Brazil may be among one of the world’s fastest growing economies, but for anyone who ships there, logistically the country can be a nightmare.
“There’s always problems in Brazil,” states William Onorato, president of Triton Overseas Transport, a Houston-based non-vessel operating common carrier (NVOCC) that handles everything from full container loads (FCL) to less than container loads (LCL), air freight, import-export, and project cargo. Many of its clients are major companies within the oil industry that ship all kinds of equipment needed for oil rigs.
Texas is the No. 1 trade partner in the United States primarily because of the oil industry. Triton builds its shipments in Houston, then ships them mostly to Santos, Brazil. There the boxes are picked up by its agent, who strips them, and redistributes them to consignees.
Onorato warns that most people who try to export goods to Brazil do not understand the requirements.
“Many are scared of what is required, so things get held up,” he states. “There’s the potential of huge fines and long waiting periods for picking up cargo.”
Ever changing customs requirements in Brazil is a huge factor impacting U.S. trade with the nation.
“We’ve had our share of issues, having worked in Brazil for 19 years,” Onorato admits. “I lost a lot of money as I learned their system. But the main thing is finding yourself a good reliable partner there who can steer you through the customs process.”
Triton works with a firm called MSL, also an NVOCC, which Onorato says has helped tremendously with customs delays.
“They keep us informed if there are any changes,” he says. “They are constantly checking our documentation for potential errors so that we can alert our customers before the shipments come into the port or before they are manifested with customs. If there is an error, and the cargo is manifested there, forget it. It’s too late.”
Triton has been working with MSL in Brazil for ten years. The relationship and knowledge the partnership brings to the market makes the entire process easier, according to Onorato.
“Brazil may be one of the wealthiest countries in terms of opportunities, but all hell can break loose and companies can get fined thousands of dollars if they do not do things right,” he remarks.
Errors can be as simple as one small typing error on a bill of lading. “This can hold up a shipment for a month, and you will be hit with fines,” he says. “And the end user gets stuck with the fine. The freight forwarder and NVOCC walks away from it. You have to pay attention to what you do in Brazil or you will get burned.”
In shipping goods to Brazil, Triton primarily uses Hapag Lloyd since they offer direct service. “They have a great reputation and their documentation process is smooth,” Onorato remarks. “Mediterranean Shipping Company (MSC) also has direct service, and we are just starting to use them.”
All services depart from the Port of Houston.
A particular difficult and critical issue with shipping to Brazil is its port, road and railway infrastructure. Brazil is infamous for its congested ports, particularly at Santos – Brazil’s largest seaport.
“Vessels are taking longer to berth so this creates congestion everywhere at the seaport and in the city surrounding the port because the trucks are waiting to deliver the containers,” remarks Kika Veiga, branch manager for CaroTrans in Miami. “But there’s only one way in and out of the Ports of Santos and Rio de Janeiro.”
CaroTrans is one of the largest NVOCCs in the world a leading player in Brazil. Not only does the company offer LCL, FCL, consolidation, and brokerage service on a weekly basis from different points of origin in the United States to different destinations in Brazil, the company is a leader in that trade lane.
Contributing to the mess are Brazil’s grain exports. Those shipments are located next to the cargo terminal in Santos. “There is no other place for the vessels to operate. Vessels wait to berth until they can channel everything out of the port,” she says.
She explains that the government talked about creating bonded terminals – dry ports – within the cities, and not necessarily in Santos.
“This was something that was approved, but never happened,” she says.
The situation at Santos has particularly escalated since government tax incentives for importers to use other seaports have been removed. “This has resulted in a huge increase of cargo since, by default, the cargo has re-migrated to the Ports of Santos and Rio de Janeiro [another seaport that is highly congested] because that is where the clients are,” Veiga remarks.
Also having a big impact is the fact that exchange rates between the U.S. Dollar and the Brazilian Real are at their highest in last four and one-half years and continue to go up.
“Inflation is going up. This is having a big impact,” she says. “Thirty days ago it was $2.10; today its $2.35. This combined with the fact Brazil does not have efficient terminals to handle the cargo volumes is creating complete chaos. Today delays are three to five days.”
