Transport network expansion in Colombia continues despite challenges

As the Colombian economy continues to feel the negative impact of reduced commodity prices, the quest to improve national transport networks has become more important. Although the country posted annual growth of above 4% between 2010 and 2014, more conservative prospects for 2016 have brought caution, especially with the fall in the price of oil – the country’s main export – and the devaluation of the peso against the US dollar.

In December 2015 the minister of finance and public credit, Mauricio Cárdenas, said that he expected GDP growth of 3.2% for 2015. Independent of the level of economic expansion, the private and public sectors agree on the need to continue to improve transport networks. Stronger transport infrastructure will enhance competitiveness and allow Colombia’s macroeconomic growth to benefit a wider portion of the population, especially in rural areas. Although the transport sector grew by 4.1% in 2014, initial estimates for 2015 point to a lower rate. In June 2015 the National Association of Financial Institutions (Asociación Nacional de Instituciones Financieras, ANIF) fore-casted that the sector would grow by 2.9% in 2015. ANIF said that the fact that growth in the sector is close to or potentially below the expansion rate in Colombia’s economy is a reflection of the transport infrastructure gaps it still contends with.

Logistics

The World Bank’s “Doing Business 2016” report ranked Colombia 110th of 189 economies for ease of trading across borders, one place better than in 2015 but still well below most of its neighbours. Peru was ranked 88th in the same category, Mexico 59th and Panama 54th. According to the report, the domestic cost to export a container from Colombia is $1525, compared to $1361 in Mexico, $390 in Panama and $278 in Peru.

Given that domestic costs are a reflection of the distance between a country’s economic centres and its main export hubs, Colombia’s rugged geography and the hinterland location of some of its main cities, in particular the capital Bogotá as well as Medellin and Cali, put it at a logistical disadvantage compared to other countries.

The impact is visible in additional costs attached to Colombian exports. A report by ANIF in conjunction with the Colombian Chamber for Infrastructure (Cámara Colombiana de la Infraestructura, CCI), published in December 2014, found that logistics costs added an average of 10-20% in operational costs to some of Colombia’s emblematic export products such as coffee, flowers, oil, textiles and coal. The global average was 6%. Moreover, according to the 2015 Logistics Survey, for each 100 Colombian pesos in sales, domestic firms spend on average 15 pesos on logistics.

Colombia has been working to improve transport networks, mostly through increased infrastructure investment, which averaged 3.2% of GDP over 2004-14, according to ANIF. The country has seen an influx of private and public financing into roads, ports, airports and railway projects, as well as the development of urban transport platforms. Further development is expected under the new National Transport Plan, which has been under development by the Ministry of Transport (MoT) and the CCI for much of 2015, and is expected to be made public at the end of the year.

Road Load

Improving road transport remains essential for logistics. Over 90% of domestic freight moves through the road system, according to the Colombian Federation of Road Cargo Transporters (Federación Colombiana de Transportadores de Carga por Carretera, COLFECAR). The national road network stretched 204,855 km in 2014, according to the MoT. Primary roads account for 17,434 km, of which 6240 km are managed by private operators under concession deals. Secondary and tertiary roads stretch 45,137 and 142,284 km, respectively. The road transport sector depends on a vast but fragmented network of service providers. According to COLFECAR, in October 2015 there were almost 325,000 transport trucks in Colombia, of which 275,000 provide public cargo services. Of those, around 30% belong to established companies, with the remaining 70% owned by individuals. In 2013 manufactured goods accounted for 46% of total road cargo, followed by agro-industrial goods (27%), agricultural produce (17.4%) and mining output (9%), according to ANIF.

Rising costs following the depreciation of the Colombian peso have been challenging for the sector. COLFECAR estimates that costs increased by 4.1% over the first half of 2015. With imported inputs accounting for 20% of operational costs, much of the inflation has come from auto parts needed for truck maintenance. “Most of the stock from automotive parts dealers has been exhausted, so they had to import parts with a higher dollar cost,” Juan Carlos Rodríguez, executive president of COLFECAR, told OBG.

