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HUB TO FUEL SERVICE CHANGES?

The new hub port of Chancay could open the door to substantial changes on how liner operators serve WCSA. Rob Ward unveils the thinking

With one million TEU of extra capacity due to come on stream in central Peru over the next 18 months to two years, shippers and logistics providers are now seriously considering their options.

Indeed, the fall-out from the opening of the Chancay mega-port will not only affect logistics activities and liner calls in Callao – Peru’s leading port with around 2.5 million TEU handled in 2021 – and Peru in a wider sense, but also the rest of West Coast South America (WCSA), and especially to the south in Chile as well as near neighbours Ecuador and Colombia, and even land-locked Bolivia.

“Callao has suffered from congestion for several years and although progress is being made to improve affairs there, Chancay will provide a much better and more efficient alternative for Peruvian shippers and could also, in the future, become the major hub port for the entire West Coast of South America,” says Simon MacKenzie, President of the Chilean Shipagents Association. “This,” he explains, “is a regular conversation among the shipping community in Chile who fear it might see a curtailment in direct services to our key ports.

“It also doesn’t help,” he elaborates, “that much-needed investments in port infrastructure in Chile, to keep it competitive, are being delayed for a variety of reasons: mostly environmental as we have strong environmental lobby groups.”

At present Peru’s box trade with China lags well behind Chile, with the latter unloading 643,958TEU in 2021 and loading 331,047TEU for China, and Peru shipping out 133,239TEU and unloading 397,046TEU but that could all change if neighbouring countries start transhipping from Peru.

CHILE CATALYSTS

A veteran stalwart of Chilean shipping, Mackenzie, tells Port Strategy that the lack of infrastructure investment in Chile in recent years could accelerate the process of the development of the deep-water port of Chancay. Further, with a 16m depth, the port could become the hub port for WCSA with carriers such as Cosco starting to tranship from Peru to Chile.

“We have not seen the hoped-for investment in San Antonio and Valparaiso that had been promised so this could speed up Chancay’s future role as hub for the region,” he says. He points to the aborted tender process at Valparaiso, currently Chile’s second-largest port for containers, which has led to a short-term, stop-gap, three-year contract for the Agunsa stevedoring group. Similarly, MacKenzie highlights delayed port infrastructure improvements in San Antonio, Chile’s leading port with 1.84 million TEU handled last year. These, he notes, are being held up owing to a “Wetlands and Birds environmental issue”. Two other sources additionally offered the view that Chilean port operators themselves were dragging their heels somewhat, for fear of Chancay and Callao becoming the main relay port for all WCSA, and that spending too much now on improvements, and capital dredging, might be a waste if the big ships don’t come anyway.

COMPLEMENTARY CLAIM

Peruvian and Chinese politicians flag up the idea that Chancay will complement the port of Callao – where DP World and APM Terminals operate – and not take too much cargo away from Peru’s traditional gateway, excepting, of course, services operated by Cosco. But the fact is that once the two ports are fully functioning with investment plans completed, the two combined ports could dissuade carriers from bothering to head south to Chile with their larger vessels.

MacKenzie suggests: “Once Chancay is up and running carriers can utilise their 18,000TEU vessels and save four to six days sailing time down to Chile, so the cost-savings for shipping lines by turning around in Peru will start building and be difficult to ignore.”

Ricardo Sanchez, the senior Economic Affairs director at UN body ECLAC (Economic Commission for Latin American and Caribbean), adds: “From a political point of view Peru has not been so stable in recent years but Ecuador is small and also unstable, Chile is important for shipping but so far away from everywhere, and Pacific Colombia, which effectively means Buenaventura is a very problematic port and region so this means Chancay/Callao will be the logical hubs for the future.”

8 Chancay has the

potential to trigger new approaches by liner operators to serving WCSA

CHANCAY TAKES SHAPE

Rob Ward runs the rule over progress with the mammoth China-backed Chancay port project and the competitive implications

After years of huffing and puffing, and competitors asking, “Will they or won’t they?”, the Chinese state-owned conglomerate Cosco Shipping Holdings is finally building – almost from scratch – a US$3billion deep-water port which aims to become THE hub port for all West Coast South America.

