Peru Freight Transportation Report Q2 2008

Peruvian President Alan Garca and his US opposite number George Bush signed a long-negotiated bilateral free trade agreement (FTA) in Washington in December 2007, which was expected to boost trade and therefore demand for transport services between the two countries. Bilateral trade stood at nearly US$9bn per annum in 2007. The FTA will eliminate duties on around 80% of US consumer and industrial goods sold in Peru, taking the proportion up to 100% in the next 10 years; it also provides improved access to US markets for Peruvian exports. US Trade Representative Susan Schwab noted that Peru had enjoyed duty free access to the US market for over 14 years under the terms of the Andean Trade Preference Act, and the FTA would now make that permanent. President Garca, who took office in mid-2006, is focusing on three key freight-related priorities. BMI's newly-released Peru Freight Transport Report identifies the three as the construction of the inter-oceanic highway connecting Peru to Brazil, Pacific coast port development and the complex of natural gas pipelines and liquefied natural gas (LNG) facilities associated with ongoing development of the Camisea deposits. These three projects underpin BMI's view that Peruvian freight-transport turnover, measured in million-tonne-km (mntkm) will grow by an annual average of 7.8% in 2008-2012, ahead of annual GDP expansion of 5.0% in the same period. By value, the transport and communications sector will grow to be worth US$3bn in 2012, representing 9.7% of total GDP.

BMI's view is that freight transport has a critical role to play in Peru's development over the next few years. Much will depend not only on the management of concrete projects, but also on the quality of the business environment in this sector. BMI gives Peru an overall freight rating of 64.2, placing it just above average among its peers. There is room for improvement in infrastructure development and the regulatory environment. Among the risks facing our forecasts are political uncertainty and the possibility of a fall in the price of Peru's commodity exports, leading to downward revision of predicted growth rates.

On balance then, and despite the possibility of turbulence in the airfreight sector (traditionally volatile in recent Peruvian experience) and slower growth in rail freight, BMI is projecting an encouraging future for the country's freight sector.