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Latin America: Maersk Weathers COVID Storm
China-driven export boom helps offset COVID-driven import declines.
BY JOACHIM BAMRUD
While Denmark-based Maersk, the world’s largest shipping line, was affected by the COVID-19 pandemic, it managed to see a silver lining as well – Latin America exports actually grew, thanks to demand in China.
“If we look at Latin America exports, the impact has been limited from COVID,” says Robbert van Trooijen, who on August 1 took over as Maersk’s Regional Managing Director for Latin America and the Caribbean. “Ports [were] open, ships cleared, trucks were driving. So in terms of exports, that’s been there.”
While airlines saw their core business of passenger transport halted, ocean carriers were able to continue, he points out.
“Obviously there was a difference between the airline industry and shipping industry,” van Trooijen says. “Airlines saw 95 percent of their fleet grounded, whereas ocean shipping saw 15-18 percent hit so overall was less affected. If we look at airfreight, it’s been booming. Even passenger planes converted to freight.”
Ports across Brazil saw a 4 percent increase in cargo throughput year-to-date through May from a year ago, according to government data. Panama's Caribbean and Pacific ports saw increases of 12.7 percent and 16.1 percent, respectively, during the first half of the year, according to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The east coast of South America saw an increase of 3.7 percent during the January-May period.
Argentina, Brazil and Chile's export picture is looking better than in other parts of Latin America, and it's being driven by huge growth in exports to China, points out Fiona Mackie, EIU's Regional Director for Latin America and the Caribbean. Argentina's exports to China rose by over 50 percent in June, for example.
The cycle of COVID-19 impacted Latin America container traffic different during the start and later phases, points out Paul Bingham, economics director at IHS Markit.
“The virus spread in Latin America accelerated later than in Asia, Europe or North America which meant the downturn in trade demand came later for the carriers serving Latin America,” he says. “Initially the COVID-19 impact on Latin American trades was on exports, with customers for Latin American exports suffering from the COVID-19 shutdowns, reducing their purchases. More recently the carriers are seeing drops in Latin American import demand as virus spread has hit the region hard, disrupted purchasing activity and weakening Latin American currency exchange rates. Decline in currency exchange rates has made imports relatively more expensive, further reducing Latin American import container volume demand.”
Van Trooijen acknowledges the impact on imports to Latin America.
“The market overall was primarily impacted on consumption,” he says. “Latin American consumption reduced, people stopped going to shopping malls, stopped going out, buying power reduced, they lost their jobs. That affects imports from overseas. We have seen imports to Latin America reduced.”
One major change that is occurring is the focus on e-commerce, he points out.
“We see automation and digital in COVID has accelerated,” van Trooijen says. “We see how e-commerce providers have exponentially grown their business. Then this certainly is a trend in which logistic service providers play a role. But also kind of an accelerating trend. People used to go to the store. Now due to COVID, they buy online. And you can return the product, without cost. That will change the whole dynamics for logistics. So in the past would arrive five days later and customer happy. Now customers complain if it’s not there next day. Shows how digital solutions can dramatically change.”
However, he points out that some companies are prepared, while others not even started to prepare.
“They are not new to technology, but I am surprised how it has not penetrated all supply chains yet --globally and of course Latin America,” van Trooijen says.
US-CHINA TENSIONS
Apart from COVID-19, cargo companies like Maersk have also been impacted by the trade tensions between the United States and China during the Trump administration.
“Many of the commodities produced by the US are produced in Brazil, so when US grains and soybeans hit by tariffs from China, Brazil soybeans demand increased quite considerably,” says van Trooijen, who headed up Maersk in the Asia Pacific region the past five years. “So you see Latin American economies taking advantage of the fact that US products tariffed by China.”
However he doesn’t believe Mexico – which has a free trade agreement with the United States -- will see a surge in manufacturing business that had been in China.
“Mexico has a little bit of capability to produce for US, but compared with Asia, Mexico is very small,” van Trooijen says. “So I don’t think near-sourcing will have a significant impact.”
He emphasizes that Maersk prefers free trade rather than trade wars.
“We do trade with any nation [but] we are strong supporters of free trade,” van Trooijen says. “Free trade has lifted entire nations out of poverty and are making countries prosper. There are no winners in trade wars. We feel the fewer barriers that exist, the better for trade. We advocate for the least possible restrictions. Tariffs never benefited any consumers at the end of the day.”
RETURN TO PANAMA
After five years in Hong Kong, van Trooijen – a Dutch expat who has worked six times in Latin America -- is looking forward to working from Panama again. Before his Asia Pacific appointment in 2015 he headed Maersk Latin America for nearly five years, also from Panama. In fact, he moved the company’s regional headquarters from Brazil to Panama in 2012.
“It’s a little bit like going back to my second home,” he says. “I intend to be there many years. .. Panama is trying to accomplish what Dubai, Singapore and Hong Kong do as a trade and financial center and home for many multinationals.”
GROWTH PLANS
Van Trooijen plans to hit the ground running, with clear goals for what he plans to accomplish in his role as head of Latin America.
“I hope to contribute to the growth and rebirth of the region,” he says. “We have a strong basis in ocean transport and we will continue with that. We are not taking that for granted. We need to please our customers. The business continues to grow and flourish.”
However, he also plans to boost business from organic growth and mergers. To help organic growth, Maersk aims for more revenues from its non-ocean logistics business.
“We want to expand [that] exponentially,” he says “Our group CEO said that when we succeed, our logistics business will be 50 percent of our results. Today we are primarily an ocean player.”
Maersk always had freight, warehousing and trucking as part of its Dutch unit Damco, which is now sold under the Maersk brand.
“Damco wasn’t as big in Latin America, but that will change,” van Trooijen says. “We run a lot of supply chains for large retailers in Asia. I want to take that in Latin America.”
OUTLOOK
Container trade demand outlook continues to look weak for 2020 in Latin America, as the recession will result in a decline in volumes for 2020, Bingham warns.
“However, recovery from the depths of export demand declines in the first half of the year are already advancing from regions such as Asia where the economies have largely re-opened following the earlier pandemic-driven economic shut downs,” he says.
Van Trooijen concurs. “Every indication is that exports are strong and will remain so for foreseeable future,” he says.
But the import side may remain weak as Latin America suffers from significant recessions.
“Latin American import volume demand recovery will lag, with remaining downside risks such that recovery in demand for the carriers may take until 2021,” Bingham says.
Van Trooijen says it’s difficult to predict what will happen the next few months. While people need to go out, much depends on consumer confidence and faith in whether purchasing power will increase or not, he says.
However, clients are likely to compensate for months of inactivity.
“Many customers have seen reduced sales, so they are eager to replenish inventories as fast as they can,” he says.
Financial performance of the ocean transporters will depend on continued management of capacity deployed, with blank sailings and other adjustments to supply influencing rates and earnings on Latin American trade lanes, Bingham says.
“There’s no textbook how this develops,” the Maersk executive says. “No crystal ball how this will develop.”
He mentions an example in Asia where a large customer wanted to ship out facemasks so he needed help from Maersk to get seven Boeing 777s.
“Those things are not a linear nor textbook,” van Trooijen says. “We have to be creative.”
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