VZCZCXRO6289
RR RUEHRG
DE RUEHSO #0198/01 0541014
ZNR UUUUU ZZH
R 231014Z FEB 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 4548
INFO RUEHBR/AMEMBASSY BRASILIA 5705
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2279
RUEHRC/USDA FAS WASHDC 0604
RUEHMN/AMEMBASSY MONTEVIDEO 1814
RUEHBU/AMEMBASSY BUENOS AIRES 2042
RUEHSG/AMEMBASSY SANTIAGO 1559
RUEHLP/AMEMBASSY LA PAZ 2582
RUEHRG/AMCONSUL RECIFE 2712
RUEHRI/AMCONSUL RIO DE JANEIRO 6837
RUEHAC/AMEMBASSY ASUNCION 2397

UNCLAS SECTION 01 OF 03 SAO PAULO 000198 
 
SIPDIS 
 
DEPT FOR WHA/BSC, EB/TPP/IPE, AND EB/TRA/OTP 
STATE PASS TO USTR FOR MSULLIVAN 
STATE PASS TO USPTO/OLIA 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DDEVITO/DANDERSON/EOL SON 
NSC FOR SUE CRONIN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EWWT PGOV KIPR ETRD BEXP BR
SUBJECT: Santa Catarina - Port Development and Challenges 
 
Reftels: A) 05 Sao Paulo 1307; B) 05 Sao Paulo 1106 
 
¶1.  SUMMARY.  The Port of Itajai's phenomenal growth, the 
development of a competing port in the neighboring city of 
Navegantes, and the 2005 opening of a private port facility in 
Itapoa highlight the southern Brazilian state of Santa Catarina's 
prominent role in Brazilian trade.  A U.S. company, Port Security 
International, has partnered with the Port of Itajai to make it the 
first port in Brazil to conduct scanning of inbound containers in an 
attempt to deter importation of counterfeit products and other 
contraband as well as evasion of taxes and customs duties.  END 
SUMMARY. 
 
----------------------------- 
Santa Catarina's Port Profile 
----------------------------- 
 
¶2.  During a recent visit to the small but economically vibrant 
southern state of Santa Catarina (population 5.4 million, 2004 GDP 
of 21.9 billion, area 95,000 square kilometers - about the size of 
Indiana), Consul General (CG) McMullen and EconOff Neel visited the 
city of Itajai, home to Brazil's third largest port.  During the 
course of the visit, they met with the mayors of Itajai and 
neighboring city Navegantes and visited the Port Authority.  CG 
signed a Networking with the USA (NUSA) agreement with the Port of 
Itajai on behalf of the Foreign Commercial Service (ref A). 
Currently, Santa Catarina has four ports: 
 
- Itajai, with a volume of 675,000 container units a year, is the 
state's largest port.  Its primary cargo is meat, sugar, ceramics, 
paper, machinery, chemicals, containers, and wood. 
 
- Itapoa, the northernmost port in the state, began operating in 
August 2005.  By its third year of operation, the port is expected 
to have a volume of approximately 300,000 container units per year, 
increasing to 500,000 per year by its fifth year of operation. 
Built at a cost of USD 100 million, Itapoa is currently the only 
private port in Santa Catarina.  55 percent of the construction cost 
was financed by the Inter-American Development Bank (IADB), the 
remaining financing came from Santa Catarinense investor Grupo 
Batistella, and two silent foreign investors.  Itapoa's primary 
cargo is wood, machinery, and meat. 
 
- Sao Francisco do Sul, with a container volume of 280,000 units per 
year, is the port closest to Joinville, Santa Catarina's largest 
city (population 500,000) and the state's primary industrial pole. 
The port's primary cargo is soy oil and chaff, barley, and steel. 
Although Sao Francisco do Sul is the closest port to Joinville, a 
good portion of the city's production travel's south to the port of 
Itajai. 
 
- Imbituba is the southernmost port, and the only port located south 
of the state capital, Florianopolis.  Originally, a primary export 
platform for coal produced in the region, Imbituba experienced hard 
times in the early 1990s when the coal mines dried up.  Imbituba 
exported 4.11 million tons in 1986 (the peak year of coal 
production) and only 380,000 tons in 1996.  Today, Imbituba exports 
about 1 million tons (well below 100,000 container units) per year, 
with its primary cargo being ceramics. 
 
A fifth port, expected to handle mostly meat exports, is currently 
under construction in the town of Navegantes, near Itajai. 
 
------------------------------------------ 
The Port of Itajai: Growth and Challenges 
------------------------------------------ 
 
¶3.  An industrial city with a population of 150,000, Itajai is home 
to the third largest port in Brazil, behind Santos in Sao Paulo 
state (largest in Latin America) and Rio Grande in Rio Grande do Sul 
state.  Over the past 5 years, the Port of Itajai experienced the 
second highest percentage of growth in shipping worldwide (only 
Balboa in Panama grew more), growing 283 percent in container 
traffic from 2000 to 2005, to 676,800 container units.  By way of 
comparison, Santos had a 2005 volume of over 1.5 million units and 
 
SAO PAULO 00000198  002 OF 003 
 
 
experienced about 100 percent growth over the same five-year period. 
 
 
¶4.  The number one export destination for shipments leaving Itajai 
is the U.S., which received USD 500 million (13.4 percent) of 
Itajai's USD 3.8 billion total exports.  Russia is second, receiving 
13.2 percent of all shipments (of which more than 85 percent is 
meat, mainly pork), followed by Germany, the Netherlands, Japan, and 
the U.K. (each receiving about 5-7 percent of volume). 
 
