Brazilian vehicle sales, which have fallen every year since 2013, continue to be hampered by a deep recession, a stubborn, double-digit unemployment rate, increasingly tight credit and haemorrhaging consumer confidence. Seemingly unending political crises have also hit the country. So, to combat the stalling economy and venal political climate, carmakers, often with expanded or new plants, have been pursuing new export markets, especially in Latin America.
total vehicle exports in Brazil surpassing 307,500 in the first five months of 2017, a 62% increase on the same period in 2016. Light vehicle exports are up nearly 64% to 293,814, while truck exports are up 40% to nearly 10,700, and bus shipments up 5% to more than 3,050.The country’s National Vehicle Manufacturers’ Association, Anfavea, reported
Thanks to this export growth, production is up as well, with vehicle output surpassing 1m units in the first five months of this year – a 24% gain. Truck production is also up nearly 14% to May, at more than 29,000 units.
Anfavea initially predicted exports would increase 7.2% this year, with the unexpected increase catching some of the outbound supply chain by (mostly pleasant) surprise – although it has also led to some logistics delays and bottlenecks.
Ana Paula Quaresma, head of commercial business for Latin America at Wallenius Wilhelmsen Logistics (WWL), agrees exports are rapidly picking up. “Carmakers are asking for more space [on ships],” she says. “This has been the big surprise for 2017.”
Exporters have been helped by the weakening Brazilian real and improving costs, as well as at least slightly better political and economic conditions over the first quarter. OEMs say the export figures would have grown more quickly but for local producers needing to negotiate with their headquarters to redirect existing or extra production to other markets.
Neighbouring Argentina, where a new president, Mauricio Macri, has been implementing market-friendly reforms, has been the primary destination for Brazilian-made cars, accounting for 68% of Brazil’s exports in May. But demand from other markets has been growing. Mexico, for example, accounted for 13% of exports, Chile 5% (soaring 200% year-on-year in May alone), and Colombia 3%.
Manufacturers in Brazil such as Fiat Chrysler, Volkswagen Group, General Motors, Ford and Renault are all eyeing increasing exports.
“We expect growth of about 5% for this year at the plant, thanks to increased volumes in exports as well as increases in the domestic market,” says Roberto Cortes, president and chief executive of MAN Latin America, part of the Volkswagen Truck & Bus commercial division.
Such growth is very welcome. However, it has renewed some of the familiar challenges for logistics in Brazil, including a lack of multimodal transport, capacity issues in ports, limited competition on road, high levels of bureaucracy and demand for IT and tracking systems. However, carmaker executives are making progress in many of these areas.
OEMs eye exports
According to Luis Santamaria, FCA’s head of supply chain management in Latin America, all of the company’s products and processes for export have developed in a strategic way. The key to remaining competitive, he says, is to offer quality products and control costs throughout the logistics chain.
FCA in Brazil exported 50% more volume in 2016 than 2015, he adds, expanding mainly in Mexico. “Export operations are fundamental for Brazil and require a long-term vision,” he comments.
For finished vehicle exports to other Latin American countries, FCA uses ports in the north-east and south-east of Brazil to help reduce costs and lead times, he adds. “This is based on the availability of ships, better operational flows and an adequate infrastructure for vehicle operations, but with the vision of synergies from local distribution operations,” says Santamaria.
FCA has focused investment on the digitalisation of processes and increased visibility throughout its logistics operations. Santamaria suggests that technological transformation can help it develop processes that are more robust and aligned with customers’ expectations.
The carmaker has, for example, implemented an ePod (electronic proof of delivery) tool for vehicle deliveries and to control and map each section of its outbound operation, with the aim of reducing bureaucracy, making data available in real time and generating active alerts for immediate action in the involved teams.
It has also rolled out a logistics optimisation programme integrating the demands of FCA plants and dealers in the various regions to optimise flows and avoid empty running, using real-time tracking of trucks and load composition tools with a focus on vehicle visibility, damage control and environmental management of the entire operation.
FCA’s finished vehicle distribution is carried out by a logistics provider in a long-term, KPI-driven partnership for its plants in Pernambuco and Minas Gerais states, along with a central yard for consolidation in Minas Gerais. The provider carries out FCA’s entire domestic and export logistics, including transport to the ports.
New markets on the radar
Other OEMs are also using Brazil to build cars destined for markets in Latin America and beyond. French carmaker Renault, for instance, which produces some 200,000 cars a year in Brazil, expects to boost export volumes 35% this year to 100,000 vehicles based on strengthening demand primarily in Mexico, Argentina and Colombia.
