Chile Freight Transportation Report Q2 2008

Brazil, Bolivia, and Chile agreed in principle to build a motorway corridor linking the Atlantic and Pacific coasts of the South American continent, it was reported in December 2007. The agreement came at a meeting of Presidents Luis Inacio 'Lula' da Silva (Brazil), Michelle Bachelet (Chile) and Evo Morales (Bolivia), held in the Bolivian capital of La Paz, significant among other things because it indicated a thaw in Chile's political relations with Bolivia, traditionally hampered by long-standing territorial disputes. The corridor would become operational in 2009, officials said. The Bolivian section would be 1,600km long, 75% of which was already in operation. The aim in Bolivia was to connect three 'missing sections' of the East-West link, including those between Santa Cruz and Puerto Suarez, Oruro and Pisiga, and Santa Matas and Concepcin. Construction costs for those three sections were estimated respectively at US$415mn, US$78mn, and US$260mn. Brazil's contribution would be to invest US$133mn in upgrading 2,225kms of existing roads stretching to the port of Santos on its Atlantic coastline. For its part, Chile would be responsible for two separate projects to extend the corridor to the Pacific - a 192km highway starting in the port of Arica, and another 216km stretch linking Iquique, also an important Pacific port, to the country's eastern border with Bolivia. Bolivian President Morales described the overall project as a 'vital artery' that would allow integration between towns in the three countries, while Chile's President Bachelet stressed that it would allow a free flow of people and greater regional equality. A key aim of the corridor is to cut road freight costs. The interoceanic link should support our forecast, made in this, our Q208 edition of BMI Chile Freight Transport, that Chile's road freight traffic will grow at an annual average of 5.2% in the 2008-2012 period.

Various factors support this prediction. Growth will be underpinned by GDP expansion at an annual average of 4.0% over the next five years, and by Chile's strong mining export performance. It will be ahead of the average annual growth in freight turnover across all modes, measured in mn tonnes-km (mntkm), which will reach 4.8% in 2008-2012. For the five-year forecast period and across the freight sector as a whole, BMI's view is that good export-oriented growth, coupled with a favourable business environment and 'catch-up' infrastructure investments, all point to a good performance. Airfreight will lead (growth of 6.4% per annum), followed by road (5.2%), pipeline throughput (4.8%) and maritime freight (4.7%), reflecting the strength of Chile's international trade, particularly with Pacific Rim countries. Chile is at the top end of our Latin American freight transport business environment matrix, with an overall score of 72.3. It scores particularly well on long-term political and economic risk and on the regulatory and competitive environment. Freight and transport infrastructure growth are comparable with those of counties in the peer group such as Brazil and Argentina.

According to our latest estimates, the total value of transport and communications GDP will rise to US$20.9bn in nominal terms by 2012, representing 7.9% of Chile's GDP. The transport and communications sector employed an estimated 514,500 people, or 8.6% of the labour force in 2007. We see this rising to 553,200, and 8.7% of the total by 2012.