¶5.  The huge increase in volume has strained Itajai's existing 
infrastructure.  In 2002, the Brazilian firm Teconvi won a bid to 
operate the port on a profit-sharing basis with the state 
government-owned Port Authority of Itajai.  Under the lease 
agreement, Teconvi invested USD 40 million to increase port 
capacity.  By 2008, port expansion will include a new 250-meter 
berth, 24,000 additional square meters of warehousing (bringing 
storage to a total of 74,000 square meters), two new tugboats, and 
three additional container cranes.  USD 4 million of the investment 
is earmarked to build an exclusive access road between the coastal 
highway (BR 101) and the Port.  The GoB has partnered with Teconvi 
and has committed USD 14 million in federal funds to create this 
dedicated port access road and freeway exit, since Itajai's 
increased container traffic has  clogged traffic on BR 101, Santa 
Catarina's principal highway along the populous north-south 
corridor.  (COMMENT.  Brazil has yet to harness the efficiencies of 
multi-modal transport (including rail and waterborne freight). 
While the Port of Itajai's new access road will improve safety and 
decrease wait times, it will do little to offset the disadvantages 
of having a highway-dependent transport route.  Infrastructure 
limitations remain a major hindrance to Brazil's trade expansion. 
END COMMENT.) 
 
------------------------------ 
Navegantes: the Port Next Door 
------------------------------ 
 
¶6.  The contiguous cities of Itajai and Navegantes are separated by 
the narrow Itajai-Acu River, with the Port of Itajai located on the 
south shore.  Shortly after the CG's visit to the Port of Itajai, 
construction began on the privately owned Port of Navegantes, which 
will be located on the north shore of the Itajai-Acu, directly 
across from the Port of Itajai.  After four years of feasibility 
studies, the Brazilian firm Portonave is spending USD 180 million to 
build three berths, along with related support structures and 
equipment.  The City of Navegantes expects to spend USD 12 million 
on infrastructure (paving roads, providing utility access, etc.). 
Once operational in October 2007, Navegantes will be the state's 
second largest port.  Portonave expects the Port of Navegantes to 
create 650 direct and 2,000 indirect jobs during the construction 
phase, and 250 direct and 1,000 indirect jobs once operational. 
 
¶7.  The Port of Navegantes will focus primarily on shipping meat. 
Santa Catarina is the largest Brazilian exporter of pork products 
and home to several major meat processing companies, including 
Seara, Sadia, Perdigao, and Aurora.  To attract the meat industry, 
the Port of Navegantes will include state-of-the-art cold storage 
warehousing.  In a recent interview, Portonave president Carlo 
Botarelli stated, "Portonave's focus on the meat industry is 
strategic.  It is a sector in which Brazil has great growth 
potential, despite suffering from sanitary setbacks."  (NOTE: While 
Santa Catarina has not been directly affected, neighboring Brazilian 
states as well as Argentina and Paraguay have had cases of Foot and 
Mouth Disease. END NOTE.) Currently, the Port of Itajai is one of 
the largest shipment points for meat, including the Braskarne 
Terminal, which is dedicated exclusively to shipments from Seara, a 
major meat processor.  Although the Port of Itajai enjoys a 
diversified range of cargo (including meat, sugar, ceramics, paper, 
machinery, chemicals, containers, and wood), the Port of Navegantes 
will be in direct competition with the Port of Itajai for the meat 
industry. 
 
------------------------------------------ 
PSI: Brazil's First Inbound Cargo Screener 
------------------------------------------ 
 
SAO PAULO 00000198  003 OF 003 
 
 
 
¶8.  The Port of Itajai's recent growth has attracted the attention 
of U.S. businesses.  Port Security International (PSI), a U.S. 
company based in Reston, VA, recently began non-intrusive container 
security screening at Itajai.  PSI's operations are the first of 
their kind in Brazil.  In September 2005, DHS began its Container 
Security Initiative (CSI) operations at the Port of Santos in Sao 
Paulo state, conducting non-intrusive scanning of U.S.-bound 
containers (ref B).    Unlike CSI, PSI focuses on scanning inbound 
shipments.  Inbound scanning is especially attractive to the 
Brazilian Customs Service given the high incidence of contraband, 
counterfeit goods, and tariff and tax evasion.  PSI's services not 
only help Customs deter entry of illegal cargo, but also help them 
recoup otherwise lost tax and tariff revenues.  PSI also plans to 
bid this year on an expected (though as yet unannounced) tender by 
the Brazilian Customs Service for screening devices and/or services 
at ports throughout the country. 
 
¶9.  COMMENT:  Post is encouraged by the Brazilian Customs 
Authority's interest in container scanning.  In recent anti-piracy 
meetings with Brazilian authorities (including state and local 
officials in Sao Paulo and Rio Grande do Sul as well as  Santa 
Catarina), CG highlighted foregone tax revenue as one of many 
motives for Brazil to crack down on piracy.  To this end, we think 
the Port of Itajai's contract for PSI's services is a step in the 
right direction.  While the Port Authority's main incentive is to 
crack down on contraband and tax/tariff evasion, the seizure of 
pirated and counterfeit goods will be a natural side effect of 
screening.  END COMMENT. 
 
¶10.  This cable was cleared/coordinated with Embassy Brasilia. 
 
McMullen