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Brazil struggles to keep supply chain costs from taking off

The 2013 Automotive Logistics South America conference in São Paulo heard familiar laments about infrastructure as well as uncertainty over the impact of recent reforms. But continuing automotive investment is putting ever-more emphasis on improving logistics operations, writes Christopher Ludwig

SAO PAULO 31 OCTOBER 2013: When automotive supply chain managers design their inbound, outbound or aftermarket logistics flows, they typically choose the best option between truck, rail, sea or river; air freight is less common though nevertheless used for certain components and time-critical flows.

In Brazil, the list of options is somewhat different. You can almost forget about rail – it’s used for only 2% of automotive component flows in the country, and not at all for vehicle distribution, according to the Brazilian carmakers association, Anfavea. World Bank figures reveal that the country has ten times fewer rail tracks than in the US, and energy and agricultural commodities dominate its use for freight. River transport is nominal, and there are no short-sea, domestic ocean services. That leaves road, although Brazil again has a severe disadvantage: just 212m kilometres of its roads are paved, or about 6% in the country, with a large amount of these in the state of São Paulo (in the US, the figure is more than 4.2 billion kilometres).

Operation Chinook parts

But as delegates heard at the 2013 Automotive Logistics South America conference, manufacturers have another option that would be rare in other markets: the helicopter. “We’ve used it many times in Brazil,” said Antonio Taranto, who is customer service operations director in South America for Ford, and has worked across the carmaker’s supply chain in Brazil and in the US.
Mauricélio Faria, general manager for logistics in Latin America for Fiat, nodded his head in agreement. “We have also regularly used helicopters to avoid production stoppages,” he said. Earlier in the day, UTi’s director of automotive for Brazil, Fabiana Nakia, had also quipped about sending a helicopter to collect a container to keep a plant running.

The helicopter option was just one example of the peculiarities of Brazilian and South American supply chains revealed at the conference, as the region suffers from severe constraints in its transport infrastructure. Gustavo Bonini, who is manager of inbound logistics at truckmaker Scania and also the coordinator of a logistics committee founded at Anfavea earlier this year, said that during the peak of the season for grain exports in March and April, queues from the port of Santos in São Paulo can stretch dozens of kilometres.
“It can take more than 12 hours to move just 20km to the port,” he said. He pointed out that a pig could cover the distance in a little more than an hour, while a human could walk it in four hours and a spider in about ten hours.
The impact for the supply chain is dramatic. The road queues combine with slow customs administration, low labour productivity and frequent disruptions to cause significant backlogs for ships trying to enter ports as well. Flavio Batista, vice-president of Latin America for Wallenius Wilhelmsen Logistics, said that it was common for ships to wait 15-20 days before docking. “The cost is tremendous when you consider the daily running costs of a ship, as well as the delays to cargo movements,” he said.
Bonini pointed to World Bank data that showed that the average price of exporting a container from Brazil had risen nearly 130% in the last five years to more than $2,200 – twice as high as in Germany and four times higher than China. The costs are similar for importing containers.

