At the beginning of October 08, LLX Logistica, the logistics arm of the Grupo EBX mining company, said that its decision to suspend its Porto Brasil investment project was not indicative of a paucity of liquidity for the company, but instead represented a prudent move amid tightening global credit markets.

Porto Brasil was to be built at Peruibe, 70km south of the country’s main port at Santos, and designed to handle 20mn metric tonnes a year of iron ore exports, along with 29mn mt of farm products and 17.5mn mt of fertilizers and bulk liquids. LLX CEO Ricardo Antunes said that the port development project had been frozen, reflecting the company’s ‘financial conservatism.’ LLX would instead concentrate on building the Acu port already under construction and due to be completed in 2010; and Porto Sudeste, due to be completed in 2011. LLX is raising 25% of the cost of building these two ports, with BNDES (the Brazilian Development Bank) raising the other 75%. LLX shareholders Eike Batista (the owner of Grupo EBX) and TPP, an international teachers’ fund, had committed to raising the company’s capitalization to allow it to progress the two port projects. Total investment by LLX for the two projects was estimated at US$2bn (compared to US$3.9bn for the three projects before the decision to freeze Porto Brasil). In our latest Brazil Freight Transport Report, BMI has set its forecast for annual average growth in shipping freight over the 2009-2013 period at 8.3%.

Various factors support this prediction. At base, we believe the despite global economic cooling the Brazilian economy will manage a period of moderate growth, with shipping as a key transport mode. In short, the fundamentals still point to expansion. Annual Brazilian GDP growth will average 4.1% during the 2009-2013 period (down from 4.6% in the preceding five-year period). This will underpin general shipping demand.

The overall freight picture is encouraging - although work to improve and repair the highway network is still lagging - as road haulage will grow by an average of 5.4%. The largely privatised rail freight sector will do better, aided by Brazil’s commodity export boom, particularly in mining. The rail freight growth figure in 2009-2013 will average of 6.3% annually.

Brazil performs reasonably well in our freight transport industry rating, scoring 66.5 out of 100, significantly above the regional average. Freight growth, infrastructure growth, and the regulatory and competitive environment all score well. Economic and political risk is comparable to the Latin American peer group. Foreign trade still represents only around 20% of GDP, although on the other hand the sheer geographical size of the country means there will be healthy internal demand for freight transport.

According to our latest estimates, the total value of transport and communications GDP will rise to US$127.9bn in nominal terms by 2013, representing 5.4% of Brazil’s GDP. The transport and communications sector employed 4.725mn people, or 4.9% of the labour force, in 2008. We see these figures rising to 6.0mn – and 5.4% – by 2013.