LOGISTICAL BOTTLES IN BRAZILIAN FUEL DISTRIBUTION

The results that will be presented in this article are the result of an extensive study carried out by the Center for Studies in Logistics – CEL/Coppead, in partnership with the IBP (Brazilian Institute of Petroleum), through its Logistics Commission.

With the aim of contributing to increasing knowledge about the oil and gas sector in the country, the study sought to map existing bottlenecks in the fuel logistics infrastructure.

The work was structured in four stages: 1) Mapping the profile of current operations; 2) Diagnosis of bottlenecks, involving pipelines, railways, highways and ports; 3) Quantification of the costs of inefficiencies and necessary investments; 4) Action Plan.

The scope involved all logistical components (transport, storage and inventory) of gasoline, alcohol and diesel distribution flows, from refineries and plants. More than 30 entities and companies were consulted, including requests for data and interviews, as shown in Figure 1.

Representativeness of the scope and the impact of logistics on the commercialization of fuels

The scope studied is highly representative in the Brazilian fuel market, as well as the associated logistical costs (Figure 2):

Source: Distributors

Figure 2

For a better understanding of the fuel distribution system, Figure 3 illustrates the three main flows and their characteristics. The primary flows of diesel and gasoline are basically carried out through pipelines and cabotage. The import of these fuels was also considered as a primary flow. Alcohol, on the other hand, leaves the plants/collection centers for the primary and secondary bases by railroads and highways. The transfers take place in order to bring inventories closer to consumer markets, the main modes being rail and road, which normally travel long distances. And deliveries are 100% by road and are almost always short-distance, leaving both primary and secondary bases.

Figure 3: The three types of flows existing in fuel distribution

From the mapping of the logistic infrastructure system of the fuel chain (Figure 4), it can be seen that a good part of the distribution bases (primary and secondary) is based on the use of railroads and pipelines, more suitable modes for transferring large volumes . It is also clear the lack of these modes in the Center-West and North of the Country for carrying out transfers between bases or between refineries-bases.

Sources: ANP, Transpetro and Railways

Figure 4: Map of fuel distribution infrastructure (ex-roads).

In this context, it is to be expected that deficiencies in the transport infrastructure generate major impacts on fuel logistics and, consequently, on fuel prices. It is important to note that there is no other product capable of affecting both inflation and fuels, as they are present in the transport costs of all goods handled, in addition to public and private transport.

A practical example can clearly illustrate this fact (Figure 5). One of the most likely flows for diesel to reach the city of Barretos is through the Paulínia refinery and the secondary base in São José do Rio Preto. In the figure, the modals for each stretch are explained. Normally, the transfer from Paulínia to São José do Rio Preto can be carried out by rail, which would ultimately generate freight equivalent to 2,8% of the pump price of diesel in Barretos. However, if the stretch has to be done by road, despite the shorter distance, the total freight cost becomes 5,4% of the diesel pump price.

This situation shows how a potential bottleneck on the railroad, for example, can increase the final price of the product, an increase that will be passed on to the consumer or absorbed by some member of the chain (distributor or reseller). Of course, if the road alternative is used on an emergency and sporadic basis, the additional cost can be absorbed; but, as the less efficient modal is systematically used, the customer will certainly be affected.

Figure 5: Impact of the modes used on the fuel pump price

The fronts chosen for the detailed study

Among the various issues that could be addressed in greater detail in phases 2 and 3 (diagnosis of bottlenecks, quantification of their costs and the investments needed to reduce or eliminate them), the IBP Logistics Commission selected the topics illustrated in Figure 6, as they are considered the most critical.

Figure 6: Fronts chosen for detailing existing logistical bottlenecks

This article will present the results found for Front 1, as it deals with problems that affect the distribution of fuels in the country in a broader way.

Use of railways in fuel distribution

Railroads have a large share in the transfer flows between the bases (61% of the transferred volume), which is extremely favorable to the efficiency of the system, given that the entire transfer logic is based on moving products over medium and long distances to a closest point to demand in the most consolidated way possible. The characteristics of the railroad meet these needs and it is not by chance that Figure 4 shows that a good part of the bases follows the layout of the existing railroads.

Following this reasoning, analyzes of modal use always sought to assess whether the Conceptual Model of the Transfer Transport Matrix illustrated in Figure 7 was happening in the distribution of fuels and, if not, the reason for this deviation. This matrix shows the most suitable modes in terms of efficiency, depending on the volume and distance of the route.

Therefore, based on data from distributors and railways, transfer routes were mapped according to their volumes, distances and modes. This work generated a graph similar to Figure 7, which pointed to an important result: road routes in the quadrant considered high volume and high distance.

Figure 7: The Conceptual Model of the Transfer Transport Matrix

The identification of these routes revealed an even more revealing fact: part of these high-volume and high-distance road routes were also rail routes, indicating the existence of a railway bottleneck. A summary of these analyzes is in Figure 8.

Figure 8: Identification of railway bottlenecks through the matrix of modals used in transfers

Infrastructure Issues:

• Lack of tank car
  • Lack of traction
  • Line Capacity
  • Maintenance
  • Speed
  • Limited traffic hours
  • Frequency

Commercial Issues:

• Priority for other products / vintages
  • Negotiation between railroads

In addition to these impacts, the investments needed to eliminate logistical bottlenecks were quantified along with the railroads. They totaled R$ 700 million, 14% of which in tank cars and the rest in recovery of lines and locomotives.

Comparing these values ​​with the additional costs of R$ 50 million, one can imagine that these investments are not feasible. However, it should be taken into account that the benefits in recovering lines and locomotives will also be enjoyed by other users of the railroad, and must then be “prorated” by the other loads. As fuel represents an average of 15% of railway volumes, they should correspond to R$ 90 million of investments in “shared” infrastructure, in addition to providing 100% of the necessary tank cars. Figure 9 summarizes these investments.

