Expansion of Montevideo’s Terminal Cuenca del Plata (TCP) stands to double Port’s capacity to 2.5 million TEU and may be poised to become the gateway to the “Southern Cone”.
Uruguay’s main port terminal operator of Montevideo will soon begin construction on a 700-meters quay wall and enlarge the existing container yard, while the government will deepen the channel. The new expansion, scheduled for completion in early 2025, will allow the port to not only accommodate more and bigger vessels, but enable it to better compete against ports in Argentina and parts of Brazil for regional trade in the area of South America known as the Southern Cone.
“In 2016, we said, ‘okay, there is only one thing we can do: We try to sell our facilities, try to cut our losses, and move on,’” explained Vincent Vandecauteer, general manager of operator Katoen Natie. But “with an agreement with the government, we need to invest and go for the future.”
Last year, Uruguay’s government and Katoen Natie resolved a years-long dispute, which ended in international arbitration. The result: Katoen Natie will spend an estimated $455 million to expand its terminal, which is called Terminal Cuenca del Plata, or TCP. In return, Katoen Natie will get a fifty-year extension on its concession, which was due to expire in 2031.
Through reclamation, the operator will expand another 22 hectares of container yards; 25 hectares are now available. It will add the new quay wall to an existing 638 meters wall and install more than a dozen ship-to-shore cranes. The government, for its part, has promised to deepen the channel from its existing 12.5 meters (41feet) to 14 meters (46 feet).
The enlarged terminal will allow Montevideo to handle three or four ships simultaneously, including post-Panamax vessels of up to 400 meters in length. All this will potentially more than double annual throughput to more than 2.5 million TEUs, from current capacity of about one million TEUs. However, Montevideo in 2020 saw only 765,000 TEUs.
Agreement Strengthens TCP
Notably, the agreement strengthens TCP’s standing against the other Montevideo port operator, Montecon, owned by the Ultramar Group of Chile and Atco Canada. The two operators now stand side-by-side in the port, a cramped space which is located in the heart of the old colonial part of the city.
It has been an extremely odd arrangement, to say the least. The port authority played both sides against each other, taking rent from one while partnering with the other.
Some background: For years, governments in Uruguay wrestled with the future of its main port, located near the headwaters of the Rio de la Plata, the world’s widest river. (Some actually consider it an estuary or bay.) Montevideo port had declined considerably in the last decades of the 20th century, its aged infrastructure, bloated workforce and politicized management no match for ports beefing up capacity along the east coast of Brazil.
In 2001, Antwerp-based Katoen Natie, the global logistics provider, successfully bid on a new Montevideo container terminal the Uruguayan government auctioned. The concession was for 30 years and promised exclusivity, specifically stating that the terminal gets priority for all container traffic, and that the port authority can only assign this business to others if the terminal can’t handle it. Under the agreement, the port authority, the Administracion Nacional de Puertos, or ANP, became a 20% partner in TCP.
For its part, Katoen Natie more than doubled the size of the quay wall, added straddle carriers, and brought professional management to the port. “In a very short period, we started to modernize the container terminal, and with success,” said Vandecauter, interviewed in his office, an old, colonial-style building near the port. “We captured more global volume and Montevideo port was on the map again after many decades of going down.”
Quayside Quandary
Then, the global economic crisis hit in 2008. Seeking to jumpstart more investment and gain more revenue, the Uruguayan government decided to tender for a second terminal concession. No bids emerged.
However, the port authority began to rent space in the public area of the port to Montecon, which “became a de facto second container terminal and without a legal base,” said Vandecauter.
According to Vandecauter, Montecon easily undercut TCP’s business. “They could do whatever they want. Goods were not only limited to containers,” he said. “They don’t have maximum rates. They don’t have an investment obligation. So, they have a completely different cost structure.”