Although Renault builds cars in Argentina and Columbia, and its partner Nissan has a large presence in Mexico, the company’s senior management decided to produce certain vehicles in Brazil, such as the Sandero, Logan and Duster, for other Latin American markets. As a result, Renault’s volume mix in Brazil shifted to 45% for exports and 55% for the domestic market. Meanwhile, Gustavo Bonini, Renault’s supply chain manager, says new vehicles such as the Kwid, a small 1-litre SUV, should help the company to grow this year. The OEM would like to export to new markets, Bonini says, but research and careful analysis is needed beforehand.
Renault’s Ayrton Senna plant, near Curitiba in the south of Brazil, produces up to 2,000 cars a day in a single shift for export. Daily production ranges from 1,000 to 2,000, and there is flexibility to ramp up, including using overtime and an extra shift, Bonini says.
Trucks take Renault’s vehicles from the Curitiba plant 80km to the port of Paranaguá, which is used for all of its imports and exports. As the port is nearby, Renault’s team can easily travel there to resolve any difficulties, says Wagner Giorgino, who is responsible for outbound logistics.
Renault uses most shipping lines, including NYK, Argentine shipping group Maruba and K-Line. It only uses ro-ro vessels, basing its final choice on availability, cost and the required routes.
Squeeze on vessel space
WWL’s Ana Paula Quaresma says carmakers that have contracts with other shipping lines are now coming to WWL to look for space, as many producers didn’t expect export growth to pick up so quickly. “OEMs are looking to develop export markets, especially in Colombia, Chile and Argentina, while Mexico is also strong,” she says.
WWL has two vessels a month docking at Brazilian ports, with the main terminals being Santos, near São Paulo, and Paranaguá. However, if needed, carriers stop at other ports, such as Rio de Janeiro or Suape, close to Recife in the north-east.
From Brazil, its vessels go mainly to Colombia, Panama (then to Asia or Europe), Veracruz in Mexico, and Galveston, Texas in the US. WWL doesn’t stop in Argentina any more, however, as long delays in ports have caused problems in the past.
According to Quaresma, shipping companies still face a disparity between imports and exports. “Even though export capacity is almost full, we are still experiencing low volumes for imports,” she says.
Recession dents domestic sales
As those low imports suggest, while exports are a bright spot, the domestic market is still weak. FCA, Renault and others are looking to squeeze costs out of the entire supply chain to try and mitigate this.
Anfavea’s data shows some hope. Light vehicle registrations reached nearly 718,000 in the first five months of the year, a 7% rise on the same period last year, although Brazilian truck sales are actually down 20% so far this year, reflecting the uncertainty still clouding the economy.
With Brazilian sales and production in 2016 down by nearly 50% compared to their highs in 2013, there is still a way to go before the market recovers.
For that to happen, most experts believe the country needs political certainty – an issue thrown into sharp relief this spring following corruption allegations against the president, Michel Temer, who only came into office last year after Dilma Rousseff was impeached. Elections next year could cause further volatility.
Despite the tough economic and political climate, Santamaria says FCA has maintained its focus on developing products in Brazil. The carmaker recently launched four new cars as well as renewing others in its portfolio, while working to boost productivity.
Santamaria says the finished vehicle operation is complex; volume reductions directly hit the scale of FCA’s operations and put pressure on fixed costs. A lot of idleness currently exists in the whole market, which creates pressure and hampers investment. “This needs to be well managed for when the economy picks up,” he says.
In the meantime, FCA has reassessed its entire operation to achieve efficiencies of around 20% in the cost of vehicle logistics. This was done by exploring synergies between operations, using equipment that allowed higher productivity, better using fixed assets, consolidating operations and improving proximity to logistics carriers involved.
FCA serves over 850 dealers nationwide in Brazil using a dedicated fleet of around 1,200 trucks and some 2,500 employees.
For its part, Renault has 300 dealers throughout Brazil and its vehicles roll off the assembly line and go straight to its own yard, or yards belonging to transport companies. Additional space can also be rented for any spill over, says Wagner Giorgino.
All of the domestic vehicle deliveries travel from Curitiba by truck, however some move by road and then ferry to Manaus in Amazonas state from the south of Brazil, with trips taking about 20 days.
According to Giorgino, Renault works with four transport companies for outbound logistics – Tegma, Brasul, Transmoreno and Transauto – each operating in one of four regions. These companies have their own staff in Renault’s Curitiba plant to help optimise loading, routes, track-and-trace and deliveries.
MAN Latin America, which distributes the trucks and buses it makes in Brazil to over 30 countries in Latin America, the Middle East and Africa, will receive a new investment cycle of 1.5 billion reais ($460m) – the biggest in the company’s history – for 2017-21, says Roberto Cortes.