Figure 9: Investments needed in the railroad to eliminate bottlenecks in fuel logistics.

Use of highways in fuel distribution

As already mentioned, road transport is present in fuel distribution in 31% of transfers and 100% of deliveries. It has also already been explained that part of this share in transfers is due to railway bottlenecks which, if not resolved, will result in an increase of three thousand vehicles a year on the roads.

As for deliveries, the road modal is in fact the most suitable, due to its characteristics of pulverized volume, short distances and large urban concentration. So much so that, according to data from distributors, 84% of deliveries take place within a radius of up to 200 km from the bases.

However, delivery flows of 500 km or more were found which, despite corresponding to only 4% of the total delivery volume, represent 20% of the costs. These long-distance deliveries happen mainly due to the lack of logistical infrastructure for non-road transfers (railways, pipelines or waterways) to secondary bases. Figure 10 shows these deliveries from their bases and also a map with the planned railroads. It is quite reasonable to imagine that part of these deliveries would be eliminated with the entry into operation of these railroads, as they could enable new transfer flows to bases closer to demand.

Figure 10: Long Distance Delivery Routes and Comparison with Planned Railways

Another critical issue when it comes to road transport is the condition of Brazilian roads: according to CNT data, 75% of them are in poor condition. Considering the fact that the longer the route, the more the transport is subject to these conditions, the state of roads in the long road routes of fuel logistics was investigated: road transfers on rail sections and long distance deliveries. Of the 21 routes studied, only two were evaluated as good or excellent in the CNT road ranking and all the others were deficient or bad. Figure 11 illustrates the identification of these roads for some examples of important fuel routes.

Figure 11: Roads used in long stretches of fuel distribution logistics

Poor road conditions both affect variable transport costs and can cause accidents and generate unpredictability in the supply chain. In terms of transportation costs, the extra expenses for lubricants, tires, fuel and general maintenance can add up to 5% to the total freight. Considering the road costs of fuel transfers and deliveries on routes longer than 200 km, the road “freight bill” could grow by over R$ 30 million per year.

Use of pipelines in fuel distribution

In order to evaluate the Brazilian infrastructure of pipelines for fuel derivatives, a comparison was made with different countries through the pipeline density, which divides the mileage of pipelines by the total area of ​​each country. In this way, it was possible to analyze the “coverage” of the pipeline network (Figure 12).

From this point of view, Brazil has a very low pipeline density, that is, there are few kilometers of pipelines compared to such a large territorial extension (24 times smaller than the density of the United States). On the other hand, it is known that large volumes are needed to make new pipelines viable, as these require very high investments and are of restricted use.

When comparing the pipeline network of a country against its consumed volume of oil derivatives, it is possible to assess whether the pipeline network is consistent with the “scale” of consumption. Thus, Brazil finds itself in an intermediate position, in a group of countries that have 50 to 90 meters of pipeline for each thousand m³ consumed.

Figure 12: Comparison of the pipeline infrastructure in Brazil with that of several countries

Therefore, the question about derivatives pipelines in the country that this study tried to answer was: does the consumption of derivatives generate enough scale to justify the construction of new pipelines?

To seek this answer, feasibility analyzes were carried out for new pipelines on high volume transfer routes, considering a 15-year horizon and an opportunity rate of 15% per year. Rates were estimated from the current pipeline freight curve and sensitized to optimistic, realistic and pessimistic scenarios, as well as construction costs (US$25) and volume growth rates. Of the routes studied, no new pipeline became viable (Figure 13).

Figure 13: Routes evaluated for the feasibility of new pipelines

Starting with these analyses, a Generalization of the Pipeline Feasibility Analysis was made. From measurements of pipeline lengths that varied between 50 and 1.400 km, a “region” of financial viability was generated, pointing out the minimum volumes needed to reach an IRR (internal rate of return) of 15% in 15 years. What could be concluded is that no current non-pipeline transfer route is in the viability region of a new pipeline.

Figure 14: Generalization of the Pipeline Feasibility Analysis

Conclusions

The first certainty pointed out by this study is that the existing bottlenecks significantly affect the logistics of gasoline, alcohol and diesel fuels, burdening the links in the supply chain and affecting prices for the final consumer. Since fuel prices are major drivers of Brazilian inflation, any additional cost in their distribution must be given special attention.

The main infrastructure bottlenecks identified in the current system were the lack of railroad capacity to meet demand and the poor condition of the highways. The non-completion of new rail routes and line extensions already planned also generate inefficiencies in transport.

There are a series of joint or individual actions that railroads and fuel distributors can carry out in terms of investments. However, a large part of the necessary investments in railroads and highways will not be justified only by fuel volumes, but by more representative loads such as ore and agribusiness. It is important, therefore, that various sectors of the economy mobilize for investments to take place.

The Brazilian Petroleum Institute intends to use this study to promote seminars and work together with other associations that prioritize certain investments, such as ANUT (National Association of Cargo Transport Users) and ANTF (National Association of Rail Transporters) – see Figure 15. The identification and quantification of existing problems are powerful initiatives, helping to prioritize actions and providing arguments in negotiations and debates.

Figure 15: Examples of Sectors / Associations that can jointly defend certain railway investments

In addition to these results, the construction of new pipelines was not financially viable, both due to the scale of the current system and the high cost of capital in Brazil. However, investments in pipelines can be seen as drivers of economic growth, and may be part of the political planning for the development of certain regions.

REFERENCES

CEL/Coppead & IBP: Integrated Planning of the Fuel Distribution Logistic System, 2005, available for purchase on the website: www.ibp.org.br