The authorities have also been trying to reduce informality. The MoT is preparing a decree that is expected to tighten requirements for the establishment of transport companies, and make it harder for logistics intermediaries to participate in trucking. One of the expected measures is the establishment of minimum capital requirements. “This is much needed. Some of these intermediaries do not add value to the sector, and they replace formal transporters in terms of service provision illegally,” Rodríguez told OBG.

Border Trade

Other issues are related to the overall economic and political environment. Colombia’s international road commerce sector has been severely affected by the diplomatic row with neighbouring Venezuela. In August 2015 Caracas closed two border crossings and implemented restrictions on other points along the border between the two countries.

Colombian President Juan Manuel Santos and his Venezuelan counterpart Nicolás Maduro met to resolve the problem, but the closure’s effects on trade were already visible. From the Colombian side, trade with Venezuela involved an average of 2000 trucks per day, owned by Colombian transport companies, to transport coal and perishable goods. The disagreement reduced the number to around 70 vehicles per day at the time of the dispute, according to COLFECAR. This meant lost revenue, as well as a need to redistribute excess truck capacity by transport operators. The crisis put a dent on a stable market for Colombian transporters. “We’ve always had a fluid commercial relationship with Venezuela, reaching a peak of almost $5bn in 2009. In 2015, if we reach $1bn in trade it will be an achievement,” Rodríguez told OBG.

Tackling insecurity has also been important. An overall improvement of the country’s security during recent years, in hand with specific prevention measures from operators, has helped. In the first half of 2015 there was a 17% year-on-year (y-o-y) reduction in cargo theft in all cargo modes, according to COLFECAR. “Insurance companies have worked with the private sector to improve training of personnel in terms of both procedures and reducing the risk from drivers by integrating them better into firms. This has had a positive impact,” Rodríguez told OBG.

Congestion

Despite the need for fluid road freight networks, growth around most Colombian cities has increased congestion and created difficulties in moving goods by truck. Bogotá, for example, has an average of 22,000 trucks passing through every day, adding to the severe traffic problems and accelerating the degradation of urban roads. To counter this, the authorities implemented restrictions in 2013, banning trucks weighing more than seven tonnes from using some of the city’s roads for five hours every day.

Private-public partnership (PPP) concession deals have secured renovation and expansion programmes for several strategic links. Major road links in the Eje Cafetero, Colombia’s primary coffee production area, as well as along its Atlantic coast and the Ruta del Sol area, are contributing to improved logistics performance. Coming concession tenders are expected to further enhance infrastructure. However, the investments need to be complemented by more work on the bottleneck urban areas. “The biggest threat is the ‘last mile’, meaning the access points to the cities, because all the efforts done across the country can be lost once the roads enter the city,” Rodríguez told OBG.

Expansion

Investment in road infrastructure is set to continue. Some of the more important projects are coming from the fourth generation (4G) road concession programme, a $25bn plan to establish modern highways across the country. Under the scheme, 40 projects will create an additional 8000 km of roads. Most of these concession deals include government co-financing to make the projects more attractive for the private sector.

A critical road project, the 145-km Conexion Norte Highway was awarded in October 2014 to a consortium made up of Spanish contractors Ortiz Construcciones y Proyectos and Colombia’s KMA Construcciones, Equipo Universal and Valores y Contratos. This was the seventh project to be awarded under the 4G road scheme. Budgeted at COP980bn ($360.6m), the Conexion Norte Highway will help link the province of Antioquia with strategic roads such as the Autopista del Río Magdalena 2 and the Ruta del Sol Highway, which is undergoing extension to better link Colombia’s central areas to the Caribbean coast in the north.

