Desperately seeking improvements:  A region with no recession and growing car sales needs better logistics

SAO PAULO, BRAZIL 20 MAY 2010: Rapid growth is being hampered by ageing infrastructure and the need for long-term planning, according to delegates at the Automotive Logistics South America conference in São Paulo this week. OEMs also warned against restrictive labour conditions and, for finished vehicles, ‘cartels’ of logistics providers that remain hurdles to development of the country’s automotive sector.

Nevertheles, the mood was buoyant with market conditions strong and expressions of optimism that problems could be solved.

These were some of messages to emerge from the second annual Automotive Logistics conference in the region. Delegates included executives from OEMs such as Renault, MAN Latin America, Ford, General Motors and Case New Holland, as well as suppliers such as Knorr Bremse Sistemas plus LSPs of all kinds, including companies like TNT and BMS. 

Roberto Rodrigues, Managing Director – TNT

Brazil, the world’s fifth largest market for new vehicles, stormed ahead in 2009 and is continuing to speed up this year. According to Roberto Rodrigues, managing director of TNT Brazil, the country is likely to see 3% annualised GDP growth year-on-year between 2009 and 2014.

Brazil is the most stable and mature of the BRIC countries, he said. “Brazil is likely to remain the second largest market [among BRICs and behind China] in terms of passenger car sales for the next four years,” he told delegates at the conference.

Edgard Pezzo, who recently succeeded Johnny Saldhana as vice president of global purchasing and supply chain for South America at General Motors, added that carmakers in Brazil should produce 3.5m vehicles this year compared to 3m vehicles last year. General Motors expects to produce up to 650,000 vehicles this year in the country. Indeed, spurred by government incentives and freely flowing credit, Brazilian vehicle production rose 19.6% in the first four months of this year, reaching over 1m units. “Growth is really fast this year,” Pezzo said.
Infrastructure pain, but capacity exists

But while Brazil’s automotive market is buoyant compared to Europe or the US, the automotive industry sees major risks as a result of inadequate infrastructure. In an electronic survey carried out by the Automotive Logistics team, 53% of delegates pegged infrastructure as the biggest problem for logistics in South America.

As was the case at the conference last year, the country’s roads and ports were viewed as the two core barriers. Edson Foltran, a partner at M&T Consulting, said that the ports and infrastructure haven’t kept up with growth.

The Brazilian government’s investment in infrastructure is under 1% of GDP, compared to 4% in China, Foltran told delegates. “More needs to be done,” he said. 

Still, this year delegates seemed to see light at the end of the tunnel.  Washington Flores Junior, superintendent director at Port Santos Brasil, noted that private and government initiatives have been helping to improve the country’s port infrastructure. “There’s no risk of a ‘blackout’ in terms of port capacity,” he says. Moreover, Santos port–the largest for vehicle shipments–has a potential capacity of up to 350,000 vehicles a year with a maximum capacity to date of 115,000 vehicles, he said. 

The need for market and labour reform

Speakers also touched on market freedoms and labour issues. Andre Perez, Renault’s director of supply chain for the Mercosul region, urged that Brazil’s labour legislation needs to be reviewed. “There are times when the union says nobody comes in or out–this is nonsense and we need to improve the relationship,” said Perez. Delegates also complained about tax rules and complex red tape that often hampers logistics.

Moreover, industry participants also pointed out that Brazil’s finished vehicle segment is dogged by a kind of cartel among local transport companies. Although logistics activities work well with these trucking companies, negotiating better prices and alternative modes of transport is highly complex, industry experts said.

Jack Severa, General Manager, WWL

Delegates spoke of the need to compete in the global market place. Brazil needs to develop a “growth plan” to use private and public forces to avoid missing growth opportunities, said Edison Molina, material planning and logistics director at Ford. Brazil’s automotive sector needs to get together with other sectors to create and monitor long-term plans, agreed Stephan Gruener, general director of BMS Logistica.

But overall, the conference was brimming with confidence after the strong performance of the Brazilian economy and the automotive sector in 2009. Jack Servera, general manager for Wallenius Wilhelmsen Logistics, said that at the start of last year the challenge was how get growth, while this year it’s how to deal with growth.

“Brazil isn’t an emerging market with potential, it’s a real market,” he concluded.

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