Brazil has moved outside the rest of the world’s mainstream in commerce and culture for years and that could be how it turns out to be with the global economic downturn.
Shippers and transportation providers believe the worldwide recession could provide the perfect opportunity for Brazil to do something about its crumbling infrastructure after years of neglect that defied the country’s expanding role in trade.
Obscured during Brazil’s 11 percent surge in economic growth over the past three years, the need for infrastructure improvement was at the forefront of this month’s South America Logiport Conference in Sao Paulo, sponsored by The Journal of Commerce.
The country’s rapid growth has been both beast and burden: Foreign direct investment that reached a record $45.1 billion last year has fueled Brazil’s export engine, but infrastructure and efficiency have suffered under the weight of Brazil’s 264 percent jump in imports and 174 percent jump in exports since 2003.
Inefficiency has cost ocean carriers time and money and helped make Brazilian ports among the costliest in the world. Hamburg Sud spent more than 15,000 total waiting hours in Brazilian and other South American ports in the first three quarters of 2008, said Julian Thomas, president of Hamburg Sud Brasil.
That will only get worse when the economy and trade recover. While Brazil’s economic growth slowed to about 5.2 percent last year and cargo volume tumbled about 2.5 percent in 2008 to 735 million metric tons — traffic at ports could fall as much as 1.5 percent this year — some see a recovery as early as next year and a doubling of volume by 2020.
“For 2010, we see growth taking off again and reaching up to 7.5 percent and from 2011, annual growth of up to 6 percent until 2020, when Brazil should be handling 1.4 billion tons a year,” said Marcos Vendramini, director of engineering consultant VKS Partex.
He said the Brazilian government must act aggressively to encourage foreign investment to upgrade port infrastructure.
That won’t be easy with credit tight. “You’re on very dangerous ground if you say that Brazil is not affected by the crisis,” said Henrik Pedersen, regional manager of APM Terminals. “The crisis affects everyone. Although Brazil is not dropping as much as other countries, terminal operators are finding financing very tight.”
While the country is spending $894 million on port infrastructure through next year as part of a three-year Program for Accelerating Growth, it has completed only one port project in the two years since the program began. Nine other projects are under way, and the first dredging project at the Port of Recife started in mid-March. That leaves 28 of the 38 port projects in the program in question.
Pedersen said Brazilian terminal productivity would benefit “tremendously” if the government established a clear, transparent system for tender offers from foreign investors. Otherwise, Pedersen said, the ports cannot expand. He said terminal operators need better access roads, more space outside city limits and more intermodal terminal space.
“Small-scale expansion will not help,” he said. “We need big investments to help Brazilian exports.”
Although the big international banks are bullish on Brazil long term, “the banks want certainty in the tender process rules,” Pederson said.
Brazil’s road and railroad infrastructure also needs major upgrades. The Brazilian highway network is just 79,000 miles, one-fifth as much as Japan, which has barely 4 percent as much land mass. And only 12 percent of Brazil’s total 1.1 million miles of roads are paved.
“The Brazilian road network is so poor. It is totally destroyed,” said Oswaldo D. Castro Jr., general director of Expresso Aracatuba Transporte e Logistica.
For truckers, the roads aren’t just a nuisance, but downright unsafe. Cargo theft constitutes 5 to 10 percent of trucking company costs, and “even stopped cargo is stolen in terminals,” Castro said.
Brazil also needs to invest in building a truly effective intermodal transportation network. Export shipments sent by rail typically are delivered by aging, inefficient truck fleet to destination ports.
“We need our railways to end at the ports,” said Washington Luiz Pereira Soares, vice president of the Railway Transport Brazilian Container Chamber.
Brazil needs to act quickly, said Ricardo Melchiori, chief operations director at CEVA Logistics Brasil. “We should not stop any plans (because of the economic crisis), but we should accelerate our plans for the infrastructure” so Brazil is better prepared after the recession ends, he said.
Contact Alan Field at email@example.com.