Hoist, crane and lifting equipment manufacturers have traditionally found South America a source of exciting opportunities. Significant investments across large parts of the continent have enabled manufacturers and suppliers to play key roles in various industrial construction projects.
However, it would be a mistake to adopt a broad-brush approach to the economic health of all of South America. It is imperative to breakdown which countries in this major landmass are growth areas for crane and hoist firms and equally, those that are presenting challenges.
When looking at countries within South America, it is inevitable that the spotlight falls on Brazil. Industrial construction in Brazil has been impacted by decline in demand for many of the country’s exports, which has had a knock-on effect on production. Recent research from data intelligence firm Timetric cites industrial construction has been the slowest-growing facet of the construction arena, predicting a compound annual growth rate of 7.10% during the next four years until 2017.
Manufacturing plant production, namely growth areas such as cars and chemicals, in Brazil proved to be the largest element of the industrial construction sector last year, growing at a CAGR of 12.74%. But despite a wealth of stimulus measures, tax breaks and trade barriers introduced by the government, industrial output as a whole dropped by nearly 3% (2.7%) last year compared to 2011.
Drivers for growth
However, despite Brazil being notoriously bureaucratic when it comes to trade openness and entry rates, this has failed to prevent manufacturers in the sector making increased inroads into the region. According to Jhoan Prato, director of sales for Konecranes in Latin America, the main drivers for growth in Brazil have come from the oil and gas, automotive and construction industries such as including shipbuilding.
"Opportunities with oil and gas come from the huge pre-salt oil reserves found off the Brazilian coast. The construction and automotive industries are being leveraged by government as well as private industry while the World Cup in 2014 and the Olympics in 2016 will bring a global focus that will certainly benefit Brazil," he explains. "We have invested for the long-term in Brazil, with production, manufacturing and headquarters facilities, dedication to training and staff development."
Dan House, managing director of Kalmar in Latin America agrees, explaining there are a lot of stable governments in South America where the economy is being driven by the growing middle class. In addition, there are also many industrial projects and major infrastructural development initiatives ongoing outside ports business.
"We see high growth potential especially in Brazil, which is a major economy and has a population of 200 million inhabitants. The 2016 Olympic Games are also playing a major part in driving an increased activity level in ports and terminals," says House. "Brazil has also recently approved a law to modernize its ports. The new law will allow the private sector to invest in state-owned ports and lift restrictions that have hindered the building of private terminals. The legislation will eliminate a rule that forced private companies with their own terminals to only handle their own cargo."
Infrastructure investment
Demag cranes, which was recently renamed Terex Material Handling & Port Solutions, has recently supplied 14 portal cranes to engineering firm SPMAR for a major ring-road construction project around São Paulo. The Demag installation is being leveraged to help complete the eastern section of the Rodoanel Màrio Covas, a 180-km-long ring road, which circumnavigates the densely populated metropolis of São Paulo.
According to Terex, the commission comprises 14 Demag ZVPE double-girder full-portal cranes. These machines have a 17m span that can each serve three lanes for one direction of travel by transporting prefabricated concrete parts. The cranes are kitted with a double-rail crab and DR 20 rope hoist, which gives the machines a load capacity of 32 tonnes and a lifting height of seven metres.
With the southern ring of the Rodoanel Màrio Covas completed, developers expect the 43km-long eastern element to be finalised in 2014. Terex’ involvement in the project has played a major role in assisting the complex construction of the road. In many parts, the Rodoanel Màrio Covas is constructed on columns and supporting girders. During this process the Demag ZVPE double-girder full-portal cranes are used to transport girders, supports as well as other load-bearing elements to various installation sites.
These cranes, eight installations of the total 14, were configured to accommodate 2.5% gradients as well as the curve-shape taken by the road. In addition to these, Terex supplied six full-portal cranes that each offer an 18m span for use within the road’s production plant for construction materials. Four full-portal cranes offer a 32t load capacity while the remaining two can machines can handle a 16t load capacity.
Terex Material Handling in is coordinating the crane project, as well as the engineering of both the crane installations and structural steelwork. The key components of the cranes, including the hoists, controls and drives were supplied by the German production facility in Wetter/Ruhr.
Commenting on the installation, Dr Lars Brzoska, vice president and managing director of Terex Material Handling says Demag crane technology is supporting the rapid implementation of the major road-building project. "We are pleased that with our products we have been able to make a major contribution to the implementation of this infrastructure project that is so important for the region," he adds.
Challenging environment
According to Karsten Hönack, regional sales manager at Stahl CraneSystems Brazil has been something of a mixed bag for the group. "Brazil’s government is running out of ideas and economics are teaching once again that a stable country in Latin America only perdures a short time," he explains. "During the wealthy growth of the past years, many crane builders took the chance and invested, what now reflects in overcapacity. Business in Brazil will still be good, but growth will cease."
Hönack says the local market in Brazil is shrinking and coupled with other political and economic factors "melts" strategies. Brazil needs more exports, but politically speaking, it also has to restructure. "Unfortunately the R$ is overvalued and needs a correction right away. This may happen this year and will increase internal dissatisfaction and lead to collateral damage as political instability."
