Traditionally, August has produced double-digits gains in the run to the year-end festive season as retail likes to place orders as soon as July. Consequently, imports as whole were up just 3% in the third quarter after falling 2% in September. Indeed, third-quarter imports from Asia were flat at 0% after imports from the region dropped 11% in September.
Q3'18 vs Q3'17
Industry Segment FFEs Q3'17 FFEs Q3'18 Diff (FFEs) Diff (%)
Chemicals 28.884 32.784 3900 14%
Metals, Mining & Construction 21.727 24.972 3245 15%
Food & Beverage 7.995 9.777 1782 22%
Apparel & Recreational 9.190 10.280 1090 12%
Automobile & Transportation 22.833 23.378 545 2%
Machinery, Appliances & Electro 29.830 29.906 76 0%
Imports – Anaemic growth ahead of Christmas
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 8
Textile & Leather 13.678 13.552 (125) -1%
Plastic & Rubber 26.414 25.705 (710) -3%
Pulp & Paper 5.710 4.764 (946) -17%
Fruits, Vegetables & Plants 6.485 4.701 (1785) -28% Highlighting this malaise in electronics imports is a sharp decline in imports activity in the North, down 15%. This drop reflects the slowdown in electronics goods assembly in Manaus during the third quarter.
S3% S4% S5%
Gzr qtv 423: 14239 423: 14239 423: 14239
SouthEast 6% -8% 2%
South 6% -6% 1%
NorthEast -8% -10% 3%
North 23% 21% 21%
S3% S4% S5%
Kor qtv 423: 14239 423: 14239 423: 14239
SouthEast 14% 8% 0%
South 27% 12% 13%
NorthEast -9% 18% -3%
North 59% 17% -15%
S3% S4% S5%
Vq/cn 423: 14239 423: 14239 423: 14239
SouthEast 10% 0% 1%
South 14% 1% 6%
NorthEast -8% 3% 0%
North 46% 18% 0%
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 9
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 10
“We expect a better year for imports in 2019 as retailers will have to replenish inventories again. In contrast to what we are seeing now in 2018, we expect double-digit imports growth in the second-half of 2019”
Matias Concha Head of trade and Marketing East Coast South America at Maersk. “For exports, we expect to see more of the same, the ships will continue to be fully loaded as they leave Brazil’s shores in 2019. Space constraints will continue to limit growth. This is not something we want to see but we need imports to make a comeback before Maersk is ready to consider adding capacity again,” he adds.
Outlook
A.P. Moller – Maersk Trade Report — Brazil – Q3 2018 page 11
About Maersk Line • Maersk Line is the world’s largest container logistics company
with more than 33,000 employees and 630 plus vessels. Providing integrated sea and inland container logistics solutions.
• Maersk Line serves customers through 306 offices in 114 countries.
About A.P. Moller-Maersk • Maersk has more than 89,000 staff in the world and is present in
more than 130 countries. • Other subsidiaries include Svitzer, which operates 430 tugs,
Maersk Supply Service runs 70 support ships and • Maersk Drilling has 22 vessels. • Maersk vessels call at a port every 15 minutes.
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