Fiat’s Faria said that the lack of rail options, along with the inefficiency at ports, has led the carmaker to use road transport for long distances that would otherwise be cheaper and more effective to move by rail or ship. “We move 100% of component material between Brazil and Argentina by road, a distance of around 4,000km. It’s ridiculous that we do that, but it’s more competitive than moving by ship and it’s much faster,” he said.
The issues risk not only causing headaches and increasing costs, but could also hold back growth in the Brazilian and South American economies. Anfavea has set a target for the sector of reaching 1m vehicle exports by 2017, more than double the current levels. However, speakers broadly agreed that the country’s port and inland connections would not be able to cope with such levels today.
“If Brazil were to export 1m vehicles today, the ports would face logistics chaos,” said Sérgio Tanibata, director of business at Cisa Trading, Brazil’s largest car importer.
Living with custo Brasil
Such issues are part of what is commonly known in the country as the custo Brasil (Brazilian cost of living), and coping with this price in logistics was the theme of this year’s conference. Indeed, the basic flaws in Brazil’s economy are bigger than an Automotive Logistics conference can tackle. Inefficiencies run across the supply chain and the economy, including higher prices for raw materials as well as labour costs. Brazil has one of the highest tax rates of any large economy, with consumption and industrial taxes making items like cars often as much as twice as expensive than in the US or Europe. In the US a Fiesta sedan costs around $15,000, in Brazil it is around R$50,000 ($22,150).
Antonio Taranto pointed out that logistics cost plays a role in this difference, but the Brazilian price tag is mostly to do with higher taxes. He suggested that the country has faced more of a backlash as its consumer class gains more awareness of custo Brasil relative to other countries. Part of the protests earlier this year, for example, called for reforms to address the high cost of living, as well as opposing the large investments being made for the World Cup and Olympics even as public transport and infrastructure languished.
“With the internet, the clients know about the price. People have been demonstrating,” he added, referring to recent public unrest. “I hope they’ll do this to buy cars, not just to break dealers’ windows.”
Brazil has a complex and slow-moving regulatory regime as well. It’s difficult to expand or build new facilities, whether plants, warehouses or port terminals, because environmental licences can take up to ten years to be granted, according to Tanibata. “There could be one crab living under a rock somewhere and a whole project is held up,” he said.

"Environmental licences can take up to ten years to be granted. There could be one crab living under a rock somewhere and a whole project is held up" – Sérgio Tanibata, Cisa Trading

The Brazilian government has also acted with a protectionist tendency in favour of local automotive manufacturing, including the implementation last year of a 30% tariff for imported vehicles from OEMs that do not meet certain local investment criteria.
Brazil’s neighbours also impact its supply chain and economy. Venezuela’s closed economy has shut it off as a destination for Brazilian exports. Argentina has imposed trade restrictions that have led to delays in and out of Brazil’s ports as shipping lines are forced to reroute. This is significant for the automotive sector, since, according to WWL figures, both countries send nearly 90% of their vehicle exports to one another.

“Argentina is the biggest problem for port traffic and vehicle logistics right now [in South America],” said WWL’s Batista.

Taking all of these cost, trade and regulatory factors together, improving logistics operations can be a competitive advantage for manufacturers, as they strive to lower costs and get products to market as fast as possible despite all of the current obstacles. That impetus will only increase if Brazilian vehicle sales approach some market forecasts for up to 7m new vehicles per year (compared to around 3.8m per year currently) by the end of the decade. Carmakers including Fiat, BMW, Mercedes-Benz, Audi, Chery, Suzuki, Nissan and Honda are all building new factories, while others are expected to announce plans or expand existing capacity. 

A time for hope, a time for scepticism
The good news is that Brazil is making regulatory changes that could lead to more private infrastructure investment, particularly for ports. A new law passed earlier this year allows state-owned ports to grant concessions to private companies, which would be able to handle third party cargo and to use non-union staff. But the rules are complex and there have been legal challenges and labour disputes. Many at the conference were pessimistic about any immediate increase in private investment, at least for ro-ro operations.
“I’m sceptical about the port reforms and the impact for automotive,” said Tanibata. “I don’t see much government investment, and I don’t expect that many would be willing to take the risk to invest in private terminals for vehicles.
“I do see a good opportunity for container terminals, on the other hand,” he added.
Current investment in the rail network also appears to offer little hope for automotive logistics. José Ricardo Chiarello, director of logistics for Volkswagen do Brasil, said that a project to build a north-south railway in Brazil would mean nothing for automotive logistics. “Rail is used for minerals in Brazil, not autos,” he said.
There was nevertheless hope that at least things were starting to move in the right direction given the reforms. The protests earlier this year have also served as a serious wake up call to the government about how the country’s logistics problems could also become a serious social issue. One source told Automotive Logistics that the protests had “really scared the government”.