For Stahl CraneSystems’ Hönack, there is a number of social and political aspects that have contributed to varied business success in South America during 2013. "I expect Chile, Peru and Mexico to have some good years ahead. Brazil is going steadily slowing down the next years, as credit issues and market saturation melt order incomes. Big value investments are on hold waiting how Brazil is developed, and as a result, these firms are finding better perspectives in neighbour countries such as Chile and Peru," he explains.
According to Kalmar’s House, the expansion of the Panama Canal and the cascading affect of bigger container ships are the biggest influence on the Latin America market effecting the ports and terminals in the region.
"As container volumes will be growing and bigger vessels will be going through the canal, port operators need to be prepared for this change with adequate infrastructure including for example longer quays, deeper quayside water and taller cranes," he explains. "This will also put significant pressure on existing equipment to handle the increased throughput and it’s particularly important with ship-toshore cranes, where the critical challenge is to maintain optimum productivity."
One example of Kalmar’s recent crane heightening and boom extension projects in the area is a recent order from Argentina. This involved extending booms on two quay cranes located in Terminales Rio de la Plata (TRP) in Buenos Aires.
The container terminals have plans to start receiving larger container vessels in a bid to optimise its annual 800,000 TEU capacity.
Due to the significant increase in vessel width, the quay crane geometry requires adapting in order to extend the reach capacity by six metres from a each of 45 meters up to 51 meters.
Constructive Chile
Elsewhere, Chile’s diverse manufacturing industry continued to expand during 2012 at a healthy rate and in January of this year, was up by 4.3% on an annual basis. The country had a strong legal framework that has made Chile an attractive proposition, as Hönack suggests, for companies looking to establish operations. The industrial construction market is expected to grow at a significant rate during the next four years, reaching a value of $6.1 billion by 2017 thanks to the expansion of its mining industry and manufacturing plants.
According to Timetric research, manufacturing plants account for the largest share of Chile’s industrial construction market, comprising a significant 26.6% share of the market’s total value last year. As a result of strong domestic demand for goods, investment in new plants will continue in order to help fulfil demand. Business for many firms across South America, in countries such as Chile, has varied during 2013 owing to a number of economic and governmental factors. While Chile has had significant growth during the past three years, there is a consensus that this seems to slowing slightly and stabilizing owing to the upcoming election of a new president, which could impact construction projects.
Hönack, adds to this, citing uncertainty in raw material markets and strikes in the mining industry has put a number of projects on hold while pacific countries such as Chile and Peru have been hit due to the falling copper and gold price. "Recovery in Chile is expected in September, when elections allow a perspective of the path the new government will take. However, latest news indicates and surprising prompt recovery," he says.
Mexican manufacturing
Unlike Chile, the industrial construction market in Mexico only accounted for 10% of the total industry value in 2012, however it contributed a considerable 34% of the county’s GDP last year. Despite suffering a decline in 2009 and 2010, Mexico’s industrial market grew consecutively in the following two, with further growth expected thanks to new manufacturing and metal processing plants. In addition, the automotive industry is expected to aid growth in industrial construction, contributing to a CAGR of 6.61% over the next four years to 2017 reaching a value of US$21.8 billion.
Analysts predict Mexican industrial construction to be supported by a range of refinery buildings projects. Although the country is one of the world’s largest producers of oil, it has inadequate domestic refining capacity and as a result, exports around 40% of its requirements for gasoline. However, the government plans to eliminate such imports across the next eight years, which is catalysing the burgeoning construction levels in this area. Hönack believes that a growing number of companies are choosing Mexico for production facilities is highly welcome and supported by the government giving land and tax redemption. "We assume Mexico will start to have a golden 2014 era and will last a period of seven to 10 years. It is a country for itself. What seems to be coming up is a huge investment wave. The aerospace, as well as the automotive industry have chosen this country for the next expansion period," he explains.
According to Hönack, having Atlantic and Pacific coast very close together, a central geo-location in the Americas and bordering the US turns is a "raw diamond" for global business. "Major investments in railroad and highways are planned. Now and since the privatization of railroad nets, Mexico has a good running railroad administrated by Ferromex and Kansas Southern into the US," he adds.
Opening opportunities
Elsewhere across South America, countries such as Argentina, Peru and Ecuador continue to present both opportunities and challenges to firms working across the continent. However there are also numerous hurdles to overcome for business such as this when looking to make inroads into these economies. Different governments can make it problematic to do business by increasing taxes on imports such as Argentina or in Venezuela’s case, even temporarily prohibiting imports.
Hönack agrees, citing Venezuela and Argentina’s economic situation as reasons behind their stringent import policies. "This situation will change sometime in the mid-future, and for sure open a high demand on industrial products they could not import for some years," he concludes.
For Kalmar, which has a strong local presence in Venezuela, the country has been a positive sales market for the group. During the first quarter of 2013, Kalmar secured two large port equipment orders in Venezuela. One of these was for Venezuela’s government-owned port operator Bolivariana de Puertos (Bolipuertos), which comprised 30 Kalmar reachstackers, four empty container handlers, eight heavy forklifts, nine light forklifts, seven heavy terminal tractors, 41 medium terminal tractors and one zero emission rubber-tyred gantry crane.
Overhead crane and hoist manufacturers can take both a number of positives and negatives from South America during the first half of 2013. What is evident though is that there are no short-term gains or quick fixes to be had from selling into the continent. There are major, lucrative opportunities to be had but for many firms in this space, patience is key.