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Ricardo Sanchez, ECLAC

Vertical integration in Latin America in the new era of port concessions

Ricardo Sanchez, the Senior Economic Affairs Officer of the International Trade and Integration Division of the Economic Commission for Latin America and the Caribbean (ECLAC), has been investigating since 2016 the sensitive issue of incomplete contracts of long-term infrastructure such as ports and airports, especially regarding one of their most negative consequences from an economic perspective: vertical integration.

"The main goal of this research is to prepare for a new generation of port concessions in Latin America. In the next six years, more or less 25% of the port's containers in concession capacity will expire, as their contracts were created more than 25 years ago, without experience, in a totally different world where ports are not what they are nowadays," Sanchez said.

This issue is of special importance given the region's enormous deficiency in investment in infrastructure –an issue in which ECLAC has carried out in-depth studies– where the public sector has the greatest weight in initiatives, but the private sector's participation has never dropped below 30%, mainly channeled into highly relevant concession contracts.

Some cases in the region
This new generation of contracts coincides with a growing process of vertical integration that has taken place in recent years in the maritime and port industry, where shipping companies have been increasing their participation in the region's terminals directly or through their container terminal operating subsidiaries, Sanchez stated.

In Argentina, at the end of 2019, the integrated terminals within the Buenos Aires metropolitan area (two out of four) controlled 68% of the containers that were mobilized that year. If there were a full integration, they would control 81% of the containers. In Brazil, 44% of the country's exports go through vertically integrated terminals and shipping lines (CNT, 2019).

In Peru, in the port of El Callao -which mobilizes 86.4% of all containers in the country-, vertical integration controlled 40.1% of what was mobilized in 2019. In the Caribbean, at the end of 2019, terminals that had a shareholding agreement with shipping companies in the Bahamas, Colombia, Jamaica, Panama, and the Dominican Republic, concentrated 41% of all container transshipment activity (the largest in the Caribbean).

One of the consequences inherent in vertical integration, Sanchez said, is the possibility of exclusion. It is a situation in which the enormous market power of an integrated operator can lead to a renegotiation that favors it and goes against other actors in a concession process; which would completely minimize the possibility that the shipping companies that aren't involved in vertical integration would have in loading/unloading cargo.



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