"Argentina is the biggest problem for port traffic and vehicle logistics right now [in South America]" – Flavio Batista, WWL

The automotive logistics sector itself has also made a move towards coordinating its communication with officials. In March this year, Anfavea set up its first logistics committee. The group currently meets at least twice a month, according to Bonini, and is made up of OEM members of Anfavea, while also aiming to represent the voice of tier supplier and logistics providers.
“It’s important that we come together now to voice our concerns in the automotive sector, especially as the government reforms port development,” he said. 
A growing but more uncertain market
The Brazilian market for new passenger and commercial vehicles is now the fourth largest in the world, with sales around 3.8m units, while production of vehicles is ranked seventh at a similar number. However, the economy has been unsteady over the past two years, with slower GDP growth and new vehicle sales levelling off. Sales are expected to finish the year mostly flat on 2012, helped partly by a reduction in the consumption tax that will expire at the end of the year.
According to Tanibata, the Brazilian automotive market appears to have entered a phase of more instability and unpredictability, following nearly a decade of fast expansion. With sales more or less flat over the past two years, it’s unclear if the country will really reach the 7m unit sales projections without further economic reform.

"It’s important that we come together now to voice our concerns in the automotive sector, especially as the government reforms port development" – Gustavo Bonini, Anfavea and Scania

Production has improved this year more than sales, up around 12% on 2012, according to Anfavea figures. The rise is partly from a recovery in exports and increase in domestic production at the expense of imports, which have been hurt by the tariffs and a weaker real. In the first nine months of the year, imports were down 13% compared to 2012 at 519,441 units, with their market share down from 23.6% in 2011 to 18.7% so far this year. Total vehicle exports, meanwhile, have risen more than 30% to 428,000 units – but this followed a 20% drop or so in 2012.
However, some at the conference suggested that the rise in exports, 87% of which go to Argentina, could be masking a wider economic issue for Brazil’s southern

neighbour. Argentine sales have shown growth this year, and are expected to rise 7% to 790,000 units, according to WWL. However, Cisa Trading’s Tanibata suggested that the sales increase is likely more to do with Argentines putting money into their vehicles because of instability in banks, the stock market or housing.
“In Argentina, worries over the economy have actually been leading people to buy vehicles as assets,” he said. “We might therefore see them holding onto vehicles longer and the market could fall, which would impact Brazilian exports.”
This threat could hold back Anfavea’s target of exporting 1m vehicles, especially given the Argentine government’s unpredictability when it comes to trade barriers. Besides Argentina, WWL’s Batista revealed that only 3% of Brazil’s exports go to Mexico, with the remaining 10% going mainly to other South American markets. Brazil’s relatively high costs and logistics issues already suggest that it would struggle to compete with other markets for export, particularly Mexico, which is quickly emerging as the export powerhouse in the Americas.
However, import tariffs and localisation incentives have spurred investment in Brazilian manufacturing. The government has already imposed a quota on imports from Mexico, which has otherwise enjoyed a preferential trade agreement with Brazil. The ‘Innovar’ programmes for both vehicles and automotive parts aim to lure carmakers and tier suppliers to invest in local production and research and development in exchange for avoiding the 30% tax on imported parts and vehicles. It was measures such as these that quickly curbed a rise in imports from Chinese OEMs, such as Chery and JAC, and has led them to invest in local assembly.
A no less global supply chain
However, efforts by the state and lobby groups to increase localisation have not offset the global links in production and engineering in the automotive supply chain. For years, the Brazilian market was full of vehicles adapted to the local market, including smaller and simpler versions of models that helped keep costs down. Its luxury and premium-vehicle market was also minimal. Now, however, carmakers such as General Motors, Ford and Volkswagen have been moving towards producing vehicles in Brazil that are based on global platforms, and which are also assembled in a number of other continents around the world.

