Special report: Covid-19’s impact on Brazil’s vehicle and autoparts sectors

The breaking point for the industry?

A series of earthquakes have rocked the Brazilian automobile and auto parts industry in recent years owing to an ailing economy, declining consumer confidence, and then the nightmare scenarios brought on by the Covid 19 crises over the past 12 months.  This led to car sales falling 26.2%, auto exports dropping 25.2% and auto parts imports and exports also sliding, by 27.8% and 25% respectively.  And the bad news keeps rumbling on.

Ford Motor Company, which has been involved in Brazil since the 1920s when Henry Ford set up a rubber plantation in Fordlandia, Amazonas, announced at the start of this year, that it would be closing all its remaining production lines in the South American country from June 2021. Ford was already in the process of closing its plant in Sao Bernardo do Campos and now it intends to do the same with three others:   Camacari, near Salvador da Bahia, Taubaté, in Sao Paulo state on the highway to Rio de Janeiro, and Belo Horizonte, in the state of Minas Gerais.

Ford thereby ends more than a century of car production in Brazil and other manufacturers are also cutting back, with many claiming the Custo Brasil – or extra logistics costs of doing business in Brazil – is growing and long-standing subsidies for the auto industry, worth billions of dollars, are being wound down by Jair Bolsonaro’s government; especially under the guidance of Paulo Guedes, a Chicago School graduate, and Milton Friedman “free markets” advocate. For these varied reasons, a number of auto manufacturers are considering curtailing their investment plans in Brazil over the next few years.

“There is a point where you pile up all the constraints, all the regulations, the headwinds, you end up with a situation that is not manageable anymore. Either countries and regions want an automotive industry, or they don’t,” Carlos Tavares, chief executive of Stellantis, the newly merged Fiat Chrysler, and PSA recently told the FT, the respected British journal.  He added that Ford’s withdrawal should act as a warning light to the Brazilian government, and Brazilian-based manufacturers are now lobbying hard to persuade Bolsonaro to adopt a more “helpful policy”.

These various economic traumas have led to reductions in automobile and car parts imports and exports over the past year and, although forecasts are for 2021 to be better than 2020, the bottom-line figures may take several years to recover to where they were pre-pandemic.  Volkswagen, however, is bullish about this year and is forecasting growth in Brazil of between 10 and 12 %, despite shedding 1,200 jobs in Sao Paulo last year.

The impact in figures

According to ANFAVEA, the Brazilian Association of Automobile Manufacturers, the number of cars sold in Brazil last year was 2,058,437 units, a reduction of 26.2% compared with 2019, and the number exported was 324,330 units, down 25.2% from the 433,512 vehicles exported in 2019, the lowest number since 2002, when Fernando Henrique Cardoso was just about to hand over the Presidency of Brazil to Luiz Inacio “Lula” da Silva.

By the halfway point of 2020, it seemed like it would be much worse as ANFAVEA reported that just 119,400 units were shipped, down 46.2% compared with 227,500 from January to June 2019. Revenue from the export sales for the whole year was just US$7.4billion, less than half of the 2017 figure; of $15.9bn.

The number of vehicles manufactured in Brazil shrank 31.6% down to 2,014,055 units and domestic sales. According to the International Organization of Motor Vehicle Manufacturers (OICA), Brazil had been forecast, as of February 2020, production was supposed to rise from 2,945,000 in 2019 to 3,160,000 rather than slump more than 30%. Production had risen year by year since 2016 but has now slipped back below that figure of 2,176,800 vehicles produced.

“In my view, it has never been so difficult to project the results of a year, as we have had a fog in front of us since March of last year when the pandemic started,” explained Luiz Carlos Moraes, the president of ANFAVEA.

During the first quarter of this year, Brazilians bought 527,900 vehicles, down 5.4% over the same period in 2020 but most disappointing, according to Moraes, was that that figure was a 23% retraction compared to Q4 of 2020, denting a recovery in sales that had been gaining momentum from the middle of last year. Production figures were 597,800 units, 2% higher than the first quarter of 2020, driven mostly by the “excellent results of trucks and light commercial vehicles”.

That Q1 sales figure does at least represent a slowing of the year-to-year reduction as, during the first two months of 2021, Brazilians bought 394,500 vehicles, down 14.2% over the same period of last year, and the February figure, of 167,400 was 16.7% down. All these figures suggest consumer confidence will take time to recover, although that may depend to some degree on how devastating to the economy are the Covid dislocations.

