The Latin American vehicle trade was strong in 2011, with its ports ranking among the largest in the western hemisphere for new car handling. But operators in Brazil and Argentina face new trade barriers amid an unstable economy.
Brazil and Argentina saw strong production of light vehicles in 2011—Brazil at 2.57m and Argentina at 828,770—as consumers snapped up a steady flow of imported and locally produced cars. The number of vehicles, at times, overstretched the major ports in both countries.
According to official and port data, the volume of imports and exports handled by Brazil and Argentina rank some of its ports among the largest in the western hemisphere for new vehicle handling. The 798,500 imports and exports handled last year at Argentina’s Terminal Zárate, on the Parana River near Buenos Aires, make the port the largest for vehicle traffic in both North and South America—ahead of the 753,685 handled at Mexico’s Veracruz and more than any port in the US.
Brazil’s Santos, the largest port for all general cargo in South America, handled more than 464,000 vehicles last year, which would put it behind Brunswick, Georgia as the fifth largest port for vehicle handling in the western hemisphere.
Although three of the top five ports for vehicles in the Americas are now in Latin America, economic factors and trade policy have added volatility and 2012 might see declines.
During the first quarter of this year, for instance, importers in Brazil have omplained of burdensome red ape, while exports have slowed amidst an unfavourable exchange rate and a weak global economy. However, while production has declined, activity in Brazil will be boosted by an unprecedented $10 billion stimulus package for the auto industry announced in May, which will include cutting industrial taxes and easing consumer financing.
Argentina has seen its exports flagging following a slowdown in Brazil and other key markets, while ports are also seeing more burdensome trade restrictions aimed at reducing imports. Exports declined nearly 16% in the first quarter to 85,495 vehicles, while imports dropped around 2.2%.
Brazil has more than 160 private and public ports, but Professor Paulo Fleury of the Instituto de Logística e Supply Chain (ILOS) in Rio de Janeiro, says their quality and capacity are insufficient. “The big problem is the difficulty of accessing ports, and the lack of storage space,” he says.
Fleury adds that the location of Santos port near to the main car plants in São Paulo is advantageous, but the port faces challenges. ISOL’s cross-sector research has shown that more than half of the logistics executives surveyed complained about saturation at Santos port. Ricardo Strunz, CEO of CNAuto SA, a Brazilian company that imports Chinese-made vehicles, says that Santos lacks the efficiency to match its size. “Costs for the port including handling, labour, logistics etc. can be up to 30% higher than smaller ports,” he says.
Fleury explains that other ports are also well positioned, such as Rio de Janeiro, Itaguaí, São Sebastião and Vitória, while the southern ports of Paranaguá and Rio Grande benefit from their location close to the Mercosur countries (Argentina, Paraguay and Uruguay). In recent years, Suape and Salvador have also developed the capability to ship vehicles in the northeast, he adds.
Nonetheless, many of these ports are hampered by an aging road system that restricts access to ports. For instance, Rio de Janeiro’s port is located in the cramped downtown area, while Santos is in a congested urban area and Paranaguá is often dogged by queues of trucks waiting to enter the port.
Fleury adds that the government should guarantee adequate access to ports and connect them to major infrastructure projects such as the north/south railway. Through its infrastructure programme, Programa de Aceleração do Crescimento o (PAC), the Brazilian government is spending R$1.5 billion ($717m) in projects at 17 port complexes. The upcoming Plano Nacional de Logística Integrada aims to develop intermodal transport, while the government also aims to attract more investment through privatisation, according to officials.
Industry experts complain that complex legislation has hampered importers and exporters alike. Mauricélio Gomes Faria, responsible for Fiat’s logistics in Latin America, warns that uncertainty about importation rules is making it almost impossible to estimate the volume of imports for 2012.
Although Fiat exported 88,000 vehicles and imported 104,000 vehicles to and from Brazil in 2011, this year is still unclear following a spat between Brazil and Mexico over a trade agreement signed in 2002, which gave each country preferential access to each other’s markets. To solve the disagreement, the countries agreed to slash Mexico’s car exports to Brazil by 30% to around $1.5 billion a year. Faria says it is still unclear what the change will mean to volumes.
New bureaucratic hurdles are also hurting operations. A change in import licencing requirements, for example, has caused a build-up of cars waiting at the terminal. The government has ordered that it needs to inspect the licences, which can take between two weeks and a month or even more, while in the past the process took a few days without the inspection. “This adds to all vehicle importers’ costs, as vehicles need to spend more time in the port and we use more trucks,” Faria says.