The investment will aim to renew MAN’s product line-up in the search for market niches, update the assembly lines at its plant in Resende, close to Rio de Janeiro, provide innovations and extensions in digitisation and connectivity services, and expand the brand in the international market. It will be the company’s fifth consecutive cycle of investment in the country.
MAN’s management believes a key current trend is the connectivity between truck fleets and their owners. The exact plan is not yet in place, but all vehicle-makers are working to offer more information to help fleet owners make efficiency, safety and security gains, such as improving fuel consumption, reducing maintenance downtime and logistics improvements.
Cortes reveals that MAN’s business model for the Brazilian market involves the delivery of completely assembled vehicles at the gate of the plant in Resende with its entire finished vehicle logistics operation being the dealers’ responsibility.
Marcelo Gallao, vice-president for logistics at Scania Latin America, also part of the Volkswagen Group, says his company expects Brazil to overcome the economic crisis in the medium turn. The manufacturer recently announced a 2.6 billion reais investment up to 2020. “We cannot have a vision for just a year or two, we have to look 10 or 20 years ahead,” Gallao says.
To compensate for the fall in Brazilian demand, Scania is also turning more production to foreign markets. Since the mid-1990s, the truckmaker has used a global production system that ensures the same products can be offered anywhere in the world. This model allows for greater flexibility in handling volumes, and it has helped Brazilian production to turn quickly to new markets. Before 2015, the Brazilian market represented 70% of production with 30% earmarked for export; now, 70% of production in Brazil is destined for export.
Thanks to this flexibility, Scania has high expectations for the second half of this year. According to Gallao, this is the result of an increase in demand from countries usually served by its São Bernardo plant in São Paulo state, but more especially to increased orders from Europe. This has allowed Scania to take on nearly 500 new employees at the factory.
The OEM works with a supplier that carries out road transport for various customers, including dealerships and the port of Santos. Vehicles produced at São Bernardo do Campo travel by road from the factory to customers across Brazil and South America.
“We must undergo a technological transformation in coming years, including artificial and cognitive intelligence, which will generate disruptive movements in processes, generating many opportunities.” – Luis Santamaria, FCA Latin America
Export markets are served by ro-ro vessels. For each new market, Gallao says Scania invests in process developments to ensure quality and shipping deadlines. It is also investing time in delivery strategies to meet demand in places such as Russia. To meet the requirements of this market, vehicles are routed via the port of Antwerp, in Belgium, and Scania works on anticipated orders so that even the most severe delays do not affect final delivery time.
Logistics still an issue, but green shoots emerge
MAN’s Cortes says the main challenges in terms of finished vehicle logistics in Brazil are freight costs for shipping services, the absence of any structured rail service and the huge distances involved in the country; the low quality of roads in certain parts is also a problem.
FCA’s Santamaria adds that a lack of technical qualification among logistics providers focused on exports and port operations is another issue that must be overcome to increase productivity and competitiveness.
Scania’s Gallao warns that infrastructure is still the automotive industry’s biggest challenge in logistics in Latin America. He says that logistics can account for 20% of overall costs in Brazil, forcing a constant effort to optimise processes and reduce waste.
For Renault, Gustavo Bonini adds that Brazil is still in need of a rail network for automotive logistics, as most of the rail freight capacity is used to transport commodities. “Infrastructure is still failing,” he warns.
Bureaucracy continues to be slow and time-consuming, with complex paperwork required for all shipments, Giorgino adds.
There are good signs, however. WWL’s Quaresma says that, recently, OEMs, shipping lines and ports have been discussing how to speed up vehicle logistics. “Although things are happening, it is slow and requires political stability, as changes at local ports depend largely on political decisions,” she says.
FCA’s Luis Santamaria believes political stability and a recovery in Brazil’s economy will bring further opportunities. “Many developments aimed at boosting productivity and optimising processes have taken place, and this should deliver benefits when Brazil’s economic recovery gathers pace,” he says.
He adds that large-scale technological transformations in terms of digital connectivity and technology tools are also now accessible and will be important for the region.
“We must undergo a technological transformation in coming years, including artificial and cognitive intelligence, which will generate disruptive movements in processes, generating many opportunities,” he says.
Roberto Cortes also sees opportunities in Brazil. “This is especially because volumes are currently below normal, which generates repressed demand and the potential for an exponential recovery,” he says.
And that recovery could be sooner, rather than later, suggests Renault’s Bonini, who is confident the economy will pick up in the second half of this year. “Brazil should recover, and we will be ready when this happens,” he says.