Montecon, of course, portrays what happened to it in a different light. In a statement after the 50-year concession extension was announced, Montecon said its operations were perfectly legal, as the public area of the port had the right and authority to rent out space. What’s more, it said, the government benefited by the arrangement as Montecon paid ANP “more than $100 million for the use of storage areas, permits, concessions and container transfer fees” and invested “more than $90 million in port infrastructure, equipment and technology.”
That may be true, but the fact remains that Montecon prospered on the back of public infrastructure, said Michael Kaasner Kristiansen, president of the maritime consultancy CK Americas, based in Panama. “Montecon was able to compete because it had low cost. It wasn’t really fair,” he said, pointing out that the terminal Montecon uses was built with public money.
Kaasner Kristiansen for years was based in Montevideo as manager for A. P. Moller – Maersk Group.
By 2016, TCP’s market share had dropped to 30% to 40%, from upwards of 70% before. Katoen Natie concluded it could no longer compete. It tried to sell its share but was unsuccessful. Three years later, Katoen Natie turned to international arbitration and elevated the issue to one of bilateral relations between Uruguay and Belgium. Meanwhile, a new, more centrist government took power in Uruguay.
Katoen Natie presented a $1.5 billion bill for its exit. While it never filed a lawsuit demanding that sum, the figure quickly became public fodder in assessing the dispute.
The arbitration lasted almost two years. In May 2021, the two countries announced an agreement. Uruguay’s transport minister trumpeted the new deal in public statements highlighting not only the investment and port expansion, but also a Katoen Natie concession in which TCP would grant preferential rates to some Uruguayan exporters.
This decision came as Montevideo was making a big push to beef up its marine infrastructure. Most notably, the Finnish paper and pulp manufacturer UPM is constructing a new pulp export terminal at the port. Scheduled to be completed this year, the $280 million terminal complex will include a quay and six hectares of warehouse space. It can handle up to 100 vessels and will link by a rail, also under construction, to UPM’s enormous new greenfield eucalyptus pulp mill now being built in central Uruguay. A new access road to the port is now under construction.
Beyond Arbitration
While the arbitration agreement removed some uncertainty from the port, it wasn’t without controversy. The Uruguayan public became fixated on the 50-year extension. Many government opponents charged the new contract was a sweetheart deal, negotiated in the dark, and one that sold out the country’s sovereignty for a half-century. Opposition senators filed a complaint with the attorney general alleging criminal behavior.
Montecon will suffer. Its container handling is now expressly limited to when TCP is unable to do the work because of operational limitations or capacity issues. Montecon reacted with predictable fury. It called the decrees enshrining the new terms “illegal” and the new arrangement a “de facto monopoly which [the Minister of Transport] is illegal trying to establish in favor of TCP.”
Montecon said that it was “no longer asking to be allowed to continue providing port services to Uruguay’s foreign trade.” So far, however, it has continued to work in the port and now appears to be shifting emphasis to non-containerized traffic.
Under the old arrangement, however, Montecon severely ate into TCP’s market share, a situation that both unfairly hobbled Katoen Natie and ill-served Uruguay as a whole, said Kaasner Kristiansen. He pointed out that a number of ports in Latin America have just a single operator. Sacrificing “free competition in order to get the right infrastructure to benefit from that, I think that needs to be considered in every place,” he said.
What made the previous cannibalizing more damaging was that for Montevideo port to succeed, it needs to serve more than merely domestic imports and exports. “We cannot survive on only the gateway traffic of Uruguay,” said Vandecauter.
Uruguay has just 3.5 million people, one of the smallest populations in all of Latin America. That population base doesn’t need all that many cars, computers, and television sets. In global terms, its exports are modest as well, largely meat, grains, and cellulose, used for paper.
Instead, Montevideo competes with other nearby ports in Argentina and Brazil for trade in the three countries as well as landlocked Paraguay. Trade is becoming more and more regional. That competition will heighten over time, as shipping lines consolidate and move into ever-larger vessels, Ships will reduce ports of call and favor those that are the most modern and the most efficient. (see sidebar, page 4).
