4/28/2004 (LLOYDS LIST) - BRAZIL'S remarkable success in the expansion ofsoya and grain exports is in danger of being undone by problems in itsleading agribulk terminals, according to brokers and shipowners.

Congestion in Brazil's agribulk terminals combined with soaring freightrates has forced shipowners to hit the country's agricultural exporterswith growing premiums to cover the mounting risk of runaway costs duringloading delays.

Costly delays due to record harvests have been exacerbated in the firstfour months of the year by strike action in key ports.

'The main problem has been a return to the bad old days of heavycongestion,' said Oceanbulk Shipping ' Trading managing director, MarkTrickett.

Earlier this year due to strikes, he said, 'Paranagua was getting close toa month waiting time and Sao Francisco Do Sul actually reached one month.'

At the height of a week-long stoppage in Paranagua, Brazil's leadingexport point for soya, at the end of March, up to 30 ships were leftwaiting to load.

'With demurrages reaching as much as $50,000 per day on the modernPanamaxes and smaller Handies of say 27,000 dwt of around $25,000 per day,the cost to the exporters of these delays has been huge,' said MrTrickett.

Companhia Vale Rio Doce, the world's largest iron ore exporter, has seenits demurrage costs more than double to $46m as a result of congestion atits terminals.

Already congested due to the volumes being moved through the ports,Paranagua, Recife, Santos and Sao Francisco do Sul agribulk facilities aresimilarly all badly in need of additional investment to ease congestion.

North American food specialist, Bunge, is investing $1.3bn in Brazil,$300m of which is being aimed at its port and logistics network in aneffort to reduce the bottleneck.

Bunge president Alberto Weisser has said the company will invest U$100m inits facilities in Santos, where it has a stake in a new grain terminal TGGbeing built next to Tecon 1 container terminal. It has also earmarked $30mfor Sao Francisco do Sul and additional funds for Paranagua.

Bunge estimates that Brazilian soya exports will increase by at least 6% ayear over the next six years. By 2010 it is estimated the country will beproducing 60m tonnes a year, almost a third of total global production.

In response to the growing challenge of moving such volumes, shippingcompanies, such as Oceanbulk, have been looking at ways to improve portfacilities through direct investments, but the sums required aresubstantial and not safe from risk, says Mr Trickett.

'If, as an investor, you had $3m to spend, it's relatively simple toevaluate the commercial risk,' he said. 'You would only commit tosomewhere where you knew there was a fundamental working infrastructurethat at least would not work negatively on your investment. Braziliangrain ports have not reached this point yet.'

The problem has forced many shipping companies to move their tonnage tomore reliable areas to capitalise on the returns in today's boomingmarkets or alternatively to work the cost of potential delays into thecontract.

The sharp hike in costs has forced the likes of Cargill and Bunge to takelonger-term hedging positions, according to Miguel Gisbert, commercialmanager, for TBS Shipping Services.

'Cargill and Bunge have been very active as shipowners taking longcharters four of five months ago,' said Mr Gisbert.

'They covered themselves by taking things on time-charters for two yearsin a very high market. They must think this certainly not a bubble,' hesaid.

It is estimated that Cargill has 30 panamaxes on period charter at any onetime to cover its needs. With long-term positions on the rise as aresponse to soaring rates the company's activity in paper FFA trades isalso likely to increase, say brokers.

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