Ford’s Taranto said having a global product lineup in Brazil was making the supply chain more complex

“As of next year, our model line up in Brazil be totally global,” said Ford’s Taranto. “This has led to huge complexity both for the inbound supply chain and the aftermarket that follows. Not all suppliers will have plants in all locations, so it has led to a huge transfer of materials around the world, including to South America.”
Likewise, Audi, BMW and Mercedes-Benz are all planning to produce in the country, which is expected to increase global supply chain flows with Germany and Europe. One source suggested to Automotive Logistics that the Volkswagen Group would trade localisation of its lower cost models for the ability to import more components for high-end Audi models. Under the Innovar programme, carmakers that increase local production will also be able to import more finished vehicles to Brazil at a lower tariff.
Missing connections
This dual growth in local production and imported products is important for logistics costs and operations, not least at Brazil’s ports. One of the largest problems for the country is the links between those ports and industrial and consumer centres, particularly outside of São Paulo. Speakers pointed out that the country actually has a reasonable network of ports, some with good facilities for containers as well as potential for ro-ro developments, such as São Sebastian in the south of São Paulo and Suape in the northeast.

“Brazil has actually been investing in its ports for the past 20 years, but unfortunately the officials forgot about the road access,” said WWL’s Batista.
Despite its congestion, the port of Santos is one of the few ports with decent road links. The result is an even more disproportionate amount of cargo being moved in and out of it. For example, a large amount of grain and agricultural exports are shipped out of Santos despite there being produced in other regions, pointed out Sergio Costa, director of the investment agency Investe São Paulo.

"As of next year, [Ford’s] model line up in Brazil be totally global. Not all suppliers will have plants in all locations, so it has led to a huge transfer of materials around the world, including to South America" – Antonio Taranto, Ford

Besides the port situation, the supply chain within Brazil is also stretched across long distances. While about 70% of automotive production is based in the southern part of the country, including the states of São Paulo and Minas Gerais, Bonini pointed out that 50% of the sales market is outside this region, which means long distribution chains. Likewise, manufacturers are basing an increasing amount of production outside São Paulo. Fiat will open a new plant by 2015 in the northern state of Pernambuco; Suzuki has announced plans for a factory in Itumbiara, deeper in Brazil’s interior in the state of Goias, while China's JAC will build a plant in Camaçari, joining Ford in the state of Bahia; Nissan will produce vehicles in Resende, in Rio de Janiero.
São Paulo dominance
But São Paulo nevertheless remains the industrial heart of Brazil, and production in the region is also expected to grow, including new investment from Volkswagen, Honda, Mercedes-Benz and Chery. According to Costa, São Paulo state represents more than one third of Brazil’s total GDP, while its per capita income is 50% higher than the rest of the country. Its consumer market represents about half the size of the country, and is expected to continue to rise. The state produces around 40% of automotive output, and is home to about 68% of the automotive supply base.
In terms of infrastructure, São Paulo is also the dominant state for existing and new investment. It has 19 of the country’s 20 best-rated motorways, and is the destination for about 70% of state infrastructure funds. Costa pointed to the port of São Sebastian as an important new development in both the state and the country’s supply chain.
Nevertheless, the fact that automotive manufacturers have already been migrating across Brazil has increased the need for more investment across the country’s 33,000km coastline and hinterland connections.
Port reform and confusion
The port reform law, an important initiative of president Dilma Rousseff’s administration, is meant to play a decisive role in the diversification and investment in Brazil’s ports. In principle, the concessions to private operators would allow such companies to invest in new facilities, be free to handle third party cargo, and to hire port workers from outside the dominant unions. In practice, uncertainty over the laws and legal disputes mean that it could still take years before any real private investment will begin, especially for ro-ro and vehicle-handling terminals.
“Nobody understands the rules on the port concessions, and it could take 5-10 years before legal disputes to develop certain land and port areas will be settled,” said Tanibata. He said that Cisa Trading, which runs a dry port in Vitoria in Espirito Santo state, is unlikely to get involved in bidding for a concession as it doesn’t see the business as viable.

