Low Cargo Growth Expected in 2015
BMI envisages very low cargo volume growth in 2015, due to a standstill economy and a number of industry-specific problems. The freight transport sector faces ongoing concerns about the lack of sustainable import demand and slowing oil exports. Chronic mismanagement of the country's port facilities since they were nationalised in 2009 has damaged their international reputation and their profit-making capabilities. We do not expect any significant recouping of lost throughput levels over the medium term. Over a longer period, investments from China could see the facilities begin to regain some lost ground. Regarding other transport modes, airfreight sector remains restricted by currency controls. Venezuela lacks reliable data on its small rail freight and large road haulage volumes, but cargo growth on both will be kept to low single percentage digits.
BMI remains bearish on the current and immediate outlook for the Venezuelan economy. We have cut back our forecast for economic growth, and are now predicting GDP expansion of only 0.8% in 2015, following an estimated contraction of 2.0% in 2014. Even this is subject to significant downside risk. The massive distortions in the Venezuelan economy caused by complicated and ever-changing government policies, a hostile business climate, and rampant inflation will cap growth over the coming years. Productive capacity has been shrinking, a number of businesses have been forced to close, and downward revisions of international oil price forecasts are expected to have a serious impact, since crude oil is in effect the only significant Venezuelan export.
Headline Industry Data
Air freight volume carried in 2015 will expand by 3.7% to 5.11mn tonnes-km, with average annual growth of 3.7% to 2019.
2015 Puerto Cabello tonnage throughput growth forecast at 1.1%. Slow growth - lagging behind GDP - is expected to continue over the medium term, averaging 1.6% to 2019.
2015 port of La Guaira tonnage throughput to grow by 0.4%, and forecast to average 0.9% over our medium term forecast period.
Key Industry Trends
Oil Ports Suf fer From Obsolete Infrastructure : A copy of an internal report within state oil company PDVSA, leaked to the press, indicates that the country's oil ports are in disrepair. 'An elevated degree of obsolescence in infrastructure, delays in loading and launching of tankers, and high costs are affecting the utilization of the Western region terminals, which are the oldest in the system, especially those located in Zulia state,' the report said. It added that capacity utilisation of docks on Maracaibo Lake was less than 70%. Delays were caused by shortages of tugs, by crude oil that did not meet quality specifications, and by other loading problems.
Not a Good Year To Fly To Caracas: Airline links to and from Venezuela were subject to disruption for most of 2014, due to government restrictions and a large backlog on foreign currency payments to airlines. The government also sanctioned some airlines for not displaying ticket prices at Simón Bolívar airport (a charge denied by a number of the carriers). In August he minister of economy, finance, and public banking Rodolfo Marco Torres said that 'foreign currency payments due in 2013 and 2014 are being made' to the airlines; although he did not reveal details of amounts. On July 16, Torres and Minister of Water and Air Transport Luis Graterol met Lufthansa, Copa Airlines and Delta Air Lines to arrange a plan for repatriation of earnings. In addition, both ministers met Caribbean Airlines, Air France, United, Iberia, Avianca and Varig on July 23. Torres added that 'debt incurred in dollars with airlines is under USD4bn, unlike the amount reported by companies'.
Work on New Container Terminal Begins At Puerto Cabello: In July 2014 the government announced that work was beginning on a new container terminal at Puerto Cabello in the state of Carabobo. Admiral Elsa Gutiérrez Graffe, the minister of popular power for water and air transport, said that the project had a total cost of US$520mn and would take 36 months to complete. The work would be carried out by a Chinese contractor and involved building a 690 metres-long quay and installing six dock gantry cranes, 15 RTG cranes, and forklifts. The minister said it would be able to accommodate ships of up to 70,000dwt capacity, as well as being able to unload two ships simultaneously. The agreement with the Chinese contractor included provisions for technology transfer and would create direct and indirect employment in Venezuela, Gutiérrez said.
Key Risks To Outlook
There are serious risks to our freight forecasts. Although we have significantly revised our economic growth forecasts, we believe the risks to our projections remain to the downside. Downside pressures on the price of oil remain pronounced. If OPEC fails to reduce the global supply of oil, as we currently expect, there will be a direct negative impact on the Venezuelan economy together with a reduction in investor sentiment regarding the country's ability to service its debt obligations, which would raise the cost of financing its sizeable fiscal deficit and further suppress investment. Finally, the magnitude of our GDP adjustment was estimated using limited information given the Venezuelan authorities' failure to release 2014 figures, and once more data become available, we may again revisit our forecasts.
Domestic political risk also continues to loom large in Venezuela. The electorate continues to be sharply polarised between the 'Chavistas' and the opposition. With the economy looking weak President Nicolás Maduro could well lose office before his term expires in 2019. Whoever is in control, Venezuela faces formidable challenges such as excessive state control, high inflation, corruption, and a 'brain drain'. These issues can flare up on the short term in a way that could push the economy back into recession and serious affect freight demand.