Congestion in the key port of Callao, just 55 km to the south, is one of the driving forces of the Chancay project which at full build-out will comprise 11 container berths, to serve up to Triple E size ships, and four more berths for other cargo. Also identified as a main development catalyst is the desire of the Chinese government to crack on with its Silk Road initiative in Latin America, and especially in Peru, which is one of Beijing’s principal trade partners in the region.

Phase one alone of Chancay project will add one million TEU and six million tons of general and bulk annual cargo capacity to the Peruvian port network.

After a tortuous tender process, China Communications Construction (CCCC) company and China Railway Group won the right to put Chinese state-owned conglomerates, along with Volcan (a Peruvian mining group, owned by Swiss trading group Glencore, with a 40 per cent share, after selling the rest to the Chinese for $225million) at the front of the race to develop South American transport infrastructure. Together, the bid winners appointed China Harbour Engineering Company – CHEC (which also owns TCP in Paranagua, Brazil) to build the huge 141-ha complex.

CHINA INC.

So, why China and why now?

Well, China has been steadily building its relationship with Latin American countries and none more so than Peru. Trade between the two countries totalled close to US$40 billion in 2021, of which 66 per cent was Peruvian exports to China.

Peru is one of the few countries in the world – regional giant Brazil is another – which actually has a trade surplus with Beijing. Key exports include copper, which initially won’t be exiting via Chancay, fish, fertilisers and various fruit and vegetables (including avocados, grapes and blueberries).

Since Peru and China signed a Free Trade Agreement back in 2010, overall trade has doubled and it is nine times more than 2005 when China first started focusing on increasing ties with Peru. In 2014 China overtook the US as Peru’s top trading partner, both for imports and exports.

CAPACITY AND COMPLEXITY

Various eye-witnesses report that several of the Chancay infrastructure projects have been completed and others are progressing well – including an 1.8km tunnel to bypass the town of Chancay - and it seems now that the only factor that might slow down an opening up for business, by early 2024 or even late 2023 according to some parties, is Peru’s “very complicated politics”.

“We urgently need the capacity at Chancay, which will have 16m depth and be able to handle the next generation of box-ships coming to WCSA such as the Triple-E type ships, but I fear that our very messy politics might yet delay matters,” states one Lima-based shipping agent who spoke under

Peru’s ‘most favoured partner in South America’ status with China will certainly ‘‘ pay off for both sides once Chancay is completed and Cosco start expanding their services

8 Artist’s impression

of the new Chancay deepwater port – set to open for business soon

condition of anonymity. He was, of course, referring to the fact that Peru’s leftist president, Pedro Castillo, is being investigated for corruption having survived two impeachment calls. He has already gone through dozens of ministers in his short, one year, tenure so far, and he himself is the fifth president in five years!

Other voices – including IntelligenceOnline.com (IO), a Paris-based research company - believe that the opposite is true: that the political turmoil is allowing China to use its close ties with the Peruvian military, which hasn’t seen such changes in personnel, to keep the Chancay project rolling forward, albeit a little behind schedule. IO points to the fact Gonzalo Rios and Carlos Tejada, former Peruvian Navy commanders, and Jason Guillen, ex head of logistics for the Peruvian Navy, are working for Cosco on the Chancay project, and smoothing the path regarding environmental and operating licenses.

A small semi-portable village has been set up outside the town of Chancay to house the thousands of workers who are already breaking up rock and re-arranging the landscape for new roads to be built, including a 1.8km “ultra-high” tunnel that is being gouged out of the Andes foothills. It will be used exclusively for trucks and other port traffic.

Although Cosco operates in 35 ports worldwide, Chancay will be the state-owned company’s first foray into South America, and one shipping agent believes the first service it will switch away from Callao will be the WCSA to Far East service, including CMA CGM, Evergreen, OOCL and PIL; possibly as early as the winter months of 2023.

“Peru’s ‘most favoured partner in South America’ status with China will certainly pay off for both sides once Chancay is completed and Cosco start expanding their services,” underlines one optimistic shipping agent based in Callao.