There are additional issues. Harbor fees are considerably higher than most other seaports around the world. The seaports also suffer from lack of handling capacity due to low navigational-channel depths. Plus highway and rail connections are inadequate. Add to this poorly trained personnel and inadequate parking for trucks. Almost 5,000 trucks circulate daily at the Port of Santos.
“In the Port of Paranaguá, the average waiting time for berthing of vessels during the flow of the grain harvest is 8 to 10 days,” remarks Pedro Moreira, CEO, Associação Brasileira de Logística (ABRALOG). “At peak harvest periods it’s up to 25 days.”
Not So Up & Coming
Brazil may be earmarked as one of the up and coming BRIC nation’s, a group of countries that refer to Brazil, Russia, India and China that are all deemed to be at a similar stage of newly advanced economic development. But in looking at Brazil’s modal and transportation infrastructure, compared to China and India, Brazil encompasses 8.5 million square kilometers yet has 196,000 kilometers of paved roads and 29,000 kilometers of rail. China has 9.3 million square kilometers of area with 1.576 million kilometers of roads and 77,000 kilometers of rail; India, 3.0 million square kilometers with 1.569 million kilometers of roadways and 63,000 kilometers of rail.
In 1975, Brazilian investments in logistics infrastructure totaled about 1.8 percent of its GDP. Between 1990 and 2004, investment diminished to around 0.2 percent just when the country was facing dramatic increases in international competition. In 2004, infrastructure investment began to grow again, reaching about 0.65 percent of the GDP. By comparison, however, between 2000 and 2010, the average infrastructure investment in China grew 7.3 percent; 5.6 percent in India.
“As a consequence, Brazil’s logistics competitiveness has remained depressed,” remarks Moreira.
In fact, Brazilian industrial groups indicate that 1 percent of a company’s earnings is spent making up for Brazil’s poor logistics infrastructure and that the extra cargo for the productive chain – in the form of costs with logistics – is around $8.4 billion annually of which $5 billion is associated with transportation costs; $3.05 billion, fleet maintenance costs, and $331.58 million storing merchandise due to delays and waits. In other words, poor infrastructure has a domino effect throughout the entire supply chain.
Compared to the United States and Europe where logistics costs encompass 8.2 and 9 percent of the GDP, respectively, logistics costs make up 12.8 percent of Brazil’s GDP.
Brazil’s highway network plays a particularly important role. Its transport infrastructure is characterized by several well-built highways in the economically powerful southwest and south, and a lack of roadways in the Amazon region in the north where opportunities to develop roadways are very limited.
Of Brazil’s 1.6 million kilometers of highway, only 13 percent are paved; 60 percent are in poor condition. In addition, Brazil’s highways suffer from poor quality asphalt and are damaged by trucks hauling loads at excess weights. In fact, reports state that Brazil has 2.5 million truckers with 700,000 carrying loads over 40 tons.
“We must look at a new cycle of adjustments to avoid bottlenecks and inefficiencies in supply chain flows,” Moreira says.
The trucking industry is also challenged, particularly since it is highly fragmented with over 900,000 transporters, many of whom operate limited fleets.
Most companies have less than five vehicles. Trucking fleets are old. About 76 percent are 10+ years old; 50 percent are 20+ years old. Then there’s the ongoing problem of cargo theft, particularly in the south/ southeast regions with some 13,500 thefts recorded in 2009.
Rail is challenged. Brazil’s 28,366 kilometer rail network is poorly developed, and parts are in bad condition. Most are also based in the states of São Paulo, Minas Gerais, Rio de Janeiro and Rio Grande do Sul. Another problem are the nation’s different track gauges.
The government is trying to privatize Brazil’s rail network. Over the past 15 years, it’s taken back 28,366 kilometers to grant to private operators. Railway concessions have resulted in an approximate $14.9 billion investment in existing grids. As of 2012, 22,822 kilometers are in operation with the remaining 5,544 kilometers underutilized or having no load traffic.
According to the Institute of Applied Economic Research (IPEA), 141 railway infrastructure projects are required to improve operational efficiency and the sector’s competitiveness.
Advocates, such as ABRALOG, call for intermodal logistics platforms and a model of hub and spokes to help solve the problem.
