Brazil Country Market
Insights and Opportunities
Overview: The Growth Acceleration Plan announced by the federal government in 2007 assures that US$ 296 billion will be invested in infrastructure. Of the total, 86.54%, or US$ 256.5 billion, should come from federal, state and private sector, while the remaining US$ 30.5 billion should come from the central government. Investments under PAC will be strong on logistic infrastructure, including highways, ports, railways, airports and waterways. The objective is to facilitate transportation of cargo and goods to have a positive impact on the cost of the products.
By 2010, investment in logistics should reach US$ 34.3 billion. Over the next four years, the plan is supposed to provide for the construction, adequacy, duplication and recovery of 42 thousand kilometers of roads, which should use most of the investments allocated for logistics.
Opportunities: In spite of real growth achieved since the privatization of the railroads in 1997, the potential for future growth of the rail freight business in Brazil is still immense. Specialists of the “freight on tracks movement” guarantee that a promising future is based on basic rules of arithmetic. A railroad freight car can carry a load equivalent to three 35-ton trucks. Since railways operate on a much bigger scale, freight is on average six times cheaper than trucks to transport cargo, based on 1 ton per thousand kilometers.
Freight Operators: Pleased with the results obtained so far, rail operators are not afraid to invest. Vale (formerly known as CVRD) operates four railroads; EFC, Norte Sul, EFVM, and FCA, plan on spending US$ 3 billion next year. As is the case with other sectors, railroads are being impacted by the international economic crisis. Although logistics companies directly related to the transportation of iron ore and agricultural commodities are admitting to the possibility of reduction in the product handling, they expect to continue investments in equipment in the belief that the current downturn will soon return to normal.
Valley logistics, Valley’s transportation division, for example, will not change its investment plan of around US$ 3 billion for 2009, while Latin American Logistics (ALL) estimates investments of US$ 700 million for the period. Transnordestina Logistics expects to invest approximately US$ 2 billion. Andre Leal, commercial manager of Ferrovia Centro Atlantica (FCA), which belongs to Valley, stated that “although the present scenario is complicated, new opportunities are presenting themselves. Therefore, we decided to retain our expansion plans." The investment plan announced by Valley Logistics adds up to US$ 12 billion by 2012, including four railroads that the company manages, and investments of resources in other modals, such as additional port capacity. Investments in logistics account for 20% of Valley’s investments. In 2008 the amount was close to US$1 billion. MRS railroad, announced investments to double its capacity by 2011, surpassing 200 million (tons) per year.
Passenger operators are also expanding. CPTM from São Paulo should invest US$ 2.0 billion to upgrade its system from metroliner to light rail system by 2014. Metro-Rio plans to double its daily passenger capacity from the present 550 thousand to 1 million by 2010. The company’s plans include opening of new branches and stations plus duplication of existing ones. Metro de São Paulo – Mr. Marcos Kassab, Metro’s planning director said that the company will invest US$ 4.1 billion by 2010. The resources would be used to improve efficiency, reduce the time between trains, improve signaling and communication systems, and control centers.