Moraes said that stock levels in dealerships during mid-April were only 101,100 units, sufficient for around 20 days of sales, a very low number compared to pre-pandemic levels, of 30 to 40 days, but better than the 18 days of stock that existed at the beginning of March and a critical level of just 12 days during January. This is partly due to demand and supply chain problems.

“The industry made a great effort to meet the demand, working on weekends and suspending part of the collective vacations, but we entered 2021 with the lowest inventories in our history, sufficient only for 12 days of sales,” explained Moraes.

“Many of our automakers then worked during Carnival to try to replenish low stocks and compensate production delays and interruption caused by lack of components and raw material, but we are still struggling to resume to the normal operation rhythm.”

“We now have two crises that are getting worse. The Covid crisis is the one that worries the most, as it has been taking more and more lives of Brazilians and it will only stabilize in the medium term with the acceleration of the vaccination programs. The cyclical [business] crisis, a consequence of the first, has disorganized the entire global supply chain and it’s causing bottlenecks – especially of electronic components – and stoppages in factories. Added to this is the structural fragility of the business environment in Brazil, which reduces our competitiveness at the international level, and has not been properly addressed by the government.”

This is referring to the subsidies that the Bolsonaro/Guedes government has been reducing or withdrawing in recent years. Moraes added that the auto industry is a key one for Brazil with 104,700 direct jobs with manufacturers. The fact that only 2,300 workers (about 2.1%) lost their jobs during a difficult pandemic year was, to some extent, a relief as it could have been much worse, Moraes opined.

Despite all this doom and gloom Moraes still believes that Brazil will still go close to ANFAVEA’s January forecast for 2021 of 15% increase in vehicle licensing, 9% in exports, and 25% in production.  Moraes added that he thought the shortage of components due to bottlenecks was “a global problem and is likely to last throughout this year”.

Auto Manufacturers still investing heavily in Brazil but may be considering their future options against this background are, in descending order: FCA (Fiat Chrysler Automobiles) with US$4bn pledged between 2019 and 2024, GM (General Motors) with US$2.53 bn, Caoa Chery (China) with US$2.1bn, Volkswagen with US$609.1million, Mercedes Benz, with $609m, and then MAN, Scania, Toyota, Honda, Mitsubishi, PSA, Hyundai and BMW.

The brightest star on the horizon for ANFAVEA during the first quarter of this year has been exports which rose 7.6% up to 95,800 units, largely due to the weakened Brazilian currency making exports much cheaper.

This follows a superb month of March for exports as, with 58,000 units shipped during January and February 2021, the figures were “merely stable”, and similar to the same period of last year.

The number of vehicles imported has also plummeted, by 28.9%, from 297,658 in 2019 to 211,619 last year, the lowest for at least 20 years. Imports are never likely to ever reach the peak of 858,037 units in 2011, according to Sindipecas figures.

And in terms of car parts Brazil imported 163,772 TEU of parts during 2020, a decrease of 27.8% in comparison to the 227,417 TEU unloaded during 2019. Auto parts are one of Brazil’s most voluminous containerized imports and are often in the top five of all boxes imported.

The worst months in 2020 were May, June, and July when auto-parts imports slumped to just 8,901 TEU, 5,468 TEU, and 6,867 TEU, respectively as shown in the graph below, due to the stultifying effects of the pandemic on the Brazilian economy and consumer confidence.

Brazilian auto-parts imports (HS 8708) | Jan 2019 to Jan 2021 |TEU

Source: DataLiner

June 2020 had the worst fall, with just 5,468 TEU, down from 19,300 TEU the previous year. From July onwards monthly throughput of auto parts was always on double figures and rising and by the end of the year Brazilian based car manufacturers were replenishing their stocks so in both November and December they imported more boxes than they did in 2019.

Total export of parts was 24,173 TEU in 2020, down around 25% compared with the 32,340 TEU shipped out in 2019.

The worst months were April, May, and June 2020 when auto-parts exports slumped to just 1,265 TEU, 1,274 TEU, and 1,317 TEU, respectively. This coincided with the first months of the Covid 19 virus starting to get out of control in Brazil and many factories were cutting production lines and closing all operations for up to a month, with some furloughing put into place.

“Last year was very unstable in terms of auto-parts export and import volumes,” said one commercial manager at one of the leading Santos container terminals, on condition of anonymity. “It started very well but then stopped completely in May/June.

Then followed the logistics problems and shortage of containers that meant the supply chain became very erratic for different reasons. People tried to reduce their inventory, but they ended up reducing too much. Then shippers could not get containers and for different reasons; on the consumer side and on the supplier side the logistics problems created were two different things.

