Chile Freight Transport Report Q3 2012

BMI maintains its broadly positive outlook of the Chilean freight transport sector for Q312. We caution, however, that volume growth is expected to slow, in line with our view that the Chilean economy's robust economic growth is likely to continue cooling in the coming quarters. We believe that declining exports, combined with a moderation of private consumption and gross fixed investment, will weigh on Chile's headline growth in 2012 and put pressure on the country's shipping and freight volumes. Given the strength of the authorities' growth-supporting policies however, we are happy to remain above consensus, forecasting real GDP growth of 4.8% in 2012.

We see the domestic consumer demand slowing, and this will have a knock-on negative effect on demand for imports of containerised goods. Chile's external demand story is also likely to weaken and we still believe that import growth will outpace that of exports, putting downside pressure on volumes of dry bulk goods travelling by road and rail, and going through dry bulk terminals. This could be exacerbated if our view for a slowdown in Chinese economic growth plays out. Given the significance of copper exports to Chile's economy, any significant drop in copper export demand - in particular from Asia, which comprises around 65% of demand - or a large correction in copper prices, could push net exports further into negative territory and pose significant downside risk to our freight transport forecasts for the country.

Headline Industry Data

Air freight tonnage is forecast to rise by 10.8% in 2012 to reach 340,900 tonnes.

Total tonnes at the Port of Valparaíso forecast to rise 13.5%, to 11.96mn tonnes in 2012, with average growth of 11.9% over the next five years.

Rail freight tonnage is forecast to rise 3% in 2012, reaching 28.2mn tonnes, with average growth of 2.7% over the next five years.

Key Industry Trends LAN-TAM Merger Ready For Take Off BMI believes the long-awaited merger of two of Latin America's biggest airlines - Chile's LAN and Brazil's TAM - is set to be completed in the coming weeks, with both companies putting in place the necessary final measures. We believe the newly created Latam Airlines will be well placed to take advantage of growing air freight volumes in the region. The merger, expected to be ready mid-May, will create the largest carrier in the region and one of the world's 10 biggest in terms of revenue.

CSAV Hopes Capital Injection And Route Sharing Will Save The Day, Bleak 2012 Ahead CSAV's financial woes look set to continue, with the Chilean company reporting an astronomical loss for 2011. The company's disappointing results were down to low rates and high fuel costs. CSAV will be hoping to reverse its fortunes through route-sharing agreements in 2012, but BMI believes the container shipping sector's woes are set to continue for some time to come due to continued overcapacity and declining demand.

Risks To Outlook The risks to our outlook are mainly on the downside. One risk is the possibility that Chile will not be able to improve its freight transport infrastructure to keep up with demand. Infrastructure deficits limit expansion. If Chile does not improve efficiency and capacity, there is risk that, as ports and road and rail networks begin to reach the limits of their capacity, importers will look elsewhere for their supplies.

A further risk is the possibility of a hard landing in China. A sharper slowdown in the Chinese construction sector would result in a drop-off in demand for Chilean raw materials exports such as copper and iron ore, with a negative effect on volumes carried via Chile's freight transport network.