Batista said that WWL could be interested in investment in such terminals, but it needs to see more clarity in the rules first.
One example of the difficulty around the concessions can be found at the Saboó area at the port of Santos, where five independent areas are being bundled together to form a single concession in which both ro-ro and general cargo handling will be authorised. However, earlier this month, logistics and terminal-operator Deicmar told Automotive Logistics that the terms and conditions are such that the only practical application of the proposed terminal would be for one handling purely containers, since new vehicle handling would be unprofitable.
The new concession is of particular interest to Deicmar, which already operates a similar-sized, vehicle- and non-containerised terminal at the port. However, its concession is about to expire, prompting it to seriously consider bidding for the new development area on offer. It currently handles around 200,000 new vehicles per year.
Laurenço Malanga, new business manager at Deicmar, said during the conference that the company was not threatening to leave the port, but that the current terms and conditions were just not viable for finished vehicle business.
The confusion around the port reforms developed into part of the reason why the logistics committee at Anfavea will be so important, said Bonini. The association has formed working groups, including for port operations, to deal with its conversations with the government. He says that the reforms should target three essential changes at ports: more investment in facilities, lower operating tariffs and less time importing and exporting products.
“We also want to make sure that certain operational rules are put in place that will help efficiency, including that the ports should operate 24 hours per day,” he said. “We also believe that there should be separate services at the ports, including dedicated terminals for commodities, including vehicles. There should also be appropriate waiting and rest points available for drivers.”

Conquering chaos
Despite all of the obvious limits to Brazil’s infrastructure and regulatory framework, the conference was not only a forum to complain about what the government has or has not done. Several of the conference’s breakout sessions were devoted to tackling the supply chain costs and inefficiencies that can be addressed by carmakers, tier ones and logistics providers without waiting for government action. Despite the word ‘chaos’ being heard several times as delegates struggled to get past their experiences of the infrastructure issues, some important messages were heard.
Delegates heard about the necessity of educating material purchasing executives about logistics operations. Volkswagen’s Jose Ricardo Chiarello referred to the

VW’s Chiarello said that there was still a lack of education about logistics in Brazil

issue as “a lack of logistics education in Brazil”. He cited an example where purchasing managers believed they had secured the best price ‘free carrier onboard’, or FOB, from a supplier in China (incoterms whereby the supplier would have logistics responsibility up to the port of exit). In reality, the purchase had been made ex-works, which left the logistics team in Brazil with the challenge of organising transport from the other side of the world.
“[The parts] were packed in wooden boxes,” he reported.  “When they got to the port it was discovered they were infected with a Chinese beetle and couldn’t be shipped that way.”
Continental’s logistics director for Brazil, Alexandre Califani, had a similar message. “Someone decides to ship everything from Asia without pallets because it’s cheaper,” he said. “So it took us four hours to unload each truck on arrival. You end up paying for things you don’t know you’re paying for.”
“We’re told ‘logistics [management] didn’t see it’…that we need to wake up,” said Chiarello about such conflicts with purchasing.
There were also issues around systems and standardisation. When questioned from the conference floor about what OEMs coming new to Brazil should do about the country’s supply chain issues, Carlos Wagner, president of Sintel, a company which provides EDI and IT for supply chain management, warned against “local standardisation” which doesn’t adequately integrate with global supply chain tools. Chiarello pointed out that Volkswagen Brazil applied the standard processes developed by the carmaker in Germany.

Lear’s Flavia Maria Guimaraes said that the company’s global purchasing agreements needed to be ‘tropicalised’ for Brazil

Packaging was another example where standardisation was cited as important. Volkswagen owns much of its packaging in the rest of the world, and some 400 different options have been standardised into 11 types. But in Brazil packaging is still owned by the suppliers. “A big investment is needed to change [this],” he said, “but we have to do it.”
Then there is inventory. Logistics executives from Bosch, Delphi and Lear discussed how the safest method of avoiding disruptions from delayed deliveries was to increase inventory, yet OEMs impose penalties for doing so.
In a similar vein, Stephan Gruener, the managing director of logistics provider BMS – a division of Germany’s BLG Logistics and the Mosolf Group – observed that logistics providers work with “islands of efficient [assembly] plants while the efficiencies we seek within our companies are swept away with the costs of storage, transport, etc.”
Logistic providers’ vulnerability to contract penalties in these circumstances was addressed by Lear’s purchasing manager, Flavia Maria Guimaraes. While Lear has a standard global agreement applicable to all logistics providers, she noted that this has to be ‘tropicalised’ for Brazil (where English-language contracts are not enforceable unless translated into Portuguese), and that issues of penalties can be resolved locally on a case-by-case basis.
Use logistics to get your plant in order
Finally, tier suppliers can look within their own plants for efficiencies. Alexandre Califani, logistics director at Continental Brazil gave an honest and revealing

