Argentina Freight Transport Report Q1 2010

In September the Inter-American Development Bank (IADB) approved a US$120mn loan to finance road improvement and maintenance work in a number of Argentine provinces including La Pampa, Entre Rios, Córdoba and Formosa. The loan was part of a US$2.5bn conditional credit line to support investment to improve, expand, and rehabilitate the country’s overall provincial road network. The IADB commented that ‘the poor condition of the country’s secondary and tertiary road networks increases costs, making its products more expensive’. It noted that around 80% of the country’s total cargo volume was carried by road. IADB project team leader Rafael Acevedo-Daunas said annual investment of US$1.5bn was required to maintain existing roads and eliminate the backlog of expansion and improvement projects.

We continue to forecast GDP contraction of 1.0% in 2009, with the economy shrinking again by 0.9% in 2010, confirming that Argentina will be hit more severely by the global downturn than had at first been hoped. In 2011 we see a weak recovery with 1.2% growth, rising to 1.8% in 2012. Across our 2010-2014 forecast period we are projecting average annual GDP growth of 1.2%, implying a sharp slowdown on the 6.5% figure for the preceding five years.

We maintain the main thrust of our mode-specific forecasts. The planned new gas pipeline to Bolivia has faced long delays. Airfreight was hampered by short-term radar safety concerns in 2007, and despite investment from LAN Argentina, faces at best a slow recovery following the controversial renationalisation of Aerolineas Argentinas. We see the airline remaining loss making for some years to come. Argentina’s aviation industry still seems to produce one or two bankruptcies every couple of years.

We have also reined in our shipping forecasts. As a result of all these changes, our new overall freight carried forecast is for annual average growth of 1.3% in 2010-2014, measured in millions of tonnes per km. This is a steep fall on the 5.8% figure 2005-2009, when Argentina was recovering from the deep economic crisis of 2001-02.

According to our latest estimates, transport and communications GDP will have contracted by 0.6% in 2009, 0.4 percentage points (pp) less steeply than overall GDP, which we project to have fallen by 1.0%.

For the 2010-2014 forecast period we expect the transport and communications sector to outpace the economy as a whole. It will achieve average annual growth of 1.5%, versus 1.2% for overall GDP. The total value of transport and communications GDP will rise to US$64.7bn in nominal terms by 2013, representing 9.9% of Argentina’s GDP. The transport and communications sector employed around 673,000 or 7.1% of the labour force, in2009. We see the figure rising to 708,000 by 2013, although as a proportion of the labour force it will remain unchanged at 7.1%.

The background to this rather disappointing outlook on the transport side is the global slowdown and the country’s subdued role as a grains, agricultural and livestock commodities exporter. The route to market will continue to be via road, rail (and in some cases river), to the main ports and then onwards by ship to the main export markets. Key export commodities will continue to be wheat, maize, sorghum, soya and beef. The world’s soya boom affected freight transport demand, with a growing requirement for shipment across the Pacific to China leading to rising interest in trans-Andean freight from Argentina to Chile’s Pacific ports.

Road haulage will continue to be the dominant freight transport mode. Investment is still needed in both the highways network and truck fleets but the recession will ease bottlenecks. Over the forecast period annual average growth in road freight carried will be 1.3%, down from the 7.8% rate achieved over the preceding five years. BMI now forecasts 1.6% annual growth in rail freight over the next five years, with new investments helping to lift capacity.

We are forecasting maritime traffic to grow by an annual average of 1.0%. This figure is lower because of the reduction in global shipping growth and gloomier prospects for agro industrial exports. We see pipeline throughput growing at 1.4% per annum (based on current pipeline development projects coming on-stream after delays), and inland waterways traffic, which has been starved of new investments, growing more slowly at 0.7% per annum. We see airfreight registering low growth rates, partly because much of Argentina’s international trade remains in the relatively higher bulk/low value pattern and is therefore not particularly suited for transport by air. We are forecasting average annual airfreight growth of 1.7% in the forecast period.