SAO PAOLO, Brazil: Brazil is Latin America's dynamo. While other global economies flicker, Brazil shines brightly. Already the world's sixth largest economy, it is also touted as one the BRIC nations, alongside Russia, India and China, for being one of the four fastest-growing emerging economies.
There appears to be only one thing that can impede Brazil's relentless progress, and that is Brazil itself. The country's woefully inadequate infrastructure is beginning to have a telling effect on business and investment. Growth has slowed to less than two percent this year and GDP projections have been revised downwards on an almost monthly basis, and the real, has been devalued, yet again.
The fact that Brazil is hosting the football World Cup in 2014 and the Olympics in 2016 might just provide the stimulus the country needs. Ahead of that the government has announced a fiscal stimulus designed to pump $50 billion into the economy over the next five years. Privatisation of much of Brazil's transport infrastructure appears to be the intended key to getting the country moving again.
It was a strategy which became apparent at the start of the year with the announced privatisation of three of the country's main airports of Guarulhos, São Paulo's main international airport, Viracopos airport, 100km from São Paulo, which serves Campinas and Brasília's airport in central Brazil.
The first two are the country's prime air cargo gateways and between them represent 60-65 percent of all flown cargo traffic moving in and out of the country. By rights the privatisation provides investors with a 51 percent stake in each of the airports, alongside Infraero, Brazil's hapless state-owned airport operator, with the object of encouraging fresh investment.
But the bids, it is said, were way overpriced with the government raising $14 billion from the auction, more than four times the initial asking price. This in turn has raised concerns about the ability of the new investors, which include construction companies and government pension funds, to meet the badly needed investment demands.
Even so, Brazil seems to do itself no favours in facilitating trade. For instance, no single airport in the country is yet approved to accept B747-8 freighter operations. But little can stop the momentum that is Brazil. And that includes a huge surge in air cargo capacity flowing into the market to meet the demand, in particular, for faster and more direct links with Asia.
Added to this, Brazil has a new carrier with the creation of LATAM from the merger of Chilean airline LAN Chile and Brazil's TAM Airlines, a union which instantly created Latin America's biggest carrier and world's sixth largest airline. LATAM is expected to have a major impact on the Brazilian air cargo market in due course, thanks to the existing success of LAN Chile's highly regarded LAN Cargo operation.
The merger in Europe between British Airways and Iberia Airlines, to form the IAG Group, also has the major goal of achieving greater leverage in the Latin American market and in particular Brazil. Brazil's inbound airfreight market is dominated by the multinational service providers, with perishables the main outbound commodity. There is also a sizeable domestic air cargo flow, particularly moving between Manaus and Sao Paulo.
Free trade zone
Manaus in northern Brazil was established as a free trade zone and has developed into one of Brazil's major industrial centres for electronic and consumer goods. But much of the product moves out of Brazil to its neighbouring counterpart free trade zone in Tierra del Fuego, Argentina. In Brazil the focus today is very much on Campinas to the south. It has rapidly developed into a centre for the high-tech industries, with names like IBM, Dell, Motorola and Compaq much in evidence. Alongside this the global automakers such as Honda, Toyota and General Motors have production plants. There is also a strong presence from among the pharma majors.
According to Cristina Bishop, airfreight director Brazil for DHL Global Forwarding, (INSERT pic) Viracopos serving Campinas, and Sao Paulo's neighbouring airport Guaruhlos, give an instant snapshot of what is happening in the Brazilian airfreight market. "We have seen imports through these two gateways tailing off through the year and are about 9.2 percent down, whilst exports have fallen by as much as 15.9 percent." But Bishop cautions against any undue despondency. "Brazil is a vibrant and dynamic market and always will be. What has crept into the market is a little uncertainty about what is happening in other global markets."
Brazilian importers and exporters, she says, also have to cope with the rollercoaster ride that the seemingly constant revaluing of the real currency provides. "A few years ago the real was trading at 1.70 to the dollar, which hit exporters hard and in effect killed off the Brazilian shoe manufacturing industry which could not compete with cheaper product coming out of China." Today, she notes, the pendulum has now swung back in favour of the exporters, with the real trading at two to the dollar. "That, theoretically, should affect imports, but I think in truth it will have very little negative impact."
What concerns Bishop greater, in some respects, is the sheer volume of air cargo capacity flooding into the market. "We are hearing and seeing names we never knew before in Brazil, like Singapore Airlines, Emirates and Qatar Airways. These carriers are bringing in substantial capacity, which I don't think will cause to many problems with import traffic, but will make it very tough for export traffic share and could threaten the pure freighter business."
