New horizons: Brazil's Sao Sebastiao port gets a makeover to compete with Brazil's overworked shipping facilities.

Running between the mainland of Sao Paulo state and the large island of Ilhabela, the waters of the port of Sao Sebastiao channel run calm and deep.

Dredging is not a concern here. Even the biggest ships can call on this port as easily as any other in Brazil. But the docks here remained quiet for about half a century. That's changing. The nearby Port of Santos, the largest in Latin America, is at the point of collapse due to the export boom Brazil has experienced during the past two years. Heavy foreign demand for Brazilian commodities is overworking the country's infrastructure.

Demand is leading to the rebirth of the old port of Sao Sebastiao. In 2004, the Sao Paulo state government decided to expand and modernize the terminal. Desenvolvimento Rodoviario (Dersa), a state-owned company is overseeing the project, now that key exporters have expressed interest in reviving the facility.

"The improvements will allow the port to increase loading activities by 70% this year," says Paulo Rogerio de Souza Almeida, Sao Sebastiao's manager. Last year 370,000 tons of goods moved through the facility, tiny compared to the 67.6 million tons that Santos reported during the same period. Nevertheless, Sao Sebastiao could handle 3 millions tons per year by 2010, eight times more than last year.

The project will first address immediate improvements, including installing two new dolphins, a type of mooring fixed to the harbor's floor to handle vessels up to 225 meters long. Dersa also will pave 25,000 square meters of land to park automobiles ready for export. It has already spent US$900,000 on three warehouses to store bulk goods and paved roads and lots for automobiles waiting export.

More money is on the way. Dersa will spend $30 million on the project's second phase, which extends the port's total real estate to 250,000 square meters from 65,800. "Construction makes the port more attractive for those exporting value-added products," says Almeida. Improvements aside, exporters might use the port more because it's cheaper. Taxes at the port are 28% less than those levied at Santos.

New facilities and cheaper fees, together with a great location (the port is only 200 kilometers from Sao Paulo and the Vale do Paraiba, one of the state's most industrialized regions) have attracted attention. Volkswagen, Brazil's largest automobile exporter, shipped 208,000 units from the country in 2004. Tired of the massive bottleneck at Brazil's other ports, Volkswagen's executives say they are glad Sao Sebastiao is back in action.

"With Santos port saturated, we started to pay attention to Sao Sebastiao, mainly to ship out vehicles made at our factory in Taubate, in the Vale do Paraiba," says Richard Schues, director of Volkswagen Transport, the automobile manufacturer's logistics division. Volkswagen plans to use Sao Sebastiao as its main route to export cars to neighboring Argentina, its second-largest market after Mexico. In 2004, Volkswagen sold 43,000 of its Gol and Parati models to Argentina, 20% of which went through Sao Sebastiao.

One advantage Sao Sebastiao has over Santos, according to Schues, is that its facilities allow trucks to offload cargo immediately. In Santos, the cegonheiros, trucks used to transport cars, often wait up to 30 hours to offload.

Yet Sao Segastiao is not without disadvantages. Exporters face new transportation costs that come with switching to a different port.

While Volkswagen has decided such transportation costs were worth it, General Motors (GM) is still up in the air. GM is conducting an economic viability study on permanently using the port, but the company believes that by mid-2005, it will ship between 1,500 and 2,000 of its Corsa, Meriva and Montana models to Mexico each month from Sao Sebastiao.

GM manufactures its vehicles at a factory in Sao Jose dos Campos, 120 kilometers away from Sao Sebastiao, half the distance to Santos. Shorter distances cut costs associated with land freight. "Finding efficient logistics is part of our strategy, and the port of Sao Sebastiao, with the recent modernization, is one of them," says Jose Carlos Pinheiro Neto, vice president of General Motors do Brasil. The automobile manufacturer has already tested the new port. It sent 4,540 units to Mexico from there last November.

Tension. While automobile exports are the clearest evidence of the new terminal's success, Sao Sebastiao has earned business from other industries. It's shipping livestock to Venezuela, cotton to Spain, and sugar to Africa. While such deals are welcome news, it makes only a dent in the country's lack of port infrastructure and domestic trade routes, says Reigle Fernandes, business manager of Kom International, a logistics and supply chain management consulting company.

"Due to its privileged location, Sao Sebastiao could ease the tension affecting Santos if it were also to become a hub for the southern ports of the country," says Fernandes. "We need to create road and railroad infrastructure and, mainly, a ring road to make it easier for trucks, which now have to drive through the city."