CNAuto’s Strunz complains that other aspects of Brazil’s legislation on imports have hurt Chinese vehicle importers, which do not yet manufacture in the country. The government increased its import tax by 30% to 35% on vehicles from China and other countries outside of the Mercosur region and Mexico at the end of 2011, making Chinese cars less competitive, Strunz says. “But, even if we set up a plant in Brazil to make these vehicles, we still do not know what will be the exact conditions for imports or what our rights will be,” he adds.
CNAuto originally expected sales to fall to around 12,000 compared to 13,500 in 2011. But with the import tax, Strunz now expects volumes to drop to around 10,000 units.
Fiat forges ahead
Fiat currently uses the ports of Rio de Janeiro and Santos, mainly because they are the closest to its Bertim plant in Minas Gerais state. The carmaker, however, sometimes uses smaller, neighbouring ports such as São Sebastião in São Paulo state or Vitória port in Espírito Santo when it needs space.
Fiat uses local logistics company Sada to move vehicles from a storage facility in Minas Gerais to ports in Santos and Rio. Sada also tries to have trucks waiting to collect return cargo.
According to Faria, there is generally insufficient operational capacity. As the ports are largely full and nobody is guaranteed exclusivity, Fiat and other carmakers need to carefully plan the timing of their trucks to ensure that they arrive to coincide with the vessel’s schedule. This tight schedule means that more trucks are required to make the deliveries to the port.
As part of Fiat’s expansion, the OEM also plans to build its second plant in the north-east state of Pernambuco by 2014. The plant should produce up to 250,000 units per year. Faria says that the logistics is still being planned but Fiat is eyeing local ports such as Suape to export cars.
For shipments between Argentina and Brazil, Fiat uses Terminal Zárate in Argentina or transports the cars by truck.
Chinese imports tamed
CNAuto uses Vitória port in Espírito Santo state, which provides favourable ICMS tax incentives (similar to VAT). The publically managed port also guarantees a smooth flow of cargo through the terminal, as products such as minerals are diverted to private ports nearby. As a result, CNAuto can unload its vehicles from the vessel in 24 hours and get them to its storage facility some 30km away.
Strunz says that it is vital to foster a relationship with various inter-linked groups that operate at the ports. CNAuto works closely with the port authorities to ensure the available space or to arrange berthing, and with transport companies and the stevedores that handle the unloading of vehicles. It is also essential to work closely with the tax authorities that are responsible for the customs clearance, he notes.
In terms of PDI, CNAuto manages its own centre with a capacity to handle 100 vehicles per day. The company also manages a kind of assembly line for a wide range of PDI activities, including a final inspection and any paintwork.
Ford goes it alone
Unlike other OEMs, Ford opted to build and run its own private terminal for its imports and exports in Brazil. Opened in 2005, the terminal is located between Todos os Santos Bay and the Aratú Bay in Bahia state. The port’s pier is 195 metres long and 26 metres wide, with a pier-side depth of 12-14 metres, allowing ships of up to 205 metres to berth. According to a source at Ford, 667,066 vehicles have passed through the port in the last six years, including 98,198 units in 2011.
The port is an essential part of Ford’s strategy for local production. As part of this expansion, in 2010 Ford announced R$4.5 billion in investments between 2011 and 2015 for Brazil, of which R$2.8 billion was earmarked for the north-east. These resources were planned to expand the production capacity of its Camaçari plant from 250,000 units to 300,000 units.
The terminal’s patio has 6,024 spaces for parking, from where the cars are transported with radio-frequency tags to monitor their position. According to Ford, the private port terminal provides a competitive advantage in offering operating gains and control over costs. For example, the OEM carries out ro-ro loading and unloading for 165 cars per hour from the patio to the vessel via 10 bays.
Ford claims that the distance travelled and time required are reduced between the factory and the port, and its trucks avoid getting stuck in traffic in urban areas. Ford also manages a PDI facility at the terminal to control repairs and inventories, and replace damaged parts.
Expanding in the south
Paranaguá port is seeing a steady flow of cars from OEMs that have set up manufacturing operations in the south of the country. Paranaguá has four specialised patios with a capacity for more than 10,000 cars and another alternative patio with a capacity for 2,500 units.
Luiz Henrique Dividino, superintendent of the Port Administration of Paranaguá and Antonina, says the port has increased its vehicle flow annually by making design changes intended to improve logistics, including positioning the parking patio closer to the berth.
“The speed of this operation has been obtained by the professionalism of the port’s workers that drive the vehicles from the patios to the ships. We also ensure that simple procedures are deployed to stop scratches and damage, such as avoiding the use of watches or rings,” Dividino says.
