Colombia Shipping Report Q4 2012

Our outlook for the Colombian ports and shipping sector remains positive, with a backdrop of strong domestic economic growth as well as support from external demand for commodities. There are also encouraging signs of badly needed investment in transport infrastructure, both in the countrys ports and in the freight transport infrastructure that feeds them, on the back of the countrys developing mining sector. However, progress on such projects is often delayed, and BMI cautions that bottlenecks may remain a problem for some time.

We believe Colombia is undergoing a moderate shift in the countrys shape of growth, characterised by a slight slowdown in private consumption, which informs our below-consensus forecast of 4.7% real GDP growth in 2012. Despite this, consumption will remain at relatively strong levels, and a positive investment outlook for the mining, petroleum and infrastructure sectors will ensure Colombia enjoys more than 4% growth over the coming years, boding very well for volumes at the countrys container ports, as well as dry and liquid bulk facilities.

Our oil & gas team forecasts total oil production to grow by 8.7% to 990,070b/d in 2012, as production increases at both current and new fields. Moreover, exports are likely to be helped by high oil prices over the coming months, due to elevated geopolitical tensions in the Middle East and tight supply dynamics, boding well for exports of liquid bulk. On the dry bulk side, the outlook also remains positive. Colombias coal exports have ramped up in recent years, experiencing 39.6% growth in 2011. We anticipate further increases in 2012, as Xstratas planned US$1.3bn investment into the Cerrejón coal mine by 2015 will help boost production.

Given Colombias still-substantial infrastructure deficit, we expect investment into infrastructure and freight transport related to the export sector will continue to grow in 2012. This comes as both the government and private companies look to decrease supply chain inefficiencies and increase the countrys export capacity from both the Caribbean and Pacific coasts.

Headline Industry Data

- The Port of Cartagena will see total tonnage volume increase by 30% to 14.24mn tonnes in 2012.

- Container traffic at the port will rise by 13% to 1.91mn twenty-foot equivalent units (TEUs).

- Volume at the Pacific port of Buenaventura will be up by a more restrained 3.49% to 9.5mn tonnes, while container traffic will rise 11.6% to reach 531,806TEUs.

Key Industry Trends

Buenaventura Expanding Following FTA

BMI maintains its positive outlook for Colombias Port of Buenaventura on the back of a US$150mn improvement project that began in June 2012 and will increase its annual container throughput capacity to 600,000TEUs. The expansion will enable the port to accommodate the surge in trade that will result from the free trade agreement (FTA) recently enacted with the US, Colombias biggest trade partner.

CaroTrans US Export LCL Service To Colombia

Non-vessel-operating common carrier CaroTrans has announced that it is to start two new direct lessthan- container load (LCL) export services from New York and Houston, US to Cartagena, Colombia. The services are designed to tap into an expected expansion of trade with Colombia, spurred by the USColombia FTA signed in mid-May.

Mining Companies Address Supply Chain Concerns

BMI believes the investments in Colombian ports by foreign mining companies support the positive outlook for the countrys shipping sector. A booming mining industry and a government committed to opening its borders to foreign investment will further bolster the outlook for the sector and continue to encourage vertical supply chain integration by private mining firms.

Key Risks To Outlook

For Q412, the main risk to our positive outlook for Colombia remains the possibility of a hard landing for China, which we expect to take up the shortfall as US imports of Colombian coal decrease. A severe slowdown in the country would kill Chinese demand for raw materials such as iron ore and coal, leaving Colombia to look elsewhere for an export market.

We believe Colombia is set to benefit from its FTA with the US. The country is already in desperate need for improved transport infrastructure to export its coal reserves, and since this FTA is likely to increase US imports it should bring with it some much-needed investment into Colombias port infrastructure.

The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.