Continental’s Alexandre Califani said that the tier supplier had lowered logistics costs in Brazil by 19% in little more than a year by improving in-plant logistics

description of how one of the company’s plants had reduced production stoppages due to the non-availability of parts by 95%. At the same time labour numbers had been cut by 38%.
The method had been by tackling in-plant logistics, and by involving the workforce in how to improve them. This was followed by diligently working through the detail of in-plant flows, involving everything from the sequence in which trucks are unloaded to tackling narrow corridors to buying electric scooters to carry light components around the plant.
Broader changes to Continental’s Brazilian logistics have included extensive re-training, using kanban systems, issuing debit (i.e. penalty) notes to suppliers, and insisting on using sea transport rather than air for imports of electronic components. The result has been to reduce the company’s Brazil logistics costs – Continental's highest in the world, said Califani – by 19% over the period of April 2012 and September 2013.
Aftermarket complexity
The service parts supply chain is another area in which carmakers and logistics providers are focusing their attention to make improvements. Given the growth in the Brazilian car fleet – which has more than doubled in the last decade – along with the proliferation of active spare parts per vehicle, there are many opportunities to improve delivery performance and reduce cost in the aftermarket.
Paulo Campolina, senior solutions design manager for automotive at Ceva Logistics, which has a strong presence in Brazil for the aftermarket, cited the growth in part numbers and warehousing size for a number of its clients. Between 2001 and 2012, for example, two carmakers that had seen strong growth in Brazil saw their active part numbers increase from 45,000 to 57,000, and 66,000 to 95,000, respectively. Warehousing area, meanwhile, had expanded from 60,000 to 98,000 square metres at one OEM, and from 72,000 to 106,000 square metres at another.

Ceva’s Paulo Campolina recommended that more OEMs moved toward night distribution of spare parts

“With the entry and expansion in the market of premium carmakers, we also expect to see an increasing number of part numbers, even though the actual volume of cars will be relatively small,” he said.
The size and complexity of the aftermarket supply chain is creating challenges in both delivery frequency and inventory management, particularly among dealerships that are ill-equipped to store parts and manage part numbers. Campolina showed pictures of poor packaging and terrible storage processes at dealerships that have led to higher damage rates and slower servicing time for customers. He recommended that carmakers put more emphasis on the quality of storage and delivery services, while also recommending a move toward night distribution to reduce costs and lead times.
“We’ve worked with customers who have been able to save up to 50% of distribution costs by switching to night delivery, since they were able to reduce transit time and inventory levels,” he said.
A sector in its infancy
Ford’s Antonio Taranto also highlighted the challenges for distribution in Ford’s South American and Brazilian network. He said that the sector was in its infancy when it came to aftermarket distribution. In the US, he pointed that Ford has around 30 distribution centres to handle parts of varying speed and turnover, with parts going to dealers every 12-36 hours. In Brazil, meanwhile, the carmaker has only two warehouses, and is building two more. In some cases, parts can take up to 21 days to reach dealerships.
The need to improve this system was critical, he said, since spare part servicing is a critical factor in maintaining customer loyalty. He pointed to studies that showed that customers typically come back to dealerships around ten times, which means there are many opportunities to build or break relationships.

Taranto admitted that Ford’s spare parts network was still in its infancy in Brazil, and he called on logistics providers to help develop it

Taranto called on logistics providers to help Ford advance its network. The carmaker has already outsourced the management of its Brazilian warehouses to third party logistics providers, and he believes it is only through working with providers that the carmaker can increase the number of parts centres in the country, including the potential for multi-user, multi-service centres.
“Distribution and inventory management is not the core capabilities of dealerships, but rather this is your [logistics providers] market,” he told the audience. “To me, the opportunity to expand the part distribution centre network is a big opportunity for logistics.”
Parts leaving on a jet plane
Taranto emphasised how Ford’s move to selling global products in Brazil had greatly increased the use of global parts, with a large amount of material for the aftermarket sourced from other continents. “Sometimes it’s not even enough that we use air freight to ship parts from abroad to Brazil, but we have to charter entire aeroplanes,” he said.
Nick Beard, strategic account industry director for TNT, pointed out that inefficiencies were common in the international supply chain inbound to Brazil. TNT carried out a supply chain mapping project – which Beard said took months to complete – that identified as many as 25 ‘breakpoints’ in the supply chain, where OEMs could lose visibility of their material.

