Brazil, a land of logistics challenges and opportunities

Brazil logistics opportunities

Brazil’s infrastructure spending has not been close to required levels for some time. It has invested around 2.2% of its GDP over the last 20 years in infrastructure development, whereas other emerging markets tend to spend between 4% to 5% of GDP. Logistics infrastructure has suffered; while around 60% of goods in the country are transported by road, their quality is questionable. The Brazilian National Transport confederation reports that 57% of Brazilian roads are damaged at least to some extent. This compounds issues such as cargo theft and traffic accidents, which are are also very high.

Rail lines, which are responsible for transporting about 21% of goods in Brazil, cannot be easily built because of the country’s uneven geography. Further, the use of air freight is limited just to high-value and perishable items due to its prohibitive costs. Inland waterway meets about 14% of Brazil’s transportation needs, however, vast stretches are underused when compared to other countries such as Russia or China.

Moves made by the conservative Bolsonaro government, which was elected in January 2019, might eventually lead to a twist to the situation. Although a fairly controversial figure, the president has implemented a strict policy to reverse the country’s debt trajectory, arguing for cuts to certain sectors of the economy, such as pensions and research. The government has also been reviewing the privatisation of companies and logistics networks. Within the span of two months, by March 2019, the new government had already sold 12 airports, signalling early on its intentions around privatising key transport infrastructure in Brazil.

In February 2020, Bolsonaro’s government announced that it plans to allow foreign companies to bid autonomously for governmental infrastructure projects, bypassing the need to be represented by a Brazilian company or individual, as is the case under current legislation. According to the measure the government intends to introduce soon, foreign companies would then be allowed to carry out projects for the government without the need for a locally based intermediary. The Brazilian national newspaper Folha de S.Paulo reported that this might not only have important repercussions on the state coffers as it increases the price competitiveness of contractors, but it might also help to speed up the development of new, functioning infrastructure which is vital for logistics operations, such as highways, railways and airports.

Other opportunities for Brazil are represented by technological innovation in the logistics sector; according to Estadao, as of February 2020 Brazil had more than 300 start-ups involved in the logistics sector and it is further trialling the use of alternative delivery methods. For example, retailer B2W Companhia Digital SA has reportedly tested the use of drones to transport products from its distribution centres and hubs to its stores, as a response to tackling the country’s complicated logistics and security issues. The company announced in July 2019 that it plans to implement their usage starting from January 2021 for moving goods amongst its distribution centres.

However, as Brazil is striving domestically towards improving its logistics infrastructure, it is likely to be challenged by external threats as well. The coronavirus has significantly impacted supply chains running between China and Brazil. Around 96% of trade between the two countries is carried out by sea freight, however, on March 1, 2020, Folha de S. Paulo announced that out of the 28 ships that were supposed to depart from China, only 19 managed to do so, substantially reducing total cargo imports. This slowdown could affect the free trade zone in Manaus, representing an industrial cargo hub for much of the Brazilian Amazon and the country in general.

Several industries will be impacted by the slowdown in sea freight imports from China. A quarter of Brazil’s clothing demand is supplied through imports, the majority of which is sourced from China. Additionally, 57% of members from the Brazilian association of the Electrical and Electrical Industry have reported problems in receiving necessary material and components from China; in the long run, the coronavirus could seriously affect, or even paralyse, the production of electronics in Brazil. Exports could be affected similarly.

Although Brazil will face some short-term disruption, it seems that the country is on the right path to help improve logistics operations and infrastructure in the long run.

Source: Transport Intelligence, March 4, 2020

Author: Caterina Ciccone