Brazil Freight Transport Report Q3 2009

Rail freight company America Latina Logistica (ALL) said in March that it expected a 10-12% increase in freight traffic in 2009, due to rising demand for transportation of soya and growth in general freight, as companies switched to rail in pursuit of lower costs. The company noted that in 2008 its freight traffic in its main markets of Brazil and Argentina had grown by 10.8% to 38.2 billion tonne km (bntkm). Net income rose by 16.1% and EBITDA grew 23.7%. Although the company was upbeat about its ability to come through the recession with increased business, it nevertheless acknowledged it was cutting back planned capital investment to BRL600mn (US$276.1mn) from BRL700mn (US$322.1mn) before. Around 65% of ALL's cargo business comes from the agro-industrial sector, with 35% from manufacturing. The company said it wanted to change the mix to 50-50.

In its latest Brazil Freight Transport Report, BMI has set its forecast for annual average growth in freight carried across all modes over the 2009-2013 period at 3.5%. Various factors support this prediction. We believe that despite global economic cooling, the Brazilian economy, which will contract by under 1% this year, will manage a period of low to moderate growth. Annual Brazilian GDP growth will average 2.3% during the 2009-2013 period (down from 4.7% in the preceding five-year period). This will underpin general freight 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 3.0%. The largely privatised rail freight sector will do better, aided by Brazil's commodity export performance, particularly in mining. The rail freight growth figure in 2009-2013 will average 3.5% annually. Brazil performs well in our freight transport industry rating, scoring 77.8 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$126.7bn 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.