In mid-2015 the government announced the contract to build and operate the 176-km Autopista del Mar 1, which was budgeted to cost $787m and designed to connect Puerta de Hierro and Cruz de Vizo in the Antioquia region. The winning consortium, Estructural Plural SAC 4G, is comprised of Spanish contractors Sacyr, Austrian firm Strabag and Colombian construction company Concay. Another project, the Autopista del Mar 2, was awarded to the Autopista Uraba consortium, made up of China Harbour Engineering Company and Colombia’s SP Ingenieros, Pavimentar, Unidad de Infraestructura y Construcciones Asociadas and Termotécnica Coindustrial. The $761m project involves the concession to build and operate 253 km in the Antioquia department. In November 2014 the National Council for Economic and Social Policy approved COP17.2trn ($6.3bn) from the national budget to support eight projects in the second wave of 4G road concession projects.

Finance

In 2015 the government began to tender the third phase of the 4G projects. This wave is expected to revamp 1882 km of roads through eight projects. However, Colombia’s financial standing has been hit by lower oil prices, and the value of the peso has seen a major devaluation. As a result, the feasibility of financing the next phase of highway projects has become uncertain.

In August 2015 Luis Fernando Andrade Moreno, president of the National Infrastructure Agency (Agencia Nacional de Infraestructura, ANI), said that financing for the third wave of 4G road concessions was being debated by the Ministry of Finance, and that coming road projects would be tendered depending on the financial possibilities.

In October 2015 Colombia’s Higher Council for Fiscal Policy approved COP5.4trn ($2bn) in future budget allocations to support the Pamplona-Cúcuta and Pamplona-Bucaramanga highway projects. These will be the initial projects from the third wave of 4G road concessions, and are expected enter the market in late 2015 or early 2016. Budgeted at $580m, the project to revamp and operate the Pamplona-Cúcuta highway will involve a 62-km concession. It requires building a 47-km second lane as well as the construction of six tunnels. The highway linking Bucaramanga to Pamplona will require an investment of COP803bn ($295.5m). The contract will include the concession of 133 km of road. Though government backing for these projects seems clear, it is uncertain how many new 4G projects Colombia will be able to tender in the near future.

Port Development

In addition to road transport, the growth of free trade agreements has boosted the need to increase efficiency in the country’s port network. The issue is critical considering the current high costs of importing goods from Colombia’s coastal entry points.

The country has 10 major ports, eight on the Caribbean coast and two – Buenaventura and Tumaco – on the Pacific. The total amount of cargo going through Colombian ports rose from 120m tonnes in 2009 to 185.5m tonnes in 2014, according to the Superintendence for Ports and Transport. Growth is expected to continue, with figures from the first half of 2015 showing 99.6m tonnes moved, a 10.5% increase y-o-y. Bulk coal accounted for nearly 60% of first half exports, with an additional 35% being bulk liquids, mainly oil. Containerised traffic accounted for 4% of exports through Colombian ports in the same period.

Caribbean

Colombia is also preparing for the expansion of the Panama Canal further north by expanding domestic port capacity. A recently inked deal will see the entrance of port operator APM Terminals into Colombia. The company signed a joint-venture agreement with Colombian operator Compañia de Puertos Asociados to revamp and operate a multipurpose terminal that the Colombian partner already manages in the Cartagena Port, on Colombia’s Caribbean coast. The deal will represent an injection of $200m in equipment and construction works, in a bid to triple the terminal’s current capacity of 250,000 twenty-foot equivalent units and 1.5m tonnes of general cargo. Although Compañia de Puertos Asociados will remain the concession holder, the agreement gives 51% control to APM terminals.

The announcement comes after the recent completion of major work to make Cartagena the country’s most modern port facility. Dredging at the port’s access channel increased the depth to 20.5 metres, at a cost of $46m, allowing it to receive vessels of 180,000 tonnes, three times the port’s previous capacity. A $20m second access channel is also planned. New equipment is helping to make the port more competitive, with five new Post-Panamax Portico cranes, budgeted at $45.5m, added in August 2015. The investments will support the expanding industrial cluster, as well as a new $1.5bn refinery set to open nearby in 2015 with a 40,000 barrel-per-day capacity.

