2012 CONFERENCE REPORT
'All you can do is scream' as OEMs voice frustration with Brazil's logistics
But OEMs invest despite the backdrop of bureacracy, trade wars and strikes which are stunting growth
SAO PAULO 5 SEPTEMBER 2012:: Even in the midst of slower growth and the financial crisis in Europe, major carmakers including Fiat, Volkswagen, Renault Nissan and General Motors are building new plants or adding production capacity in South America’s largest economy. After a slow start to the year, the Brazilian automotive industry is once again enjoying growth in new passenger car sales, including a record 400,000 units in August spurred in part by tax incentives and interest rate cuts. Forecasts are for the market to expand from around 3.5m units per year to 6m by 2020.
But as delegates again heard at the Automotive Logistics South America Summit, of which the 4th annual event was held this week at the Renaissance Hotel in Sao Paulo, the supply chain in Brazil continues to be dogged with delays. They include constraints in ports, congested roads and a near-complete lack of multimodal transport.
Manufacturers also pointed to a Kafkaesque labyrinth of bureaucracy, regulation and increasing protectionism. As well as ripping up the playbook for import duties and free trade agreements with several other countries in the past year, including applying vehicle quotas to Mexico and, in the words of one Fiat executive, triggering an “absurd trade war” with Argentina, there have been a series of strikes across numerous union, municipal and federal organisations from customs officials to truck drivers.
Indeed, even as the conference was held on Tuesday and Wednesday, just before the Brazilian Independence Day long weekend, there were concurrent strikes at ports, customs and the Federal Police. As a result of the disturbances this year there is currently a backlog of ships carrying material and finished vehicles moored outside ports such as Santos and Paranaguá.
“We have strikes everywhere – in customs, in the federal police. All you can do is scream sometimes,” said a frustrated Mauricelio Faria, head of logistics in Latin America for Brazil’s largest carmaker, Fiat.
Fred Roldan, General Motors: 'Serious impacts' on model launches
For as many years as this conference has been held, speakers have discussed the possibility of a ‘logistics blackout’ in Brazil, where industry and growth would grind to a halt as a result of failing supply chains. While manufacturers and logistics providers have continued to cope with Brazil’s perennial problems and, for the most part, managed to avoid stopping their production lines, logistical problems this year appear to be perilously close to not only holding back growth but creatring reductions in output.
Fred Roldan, General Motors’ South America logistics director, said that Brazil’s industry was suffering badly, even if the worst had so far been avoided. With five major model launches in the last year, GM has increased the movement of sea containers to Brazil by 300%, and Roldan expressed concern that Brazil’s ports and road carriers would not be able to sustain the increase.
“Even if we didn’t have a genuine logistics ‘outage’ so far, there have been serious impacts and consequences,” he said.
60% cheaper to build a Fiat Uno in China
Andre Perez, director of supply chain for the Americas at Renault, also feared that the worst was yet to come and that Brazil’s supply chains had only been spared more disruptions because of a reduction in GDP growth.
“The ‘blackout’ didn’t happen in part because of the [eurozone] crisis and slow growth,” he said. “We are tracking at [an annualised rate of] 1.7% GDP growth this year and we have all of these problems. Paranaguá port has 35 ships waiting 30 hours each to dock, so imagine what it would be like at 4%. Non-growth has mitigated this.”
Carmakers warned of serious damage to the country’s competitiveness as a centre for production when compared with nations such as Mexico, China, South Korea and India. All have their own logistics problems, but are considerably cheaper as places to manufacture vehicles. Brazil’s leading carmakers, such as GM, Ford and VW, have factories in these countries that compete with South American locations. Meanwhile, Chinese vehicle brands such as Chery and JAC have made inroads in the Brazilian market in recent years.
“We have serious difficulties with ports, roadways, railways and waterways which add cost to our operations,” said Alexandre Bernardes, a Fiat executive who is also vice-president of Anfavea, the Brazilian automotive manufacturers association. “If you take Fiat Uno manufacturing in Brazil compared with China, China’s production is 60% lower.”