The government is attempting to rectify some of these problems, especially since Brazil’s infrastructure was neglected for decades. Since 2006, when Brazil’s government set forth a National Transportation Logistics Plan to prioritize federal spending to recuperate, expand, and modernize the country’s infrastructure sector, the country has seen progressively aggressive plans to release more resources to build Brazil’s infrastructure and logistics platforms.
In 2011, it launched Phase 2 of its national Growth Acceleration Program (PAC2). PAC2 earmarked US$ 220.2 billion in opportunities for foreign investment from 2011 to 2014, US$51.41 billion of which is for highways, railways, ports, waterways, airports, and vicinal road equipment.
But even though the amount of spending to improve its infrastructure in light of the upcoming World Cup and Olympics is going up greatly, it is barely making up for what needs to be done.
“There is a reason for all the protests in Brazil,” Viega says. “The government makes promises, but nothing gets delivered.”
To date the government has not released its new investment program for ports and airports.
Still, there are Opportunities
Brado Logistica S.A.—a subsidiary of All America Latina Logistica S.A. (ALL), which merged with Standard Logistica S.A., operates in partnership with Santos Brasil to support the expansion of intermodal freight in Brazil and Argentina. Santos Brasil is one of South America’s largest port infrastructures an ALL is the biggest railway concessionaire in Brazil, reaching 82 percent of Brazilian GDP.
The partnership between Brado and Santos Brasil helps to facilitate the movement of nearly 8,000 containers per year from Brazil’s state of São Paulo to Santos Brasil’s maritime terminal at the Port of Santos.
The market in which Brado Logistics services has little rail. But the company is investing in intermodal terminals to attract more containers and plans to invest US$589.8 million over the next five years in railcars, intermodal terminals, trucks, locomotives, dry/reefer containers, its own IT system, and warehouses. The goal is to develop intermodal along important corridors to capture road and rail synergies and complementary logistics services such as warehousing, distribution and retro port areas.
Brado estimates that in 2011 it handled 81,000 containers via intermodal transport. It projects that by 2016 that will increase to 500,000 containers and rise even further to 1.666 million by 2026.
According to Jose Luis Demeterco, Brado Logistica CEO, intermodal is still a relatively small sector of the Brazilian rail freight market. Bulk mineral and agricultural flows still dominate. But intermodal is growing rapidly as railways invest in new facilities and rolling stock. He argues that companies operating in Brazil can achieve a 28 percent reduction of logistics costs by using intermodal transport.
The Rise of NVOCCs
With so much potential, yet so many problems, expertise is needed. CaroTrans offers consolidations going to Santos with weekly sailing mostly from Miami, Port Everglades, Charleston, New Jersey, Chicago, Houston and Los Angeles.
“We also offer a weekly sailing from Houston and Miami to Rio de Janeiro and direct consolidations from Miami to Rio Grand do Sul, Brazil,” says Veiga. In addition, it also offers weekly consolidations from Miami to Itajai, Brazil and from Miami to Paraguay.
“Shipments are trucked within the entire country weekly from the Santo hub,” she adds.
It’s latest offering is a new direct, weekly LCL and FCL export service from Houston to Rio de Janeiro with the first sailing being Houston on August 20, arriving in Rio de Janeiro on September 14, a 25 day transit.
“Before offering this, everything was brought to Miami,” she remarks. “Now with this new service, cargo from the US West Coast and Gulf area will be channeled through Houston.”
Houston was picked because of its concentration in mining, and oil and gas.
“We also have an important presence there in container loads related to one consignee,” she adds.
The offering compliments its existing direct Houston to Santos export service with Craft Multimodal, its NVOCC partner in Brazil and the expansion of their comprehensive North-South, end-to-end service network. CaroTrans has been in partnership with Craft for over 12 years. “They are the leaders in the market for north bound exports from Brazil with 50 percent participation in that market,” says Veiga. “The next such company has 22 percent, so Craft is way ahead of the competition.”
“As companies pursue global expansion they search out well-established, knowledgeable global NVOCCs in key growth markets, such as South America, to ensure reliable supply chain performance,” says Marcellus Hansford, president of Craft Multimodal.