“I think during the early part of this year we will see more auto sales because of the repressed demand that has been building up. But clearly, because of the continuing logistical logjams, some automakers cannot seem to complete and deliver the vehicles in their factories. They are seemingly missing just one or two bolts or an airbag, etc, something that holds up that production line. We are hearing that many automakers are delaying delivering because they are missing some minor part or other.”

Datamar figures back up the terminal manager’s comments.  The graph below shows that the biggest slumps came in April and June 2020, with those export volumes cited in the earlier paragraph down by more than 57 and 55%, respectively. Auto-parts exports then began recovering from July 2020 and November, with 2,497 TEU, actually saw more exports than the same month of 2019 (2,300 TEU), and December was comparable to the previous year, 2019.

Brazilian auto-parts exports (HS 8708) | Jan 2019 to Jan 2021 | TEU

Source: DataLiner

Santos lost out the most during 2020 with its overall imports of car parts being slashed by nearly 37,500 TEU, around 30%, from 125,145 TEU down to 87,801 TEU, and the other leading auto parts importers Paranaguá (minus 32% to 23,422 TEU in 2020), Rio Grande (down 24% to 11,158 TEU) and Rio de Janeiro (minus 41% to 10,990 TEU) all lost ground due mostly to the pandemic but also to market re-alignments. Of the top 10 auto-parts importing ports, only Porto Itapoá and Itajaí (AP Moeller Itajaí) in Santa Catarina state, managed an increase as shown in the table further below.

Comparison of Auto Part Exports  (HS 8708) | Jan to Dec 2019-2020 | TEU

Source: DataLiner

In Brazil, the automobile industry is a major player, with 130,000 employees working for 26 manufacturers in 67 industrial units, and with an annual production capacity of 5.1million vehicles per annum, according to Anfavea.

And Sindipecas (the Brazilian national association of auto part producers) informs Datamar that there are 250,567 (167,014 with Sindipecas member companies) people employed in the sector, with 2,713 business units. Sao Paulo state leads the way with 1,530 (around 60%) of those units, followed by Rio Grande, with 362, Parana, with 245, and Minas Gerais with 217.

“The reduction of auto-parts exports will be a blow to the sector as that area had been growing nicely in recent years, taking up 15.7% of overall Brazilian production compared to 10.3% back in 2014,” said one industry expert. “I think for the first half of this year we will see healthy volumes but after that, with the Covid pandemic worsening consumer confidence might take a bit longer to return so that more automobiles are bought. Fear of catching Covid might drive more people from public transport into automobiles, but they need to have the security of employment as well, so it`s difficult to predict.”

In revenue terms, around 21% of Brazilian car part exports are destined for the US, 20.4% to Argentina, and 13% to Mexico. Overall revenue was $6.987bn in 2019 (the lasts figure available from SIndipeças). That was down from $7.88bn in 2018, with reductions, especially to Argentinian importers.

Among the leading part manufacturers are Bosch, NGK, Dana, Continental, SKF, Takata Magna, and Brose. Overall, United States-based companies make up 23% of the ownership and German firms own 20%.

In terms of auto-parts exports, Santos also leads the way, with 14,782 TEU handled in 2020 (down 13% over the 2019 figure of 17,040 TEU).

Perhaps surprisingly, Porto Itapoá (in which Hamburg Sud/Maersk/APMoeller Terminal group has an interest) is in second place vis a vis export compared to a much lower ranking on imports as shown in the table below. Itapoá, with 2,748 TEU exported, leaped above Paranaguá into second place in this category because its volumes slipped only 27% compared to Paranaguá’s 47% dip.   Rio de Janeiro, in fourth, slipped furthest, by 62%, down to just 1,202 TEU in 2020 compared with 3,170 TEU in 2019.

Brazilian Auto Parts Export by port | Jan to Dec 2019-2020 | TEU

Source: DataLiner

Brazilian Auto Parts Imports by port | Jan to Dec 2019-2020 | TEU – EN

Source: DataLiner (To request a DataLiner demo, click here)

Interestingly, the latest Dataliner figures show that Brazil’s car part exports in January 2021 totaled 2,012 TEU which was 4% higher than the 1,932 TEU in 2020 suggesting that auto manufacturers in receiving countries were still making up for the inventory they must have lost during the “slow and standstill months” from April to August of last year.

