In a bold move to revitalise the dormant Brazilian shipping industry, state-owned Transpetro is ordering 42 vessels to be built in Brazil. But talk of a bonanza is coupled with doubt. Here, key players share their different perspectives on how the optimism can be justified.
Transpetro, the shipping arm of the Brazilian state-owned oil giant Petrobras, has demanded that all the vessels must be built in Brazil, with a 60% national content in the newbuilding programme. Today, Brazilian yards are old and their capacity is already stretched, so this means new yards will have to be built and existing yards must be modernised.
In an interview with DNV Classification News, Sergio Machado, president of Transpetro, shared his thoughts on the implications for Brazil’s yards and shipping industry. Mr Machado, a former politician, is eager to emphasise the broader context and the far-reaching consequences of the ambitious newbuilding programme.
“On a general note, volatility creates opportunities for newcomers. The world is now facing big challenges and changes and Brazil is in a privileged position. We have democracy, control of our economy and inflation rate, exports are growing, and we have vast natural resources. Brazil also has merits within, for example the aircraft industry, proving that we have the technology and know-how to succeed. In other words, Brazil has an historic chance, and with this, Transpetro should have a way to succeed in the future.”
According to Mr Machado, the trick is to find ways in which Brazil and its industry can support each other. Petrobras utilises 120 tankers to transport Brazilian oil and products. Only 47 are owned by Transpetro, and many of them ageing. “So now that our fleet needs renewal and we want to have a bigger share on Petrobras’ demand, we are naturally also looking at Brazil’s needs. I believe we can spark tremendous initiative with this programme.”
Unrelenting on competitiveness
He is, however, unrelenting on one point: “If you do something like this, it would be irresponsible not to make sure it was on competitive terms. Brazil must not create an industry that is dependent on massive protective measures and favourable treatment. If Brazil is to have a shipbuilding industry, it must be vital enough to compete internationally. We demand state-of-the-art shipbuilding technology. If it does not exist in Brazil today, then all the more reason to introduce it.”
Currently, Brazilian yards are simply not state-of-the-art. They suffer from weak finances, insufficient numbers of qualified personnel, and outdated technology and know-how. These issues are addressed through technical cooperation between major Korean and Japanese yards and the Brazilian yards for the Transpetro tender.
Largest yard in the southern hemisphere
Out of the seven shipyards pre-qualified for the tender, three need to be built and four need to be thoroughly revamped and modernised. According to Lloyd’s List, the Brazilian construction group Camargo Correa has been linked to a $240m investment in Suape to create a facility capable of constructing vessels of up to suezmax size.
The yard would become the largest in the southern hemisphere. Norwegian specialist Aker Yards has also expressed a desire to participate in the tanker bonanza, unveiling plans to invest $150m to build a new shipyard in Rio Grande.
From bust to boom?
So while there is a political will backed by a national strategy to strengthen the industry, strong demand and local financing on attractive terms, many obstacles must be removed in order for optimism to become reality.
Hugo Figueiredo is partner and managing director of Norsul, and he’s also president of the Brazilian Shipowners’ Association. He has seen all the developments from the inside. From boom to bust and now perhaps, boom again:
“Fortunately, the Brazilian fleet is helped by a strong position within offshore supply, which will be further helped by Transpetro’s planned investments. But in general, we are missing out on big opportunities. 95% of Brazil’s trade is carried out by sea. In the 1980s, 23% of Brazil’s international trade was carried out by Brazilian-flagged vessels.
Now it is only about 2%. While the trade is booming, the Brazilian fleet is not taking part.”
A lack of shipping mentality
Mr Figueiredo has an extensive to-do list for success: “First and foremost, we need to be competitive. Artificial growth is not what this country needs. We need a mentality in Brazil that recognises the importance of shipping. Through that we will get competitive frame regulations in terms of taxation, stable rules and means to invest. The efficiency of the ports must be significantly better. Yards must improve in many fields and, finally, we must ensure a qualified seafare workforce at an affordable price.”
According to Mr Figueiredo there are limitations on the segments where the Brazilian fleet can compete: “For instance, we cannot compete with the huge international containership owners. Such investments are beyond us, but in addition to offshore supply there are opportunities within dry bulk and cabotage. Most of Brazil’s economy is dependent on transportation. 80% of Brazil’s population live along the coast. Railroads are few and far between, trucks are expensive and polluting and the roads are not in good shape.”
However tame the competition; shipping is still not the preferred mode of transportation. The main reason for this is Brazil’s ports. Too small and obsolete from lack of investments, Brazil’s congested ports also suffer from notoriously inefficient bureaucracy. The ports are bottlenecks instead of gateways. “In a country that is so dependent on its waterways, this has a disastrous effect,” comments Mr Figueiredo. “Even routine, domestic cargo ships can be held up for weeks,” he says.
Seizing the opportunity
Ariovaldo Rocha is a partner in Aker Promar Yards and president of the Brazilian Shipbuilding Association (Sinaval).
He is extraordinarily busy these days. In between meetings he tells us that the Brazilian yards are seizing this opportunity by working closely together with other segments to meet the strict requirements of the Transpetro tender. He admits that the demand for 60% national content is ambitious, but says “Sinaval is working closely with all suppliers and subcontractors to ensure the highest national content level possible.”
Private merchant ship owners are increasingly demonstrating their intention to build ships in Brazil. In addition, Venezuela’s national oil company is looking to Brazil for construction of the lion’s share of some 40 vessels to cater for their transportation needs. “On the Venezuela tender,” explains Mr Rocha, “the Brazilian yards are submitting a common bid, with the intention of sharing the orders at a later stage.”
In the 1980s some 50,000 people were directly employed in Brazilian yards. At a low point in 1997, there were less than a thousand. Currently, there are some 30,000. The main reason for the upswing is the heavy investments in the offshore industry, mainly driven by Petrobras.
Mr Rocha believes the match between Transpetro’s and Brazil’s needs can help bring the number back to 50,000.
Building a sustainable industry
Mr Rocha is, understandably, optimistic. Commenting on the dire need for more qualified personnel, he says “We have existing programmes with universities and schools that must be extended. We have the competence, so it is only a matter of time.”
He adds, “The Brazilian fleet is ageing. This, combined with new optimism, indicates extensive renewal and expansion programmes for many years. Throughout that period, we will demonstrate our competitiveness on the international market.”
An international perspective
Steinar Amland is the Norwegian general manager of Gearbulk Brazil. He provides us with his international experience and an overview of Brazil’s shipping perspectives.
“In general, I would say Brazil is definitely an interesting and well functioning country for business. Brazil efficiently capitalises on its natural resources and builds advanced industries and infrastructure. The economy is strong and exports are growing. In other words, almost everything is in place for the shipping industry too,” he says of the positive aspects.
But he sees two major problems. “Most importantly, all aspects of Brazilian ports must be drastically improved. We have supported privatisation to ensure sufficient investments, and we have in some cases built our own terminals, but even that is no easy task.”
Secondly, he considers the yards an issue. “Particularly with their weak financial position, outdated technology and insufficient numbers of qualified personnel. So I’m very much looking forward to a revitalisation of the yards. The offshore industry’s investments in vessels and oil installations have elevated the yards. At this point, the Transpetro newbuilding programme might ensure the competence, technology and capacity that Brazil needs to become a competitive player.”