Nick Beard said TNT had identified as many as 25 ‘breakpoints’ in the inbound aftermarket supply chain from Europe to Brazil

A typical part moving from Europe to Brazil, for example, was likely to move from suppliers through several warehouses before travelling by air, where it again moved through a number of warehouse points before eventually reaching dealerships.
“Many manufacturers make the mistake of combining their custom orders with their air consolidation freight after the purchasing team has negotiated a cheap price for it,” Beard pointed out. “But it’s often a poor approach, because it is still expensive, and rather than going on a specific flight it often moves on the next available flight out, which means you lose visibility of when exactly it will leave and arrive.”
Beard recommended that manufacturers spent more time understanding the shape and routes of their global supply chains. “The less you understand about your supply chain, the more you lose certainty about what will move through the dealer network. Understanding your supply chain will help you to better understand where you do and don’t need to hold buffer or safety stock,” he said.
A need for speed
Despite the push for more coordinated supply chain planning and control, fire fighting as an operating method won’t go away, however – nor, indeed, will air freight logistics. First, in Brazil’s environment, dealing with logistics challenges may not be a question of cost. The use of helicopters across the supply chain is certainly one indicator of that. “We don’t think about the money,” commented Delphi’s supply chain director, Rodrigo Palmieri. “It’s simply about having the goods available to your customer.” 
In the conference session on import/export, much of the discussion turned again to dealing with the issues caused by port congestion, which results in container shipping lines skipping ports or re-arranging schedules of calls between Brazil and Argentina, for example.
“We need to know fast when this happens,” said Lear’s Guimaraes. “We seek agility and information sharing from our LSPs, not necessarily the lowest cost. Agility means contingency plans – we need a partner with a sensitivity to the sense of urgency,” she told delegates.

Fiat’s Faria was optimistic that at least the government had made moves towards allowing private investment in ports, even if progress was slow

What of the future?
But while it was evident that the supply chain problems facing Brazil are unlikely to be resolved anytime soon, when questioned on the outlook for the future, three of the four OEM executives on the concluding conference panel were optimistic.
“The infrastructure gets worse and worse,” said Fiat’s Faria. “But maybe the government has been looking at it afresh in the past 12-15 months. Previously we couldn’t talk about private investment [in infrastructure], but we’re starting to see some movements.

“I don’t exaggerate the optimism,” he said, “but things are happening.”
Gustavo Bonini of Scania and Anfavea told delegates “discussing problems openly also motivates us to find solutions. I am very optimistic. It will take a huge effort in blood, sweat and tears, but we have to overcome custo Brasil.”

Brazil at a glance
  • Around 3.8m vehicles assembled in 2013, ranked 7th globally
  • Sales likely to surpass 3.8m units this year (4th globally). Around 7m units are projected by 2018-20
  • Anfavea targets 1m vehicle exports by 2017
  • 87% of exports today go to Argentina, 3% to Mexico, 10% rest of world
  • 87% of Argentine exports go to Brazil
  • Since 2010 Brazil has turned from a net exporter of auto parts, to a net importer
  • Cost to export a container: $2,200 from Brazil, $500 from China
  • Time to travel 20km to port of Santos during peak harvest: truck drives for 12 hours, spider crawls for 10 hours, pig can walk in one hour
  • Brazil’s logistics are ranked 45th on the World Bank Logistics Performance index. India ranks 46th and China 26th

This was the fifth South America conference, and saw attendance of around 200 delegates. The next event in the Automotive Logistics global series of event will be Automotive Logistics India 11-13 December in Pune.

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