An opportunity for terminal de veiculos in Santos

One company’s Brazilian withdrawal [Ford] can be another firm’s opportunity and that appears to be the case for the Terminal de Veiculos (TEV) in Santos, part of the Santos Brasil container terminal handling group which, with terminals in Santos and Vila do Conde, is the biggest Terminal Operating Company (TOC) under South American ownership.

Simultaneous to the Ford withdrawal, TEV has signed up for a trial to import Ford vehicles (especially the Ford Ranger) from Mexico and, so far, the “Ford Mexico experiment” was going sufficiently well, that 4,315 Ford vehicles were imported through the ro-ro facility during the first three months of 2021, 91% of which have been Ford Rangers.

This means that some of the lost auto exports out of Ford facilities in Sao Bernado do Campo and Taubaté will be compensated via Ford imports.

Ricardo Santos Buteri, the Chief Commercial Officer and Commercial director for TEV, said that 2020 had been a tough year for his company’s bottom line due to Covid but they ended last year with solid improvements and made a very good start to 2021.

“Last year was very difficult,” Buteri told Datamar in a recent interview. “Very, very difficult indeed owing to Covid and the situation in Argentina.”.

“However, despite all the setbacks of last year we are expecting a decent volume during this year, driven especially by new business from Ford in Mexico.”

Another positive step for TEV is the availability of two areas at Saboo, on the right bank of the port of Santos (as opposed to TEV’s left bank location in Guarujá), under the terms of two temporary or “interim contracts”. At the start of this year, TEV and Santos Brasil started utilizing these areas (near the old Deicmar car terminal and adjacent to the BTP container terminal), for storage and logistics purposes and Buteri has not ruled out ro-ro vessels calling there in the months ahead.

“The use of Saboo for cars is not ruled out since we have authorization for this type of use, but for this to happen we need to have enough demand,” Buteri revealed to Datamar.

According to several other sources in Santos, another reason Santos Brasil/TEV are keen to expand their activities at these sites is to be a “thorn in the side of rivals BTP” and show early interest for when the whole area at Saboo, of some 400,000 square meter, is leased out, in early 2022.  BTP wants to win the bid and expand its current area, but other parties in Santos – including TEV and Ecoporto Santos – want to maintain the area as a general cargo and Ro-ro terminal.

The TEV executive pointed out that the TEV car terminal handled 175,000 vehicles during 2020 which was a 14% decrease over the 152,000 units it handled during 2019. Much of the shortfall, he explained, was due to the uncertainty and massive fall in demand caused by Covid, not only in Brazil, but also in Argentina, which accounts for some 50% of TEV’s volumes, and has been suffering from an ailing economy for several years now.

Of the 2020 total, 130,000 vehicles were exported and only 22,000 were import units, which is around 17% but figures for the first two months of this year are showing that 89% of vehicles were exported and only 11% were imported.

“We are dependent on Argentina for much of our export volume and the Argentine economy retracted by 12% last year meaning consumers did not have much purchasing power,” added Buteri. “The light vehicle segment, which is usually very strong, was down by around 20%, even more than the average.”

He added that May 2020 was the “worst month for more than five years” as TEV handled less than 5,000 vehicles.

However, despite the woes of 2020, this year has got off to a flying start for TEV. During the first two months of 2021 TEV handled 30,750 vehicles, 30% higher than the same period of 2020.

According to Buteri many of his regular clients are very optimistic about orders for this year and all ro-ro vessels calling TEV in January and February were “completely full” and many of TEV’s clients have been sending optimistic forecasts for the rest of 2021.

“One client who sent us 50,000 automobiles last year has asked if we can handle 65,000 for him this year,” added the commercial director who is now “expecting a much better year than last year,” although the “economic situation in Argentina is still “concerning” with GDP expected to fall again.

TEV receives around nine calls from car carriers each month, and its key clients are K-Line and Wallenius Wilhemsen Line

A few years ago, Santos Brasil’s TEV and Tecon Santos were granted concession extensions, up to 2047, by the Codesp port authority and this will portend regular new investments in infrastructure, especially during the first five to 10 years of the extension period.

“Last year we invested about Reais250m at TEV and this year we will invest in new technology for the gates and various other improves to bolster productivity,” explained Buteri.

As has been stated, TEV hogs 82% of the volume of vehicles that are imported/exported through Santos, and most of the other 18% is handled by Ecoporto Santos. Up until 10 years ago, TEV had competition from Deicmar which at one point handled about 35% of the vehicles moving through Santos, but it closed for business around four years ago.

Buteri also pointed out that TEV is already ahead of the game when it comes to the emergence of electric cars into the equation.