Pacific

On the Pacific coast, expansion is also taking place at Port of Buenaventura, a strategic international commerce point. The port moves over 15.2m tonnes of cargo a year, according to the National Association of Colombian Businessmen, and accounts for 23% of national exports and 77% of imports. APM Terminals is set to enter port operations at Buenaventura, after acquiring 11 port operations belonging to Spanish company Grup Maritim TCB, including the group’s TCBUEN terminal. Additional investment into the port is also expected to come through the establishment of a new industrial terminal. The Aguadulce port terminal will be the fifth operating in Buenaventura and require a $450m construction budget.

New infrastructure is also being developed in Antioquia. In December 2015 port operator Puertos Inversiones y Obras, which will manage the concession of the future Urabá Port, is set to receive the initial proposals for the facility. The new port is estimated to cost $500m, and should take three to four years to build.

Air Transport

Colombia’s burgeoning air sector has registered some of the most impressive growth rates of all transport segments. In the first half of 2015 it transported 19.1m passengers, an 11.7% increase y-o-y, according to the Colombian Air Transport Association (Asociación del Transporte Aéreo en Colombia, ATAC). Of these, 12.9m were domestic passengers, and 6.1m were international. Growth rates have been strong over the past decade, with the number of transported passengers rising from 12.1m in 2005 to 31m in 2014. This expansion has given the air sector a critical role: for each peso spent on the air transport industry, an additional COP11,000 ($4.05) is spent on the economy as a whole, according to ATAC.

Competition in the international and domestic markets has made air travel increasingly accessible to Colombians. Average prices dropped by 17% between 2011 and 2013, and Colombia now has the second-most competitive fares in Latin America after Brazil. The average price per km per passenger in the Colombian market is $0.14, compared to $0.16 in Chile, $0.17 in Argentina and $0.40 in Ecuador, according to 2014 ATAC figures.

Despite its success, the sector faces challenges. On top of tight competition, the devaluation of the Colombian peso has placed added pressure on the airline’s cost structure. “Dollarised inputs have increased almost 70% between August 2014 and August 2015. On average, dollar-denominated inputs account for 60% of industry costs, so this is having a heavy impact,” Gilberto Salcedo Ribero, executive director at ATAC, told OBG.

Airports

Rising passenger numbers have not been fully matched by capacity expansion. To correct this, revamps are taking place. Seven key airports – Bogotá, Rio Negro, Cali, Cartagena, Barranquilla, Bucaramanga and San Andres – account for 82% of passenger traffic, according to ATAC.

The capital’s El Dorado International Airport, which accounts for 33% of all air operations and 78% of international passengers, will undergo a COP770bn ($283.4m) expansion to add much-needed capacity. Work will allow the airport to handle 40m passengers in 2017 by enlarging terminal capacity, improving runways and raising the number of plane parking positions from 37 to 56. “El Dorado Airport has the potential to become an aerial hub for the region. Historically, high altitude airports were at a disadvantage because of aircraft technology limitations; however, this has now been overcome,” Fabio Villegas Ramírez, president of Avianca, told OBG.

On the northern coast of the country, the contract to revamp and operate Ernesto Cortissoz International Airport in Barranquilla was awarded to the Grupo Aeroportuario del Caribe consortium in December 2014. The facility is undergoing a COP345bn ($127m) expansion, with a goal of increasing air cargo capacity by 40% from the estimated 37,330 tonnes of cargo handled in 2015, according to the MoT. The revamp project is also projecting a 25% increase in the number of passengers by 2020, from 2014 figures of 2.4m.

Improvements will also focus on small airports. In January 2015 authorities launched a tender for the revamp and operation of a group of three airports in south-western Colombia, in Neiva, Popayán and Armenia, which are expected to receive total investments of COP257bn ($94.6m). In October ANI, which handles private concessions of infrastructure projects, announced that 10 consortiums had pre-qualified for the project. Authorities expect that better concession conditions for the renovation and operation of the airport will attract a suitable operator, after an earlier bid for these three airports in 2014 attracted no suitors. Also under way is the tender to revamp the Bucaramanga airport, expected to cost COP52bn ($19.1m). During the current presidential term, authorities expect COP2.8trn ($1bn) will be committed to airport revamping in 51 facilities.