As context, Brazil is ranked down at no 45 in the latest World Bank index of countries’ logistics performance. This is just one place above India and well behind China is 26th place.
A love-hate relationship with government which won't get out of the way of private investment
|The situation in Brazil appears to be partly complicated by a kind of ‘love-hate’ relationship between the industry and the government. On the one hand, the government has taken considerable measures to stimulate sales, including extending a tax break on vehicles, helping to ease credit flows to consumers and lowering interest rates in an effort to depreciate the Brazilian real (which has dropped more than 20% relative to the US dollar since last year). |
On the other hand, it has plans to introduce stricter regulations that will limit the time that truck drivers can operate, which could compound an already-increasing driver shortage. And even as the government acknowledges the need for greater investment in port and transport infrastructure, carmakers complain that the regulatory environment makes private investment very difficult.
“If the government cannot be the facilitator, then it shouldn’t make it harder for enterprises to expand,” said Fiat’s Faria. “Making (private) investment in ports is very difficult for a million reasons."
He said that Fiat had struggled to get the right permission and help to improve road access to its plant in Betim, which builds more than 3,000 cars per day. “We have one road to access our the Betim plant. If it closes, that’s it, we have no way to deliver just-in-time. We looked at building a ring road, but it is a bureaucratic nightmare.”
There was general agreement among delegates that the government has not done nearly enough to invest in Brazil’s infrastructure, which sees just 6% of roads across the country paved. There have been recent announcements of plans for major investment in roads and rail, but reactions range from benign optimism to outright scepticism about delivery.
“The railway and roadway plan by the government is a relief for us," said Renault’s Perez. "But these have been discussed for 20 years – it is no great novelty.” Added Fiat's Faria: “Brazil needs to recover 15 years of stagnation in infrastructure investment. We’re always told investment will be 3-4% of GDP, but every year it falls to 1%."
Vice President, Anfavea
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Ultimately, Brazil’s automotive supply chain experts agreed that the industry cannot depend on the government to fix its problems in logistics. So progress and competitiveness in production and distribution can only be maintained by building stronger links between manufacturers and providers, as well as by creating more visibility in the supply chain. “We need relationships that are more long term and less transactional, ” he said.
Echoing themes heard at Automotive Logistics conferences in Europe and North America, as well as in other BRIC countries, GM’s Roldan called for "more communication, more accountability and commitment.”
A leading service provider, Toby Grey, president of TNT Brazil, responded that his company had been focusing on increasing visibility and systematic communication in the supply chain in
efforts to overcome infrastructure limitations. And returning to the issues of infrastructure he described the current situation as being "right in the middle of the storm. We will work with anyone to try to improve infrastructure and operations as soon as possible,” he said.
The carmakers and LSPs at the event also promised to work more closely together to lobby associations such as Anfavea to take logistics competitiveness in greater consideration in future legislative and investment plans. It was agreed that Brazil needs to improve its supply chain efficiency both at home and in relation to global connections if it is to avoid falling behind other markets, such as China, as a base for global platforms and research and development.
“Competition is fierce, and we have a large number of new entrants to meet the needs of excellence demanded by consumers,” said Roldan. “A part of this is better connecting the supply chain.”
Fiat's Faria concluded by warning that Brazil could not look to protectionism to protect an inefficient supply chain. “If we don’t have the competitiveness to export, then we won’t be competitive internally in the future,” he said. “Associations have a responsibility in this together with all industry players. There won’t be any way to survive as we are right now.”
The conference is part of the worldwide Automotive Logistics series, which in 2012 includes:
plus a conference dedicated to the outbound sector
In summary, delegates at Automotive Logistics South America 2012:
- Heard great presentations from OEMs, tier 1 suppliers and LSPs
- Asked questions in person, joined discussions
- Networked with the senior executives across the industry
- Made new contacts, gained new introductions and developed new business opportunities
- Benefitted from the interaction at social occasions, including the main conference dinner and introductory cocktail reception (all included in the delegate fee)
- Receive soft copies of the speaker presentations to download and circulate within their organisations
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