A Valongo located multi-purpose terminal, Ecoporto Santos (previously called Tecondi), has a regular ro-ro service agreement with Grimaldi Lines, and currently handles 90% of all breakbulk cargoes in Santos.

According to Luiz Araujo, the commercial director for Ecoporto Santos, which has all but given up on handling container vessels, the port of Santos now has “excessive capacity for containers” and the new concession. Tecondi’s peak as a box handler was 2012 when it handled 325,000 TEU (a 16.4% share of the market back then.

“We have too much box capacity and what we need now is more capacity for breakbulk and ro-ro and Santos Brasil along with us are fighting for this,” said Araujo, who has been with Ecoporto/Tecondi for more than 25 years. “What we are seeing now in Santos is a grand chess game with all the pieces being moved into position ready for the Saboo concession process next year.”

Currently, Ecoporto hosts two calls per month from Grimaldi Line, who have been calling there since 2019, and says they are “very pleased with the niche service”. They load Land rovers from Tilbury in the UK and BMWs and Mercedes from Hamburg in Germany, and also have transshipment to the West Coast of Africa, often carrying second-hand farm equipment from Brazil.

Grimaldi executives are disappointed that the Minister for Ports, Diogo Piloni, under the umbrella of the Ministry for Infrastructure (or MINFRA) has refused to grant a concession extension to Ecoporto Santos from 2023, when its current term expires, as that would leave TEV with a virtual monopoly.

Piloni told Datamar that detailed studies were being carried out by MINFRA to determine the best use of the Saboo site and both an extension of BTP, a new container terminal and a mixed terminal for general cargo, ro-ro, and containers “were all still on the table”, although he did hint that the preference was towards a new container terminal.

A few years ago, Grimaldi made some serious investigations into the possibility of building its own ro-ro terminal somewhere in the environs of Santos, possibly at a greenfield site close to the entrance to the port; but the plan got bogged down in “bureaucratic red tape”.

Some car carrier executives and various Santos experts suggest that the port of Sao Sebastiao might make a good alternative for ro-ro vessels if they get squeezed out of Ecoporto and the Deicmar berths.

Grimaldi told Datamar they occasionally make spot calls to Sao Sebastiao, on inducement, and it is understood that other ro-ro carriers sometimes do likewise.

Multicar Rio

Some 220 miles northeast of Santos and TEV is another of Brazil’s leading automobile exporters in Rio de Janeiro and they also had a very tough 2020 dominated by Covid 19.

Following a disastrous hit caused by Covid – which saw automobile units fall from 7,000 cars per month at the start of 2020 down to just 100 in May – MultiCar recovered to something like “normalcy” by the year’s end, according to Luiz Carneiro, the CEO for MultiCar.

Contrary to the Brazilian national trend MultiCar has seen car exports fall during the first quarter, although imports have rebounded strongly.

“I’m afraid 2020 has been a really tough year for MultiCar,” the Multiterminais executive told Datamar.

“During May the car terminal was virtually closed because the car manufacturers closed down their plants for a period but then we went from close to zero in May to just over 7,000 units in November and then 7,605 units in December. Demand was definitely improving at the year’s end and those results were about the same number that we had in November and December of 2019.”

The final MultiCar handling figures for 2020 were 50,435 units, down 26% on the 68,500 vehicles of 2019. Of this, imports were down just 9%, to 28,735 automobiles, but exports were down 41.2% to just 21,706 units.

Carneiro told Datamar that around 80% of MultiCar’s vehicle throughput is imports and exports to/from Argentina and are transported by car carriers to Buenos Aires and Zarate (90 km northwest of downtown BA).

He observed that a 2019 split of 46% imports and 54% exports had almost reversed last year into 55% imports and 45% exports.

The MultiCar executive, who is also head of MultiRio the container terminal operations owned by Multiterminais, said he was optimistic that this year Brazil – which has kept working throughout the pandemic – will ride through the pandemic crisis and register a 10% increase in container throughput, with imports picking up 15% over 2020 and exports (already strong from last year) rising by around 5%. 

MultiCar has made a good start to this year, at least on the imports side, which rose 33% during the first three months compared to last year, with 9,888 vehicles handled compared with 7,435. However, exports dived dramatically by 55.6% from 8,058 units down to 3,576 giving a total for the quarter period of 134,464 units, down 13.1%.

Among MultiCar’s main clients are Nissan, Peugeot/Citroen, Jaguar Land Rover, Fiat, Chrysler, Iveco, and MAN (Volkswagen Trucks).

Source: Rob Ward for DatamarNews

 

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