Railways

Rail in Colombia has not seen the same level of development as other modes of transport. In 2014 the segment received 1.08% of total public investment into transport infrastructure, compared to 88.5% allocated to the road segment, according to the MoT. As opposed to ports, for example, where a minimum amount of public investment has been ensured by strong commitments by the private sector, most existing railway lines in the country have fallen out of use. Out of a total of 3861 km of existing railway lines, only up to 854 km were operational as of 2014, according to the MoT. Although it has the potential to reduce costs and support the development of multimodal transport links, cargo railway operations in the country are used mainly to transport coal. The biggest of these, the 226-km Ferrocarriles del Norte de Colombia line connecting coal mines in the Cesar department to the port of Santa Marta, carries up to 160,000 tonnes of coal daily, according to local media reports. The authorities are also considering a private sector proposal to build an urban regional railway line to connect Bogotá with surrounding neighbourhoods under a PPP concession deal. The proposed project would be made up of two railway lines, a 44-km connection from Facatativá to the Sabana, and a second 18-km line linking the Sabana to Soacha. The project is expected to cost COP2.5trn ($920m), of which 80% would be provided by the private partner, and the remaining 20% by the government. Any rail project in Bogotá would most likely be competing with the much debated and repeatedly delayed plan to build a metro line in the capital (see analysis).

Regulation

Along with better infrastructure, transport authorities are also aiming to implement new measures to improve logistics across Colombia. In some cases, additional bureaucracy relating to logistics operations has become cumbersome. The National Logistics Survey (Encuesta Nacional de Logística, ENL), an annual study on the logistics sector conducted by the National Department of Planning, found that the number of Customs regulations increased from 15,000 to 25,000 over the past decade. Documentation procedures can add time, and consequently, costs. The ENL found that a truck aiming to transfer its load onto a ship in Colombian ports needs to wait an average of three to five hours. Offloading operations can take even longer, stretching on average three to seven hours, according to the ENL. “Although Colombia has made great progress in terms of Customs procedures, there is still room for improvement in areas such as flexibility, agility and the reduction of corruption,” Iván Villegas Bermúdez, general manager of construction firm Proyekta, told OBG.

To reduce unproductive waiting periods, the MoT is currently expanding the use of INSIDE, a programme designed to map and organise the entry of trucks into ports. The scheme allows trucks to plan ahead and arrive closer to the time they are needed. A pilot INSIDE scheme has been running at Port of Buenaventura since 2014, and the authorities are scheduled to begin implementation of the system at national level in early 2016.

Taxis

Taxi services remain an active part of transport in Colombian cities. In 2014 the MoT estimated that there were 400-500 taxi companies operating in Colombia. Mimicking the trend seen in many countries, app-based taxi applications are now competing directly with the traditional services. Since arriving in late 2013, Uber, the car service that enables users to hire and pay for a transport service using their mobile phones and credit card, has faced opposition. Taxi drivers have protested in Bogotá using what are known as slow drives to congest parts of the city, such as in July 2015, when they joined forces to block traffic. In an August 2015 interview with Colombian newspaper La República, Minister of Transport Natalia Abello said that transport authorities were putting in place legislation to clarify the status of businesses such as Uber.

Outlook

The need to reduce logistics costs has encouraged stakeholders in both the private and public sector to map out ways to ease the flow of goods in the country. Infrastructure is a central part of this strategy, as investment into roads, ports and airports is creating alternatives to accommodate rising traffic. Although further road concessions are planned, Colombia may face some difficulties in financing additional projects, due to expected budgetary constraints. This may compel the government to delay or rethink how the upcoming highway concessions will be rolled out. Much of the success in tendering and developing future road projects will hinge on the state’s capacity to commit public resources to road development. Despite this, the overall sector is expected to maintain its positive trend in the coming years. Capacity increases will continue to be matched by rising numbers of passengers and cargo tonnage passing through Colombia’s transport network.