In the case of ships that transport vehicles exclusively, Paranaguá’s minimal loading requirement is 150 vehicles per hour. For ro-ro vessels with mixed cargo, the flow is around 5,000 tonnes per day. However, in practice, the flow of vehicles is faster and averages 450 vehicles per hour, says Dividino.
The port receives close to 12 vessels dedicated to vehicles per month and handles 1,300 cars per ship on average. The main destinations last year were Argentina, Germany and Mexico, with Volkswagen, Renault and Nissan being the OEMs with the largest volumes passing through the port.
Argentina and red tape
Across the border in Argentina, vehicle import and export figures this year could shift downwards, after brisk volumes of trade last year. Alejandro Van Thillo, commercial manager for Terminal Zárate’s vehicle division, warns that a cool-off in Brazil’s economy—which accounted for 81% of Argentine exports in 2011—and a slowdown in the local economy, might lead to a drop in the volumes. Moreover, restrictions on imports by Argentina’s government are worsening the decline.
Argentina’s imports and exports could drop around 15% compared to 2011, Thillo predicts. “The best case scenario would be the same amounts of sales in 2012 as 2011,” he says.
Argentina handles all new vehicle traffic between just two ports: Terminal Zárate, South America’s largest port for vehicle handling, and Delta Dock, in nearby Olivos. Around 100,000 imports and exports also move across the border between Brazil and Argentina by truck, says Thillo.
Zárate showed resilience in the first quarter of 2012. While exports were off 10% compared to 2011, imports rose 10% and overall volume was 3% higher at around 172,000 units.
But the situation at Zárate has become more troubling recently because of legislative issues. The government has made it virtually impossible to import vehicles outside of the Mercosur bloc. As recently as May, some 30,000 vehicles were being held in the customs area, with the main storage area for imported vehicles full and a further seven vessels waiting to unload 10,000-15,000 cars. In response, at least one major shipping line, WWL, suspended service to the port because of backlogs.
There is fear that the situation could impact sales negatively. In February, the auto industry was also forced to begin completing additional paperwork, known as advanced imports declarations, to import spare parts and items destined for vehicle production into the country. Therefore, a major concern for carmakers is related to the loss of continuity in the supply of spare parts and also for capital goods that come from all over the world, Thillo explains.imports declarations, to import spare parts and items destined for vehicle production into the country. Therefore, a major concern for carmakers is related to the loss of continuity in the supply of spare parts and also for capital goods that come from all over the world, Thillo explains.
The legislative situation is dissapointing, not least as OEMs have been investing heavily in Argentina. Last year carmakers announced investments of some $550m in the production of vehicles, tyres and spare parts in the country, while also expanding production by adding working shifts.
In the long term, Thillo believes Terminal Zárate is in a strong position, especially for high-and-heavies such as construction and agricultural equipment. Terminal Zárate has more than 100 parking lots, with space for 52,000 car equivalent units and protected anti-hail parking lots for 10,000 units. The port has two exclusive pure car carrier berths, with 700 employees working for the vehicle division. Its PDI area has a predelivery workshop of 1,800 square metres and it is building new PDI facilities of 3,500 square metres.
But even before the recent customs issue, there have been capacity limits. Thillo recalls that the port has, at times, needed to work with high stocks and faced operational difficulties because of a complex mix of distribution logistics for finished vehicles, customs clearance processes and checks, as well as paperwork related to dealers.
Argentina’s road infrastructure has not developed at the same level as the market, adds Thillo. To overcome these hurdles, the port’s management has invested in various areas of the terminal and established a fee to rotate stock and avoid longer stays, he says.
Thillo says another crucial challenge relates to the country’s logistics, which have fallen behind the pace of growth. The government should promote infrastructure developments that quickens access to ports via roads and railways, he adds.
CAT taps Delta Dock
Although Terminal Zárate has the lion’s share of the car business, Groupe CAT leases facilities at the nearby Delta Dock primarily for its main customer, Renault. CAT’s operation at the dock can move around 120,000 cars for import and export, although the company occasionally uses Terminal Zárate for additional capacity.
CAT manages around 25 hectares of auto yards as well as the dock, transporting and distributing vehicles across the country, as well as managing the port’s stocktaking and PDI facilities. CAT also handles transport between its distribution centres including in Córdoba, Lima, and Don Torcuato.
CAT is investing some $3m this year in transport equipment such as open-car carriers, and in improving the yards with better paving.
The firm also handles vehicle storage and maintenance, as well as the positioning of vinyl protection on cars, along with accessories. The group also takes care of controlling, changing and recharging batteries.
Alfonso Lago, president of CAT Argentina, says the LSP’s main challenge in the port is to maintain volumes. The company’s customer base remains steady, particularly with Renault, he says. “We do not expect any significant change in our customers,” he concludes.