That is not an immediate concern shared by Jose Canales, managing director Mercosur for Panalpina (INSERT pic), which through its own controlled network has operated a weekly B747-400 freighter service linking Viracopos with Hong Kong via Luxembourg for over a year now. "It is a traffic lane which the market has been in need, providing a more direct link between Asia and Brazil," says Canales. "We can now provide connection times between Asia and Latin America of just 37 hours, compared to standard transit times of between five and seven days."
While its Brazilian Wings service is incorporated into the company's long established transatlantic operation to Huntsville in the U.S., there's just one fly in the ointment: It has more recently upgraded its freighter fleet to two B747-8Fs, which pushes capacity per flight up to 140 tonnes. Unfortunately, the Brazilian authorities have seemingly been in no rush to upgrade the operating status of Viracopos airport to permit the larger and heavier B747-8F, a situation shared with all other Brazilian gateways. So it has left Panalpina with no option but to operate B747-400 capacity on the sector from Huntsville. "We are working on a solution to this problem and hope to have it resolved quickly" says Canales. "When that happens we want to upgrade the service to at least two B747-8F flights a week."
He claims the service so far has been a huge success with Asian shippers - moving electronics and other semi-finished goods to Brazil. "What has surprised us is that we have been able to pick up return traffic to Asia," he adds. "This ranges from auto engine blocks to Japan and leather for the Asian fashion trade."
Kuehne + Nagel embarked on a determined strategy to grab a large share of the perishables traffic moving out of Brazil, and it has paid huge dividends, for the Swiss based service provider. "Perishables account for about 50 percent of export volumes with general freight making up the other 50 percent," says Roberto Schiavone, senior vice president airfreight South and Central America, for Kuehne + Nagel (INSERT pic). "We reasoned that it was better to go after all of this business, rather than compete with the other forwarders who tend to focus on general freight."
It is a strategy that has helped the company grow export volumes by 22 percent in the last year, thereby maintaining the apparently unassailable position it has held since 2003 as Brazil's top ranking export forwarder. "The combined mix of export business, whilst helping us expand our business, also gives us huge leverage with the airlines when it comes to discussing rates," says Schiavone. "The more capacity that comes into the market, the better for us." But he remains cynical about the motive for the sudden interest in Brazil by some carriers. "The Asia market has slowed, particularly China, just at a time when cargo carriers are starting to take delivery of new freighters." says Schiavone. "They need to look to other markets to keep their aircraft flying."
Kuehne + Nagel's strong position enabled it to increase its import traffic by 10 percent last year. It also helped the company achieve a notable target: "For the first time ever we were able to match import and export tonnages," Schiavone adds.
Cargolux is also straining at the leash to get B747-8F capacity into the Brazilian market. Keenly aware of growing demand for fast and efficient connections between Asia and Brazil, last year it introduced what it described as two tailor-made flights a week from Shanghai via Luxembourg to Viracopos airport. Earlier this year it added an additional stop at Manaus. "These flights are designed specifically to serve our Asian customers," says Emir Pineda, Cargolux's commercial route development manager Latin America. "Chinese forwarders can now benefit from a fast transit time in Luxembourg to insure same day arrival in Brazil for their shipments."
Pineda says inbound loads, in particular, drive the Manaus service, with most of the cargo coming from China for the local production of manufacturers such as, Samsung, LG, Panasonic, and Philips. But he notes an overall downturn in traffic: "The Brazil market in general is below the previous year's level. It has slowed for both for import and export, although Cargolux has been able to maintain steady export loads of perishables."
Other carriers, such as Singapore Airlines have added to the influx of Asia-originating capacity with the recent start of a weekly B747-400F flight from Singapore via Hong Kong and Dallas Fort Worth. The airline already has three weekly B777-300ER passenger flights between Singapore and Sao Paulo, operating via Barcelona in Spain. There is also significant capacity arriving from the Middle East with carriers like Emirates and Qatar Airways already in the market, with others, such as Etihad, set to follow.
Emirates SkyCargo, in particular, has provided a huge capacity surge, with three B777Fs flights a week operating between Dubai and Sao Paulo, injecting an extra 620 tonnes of capacity into the market. Notwithstanding, the Gulf carrier also operates 14 B777-300ER passenger flights a week to Sao Paulo, with a similar level of service added between Dubai and Rio de Janeiro at the start of this year. According to the Arab-Brazilian Trade Board, Brazilian exports to countries in the Middle East totalled $13.8 billion in 2011, representing a growth of 22 percent over 2010. Exports to the UAE reached $2 billion, an increase of 19 percent on the previous year. Brazilian imports from the Middle East also registered a significant increase, totalling $9.3 billion in 2011, which was a rise of 44 percent on the previous year.