OVERVIEW OF BRAZILIAN RAILWAYS

Cargo transport by rail has been gaining ground in Brazil, despite not being well evaluated by logistics professionals in the country. This is one of the findings of the survey carried out by the ILOS Institute between September and October 2008 with 220 of the largest Brazilian companies in terms of revenue. In all, 369 logistics executives from more than twenty sectors of the economy evaluated the national railway modal.

Even though cargo transport continues to suffer from the low availability of infrastructure and management problems, the movement of products/inputs by rail and the gross revenue of railway companies continue to grow. This evolution proves that companies need, more and more, this modal to transport their production.

CHARACTERISTICS OF THE OPERATION IN BRAZIL

With an area of ​​8,4 million square kilometers and approximately 29 thousand kilometers of railroads, Brazil has, on average, a density of 3,46 kilometers of rails for every thousand square kilometers. Smaller countries, such as India, Germany and Argentina, have relatively more tracks; respectively, 63.221, 48.215 and 31.409 km, and also higher density.

One of the factors that may be contributing or, at least, inhibiting investments in extending or rectifying lines is the way in which the current concession model was designed. The rules in force establish that, at the end of the term of the contract, the investments made by the concessionaires in the roads return to the Union. In this way, investments in new lines end up being carried out mostly by the government.

Incidentally, for decades the Brazilian railway network has remained practically the same. However, through the Growth Acceleration Plan (PAC), the Brazilian Government has been working to expand national railroads by almost eight thousand km. In total, there will be 37 km of tracks by 2020, generating a 27% increase in the network. The forecast is that around R$ 20,3 billion will be invested by the PAC, excluding the High Speed ​​Train (TAV) which, alone, would be responsible for approximately R$ 34,6 billion.

CURRENT AND PLANNED RAILWAYS BY PAC

Figure 1: Comparison between current and planned railways by PAC

New railroads, such as Oeste-Leste, extensions of Norte-Sul and Ferronorte, in addition to Transnordestina, intend to increase rail density in areas that are currently not served by the modal, as is the case of the Midwest region.

It is worth remembering that it is in the states of this region and in western Bahia that the greatest potential for the growth of the Brazilian agricultural frontier can be found. Because they are, in general, of low added value, have large volumes and travel long distances, agricultural products, together with ores in general, are suitable for rail transport.

One of the most important commodities in Brazil's export portfolio, iron ore was one of the products that most increased its movement by train. In 2003, Brazilian rails transported 203,7 million tons of ore, a number that rose to almost 307 million in 2007, an increase of 51%.

In total, Brazilian railroads increased cargo transport by 20% in this period. In 2003, the main railways moved 345 million tons and, in 2007, the volume was 415 million.

Figure 2: Rail volume growth in millions of tons

Attentive to new business opportunities, concessionaires have been investing more and more to improve the quality of the service offered and diversify the products they transport. This is the case of container handling, which between 2003 and 2007 rose 62%.

The increase in the volume of goods transported on rails was also reflected in the growth of the concessionaires' gross revenue. The values ​​practically doubled in four years, going from R$ 6,1 billion in 2003 to R$ 12,1 billion in 2007. Although this movement has increased, it is still far below the Brazilian needs.

EVALUATION OF BRAZILIAN RAILWAYS IN THE PERCEPTION OF LOGISTICS PROFESSIONALS - RESEARCH RESULTS

Although the results of railway concessionaires have been improving in recent years, the market still has restrictions on using this modal. The assessment of the railroads by 369 logistics professionals indicates that there is still much room for improvement. On average, the railways received a score of 5,8, with professionals who use them giving a score of 6,4 and those who do not use them attributing an average of 5,5.

In part, this low score given by professionals who do not use the modal can be explained by the fact that several companies have tried to use the railroads and failed. Among the surveyed specialists, 20% work in companies that use railroads, 43% in companies that do not use them and 38% in organizations that transport by rail or not, but have already encountered problems in using the modal.

Figure 3: Use of railroads by Brazilian companies

Railway ratings and grades are different by sector. The Telecommunications, Retail Trade and Pulp and Paper sectors were the ones that attributed the best grades, respectively 7,0, 6,9 and 6,7. Companies in the Wholesale and Foreign Trade, Automotive and Construction Material segments were the most critical in relation to the railway modal. Their grades were respectively 4,7, 4,9 and 5,1. Sectors with intense railway movement, such as Agroindustry and Steel and Metallurgy attributed median scores: 5,8 and 5,9, respectively.

Figure 4: Average scores for railways by sector – considering all logistics professionals

Among the determining factors for not moving cargo by train, the main one, according to Brazilian logistics professionals, is the limited availability of routes. After all, the density of the country's rail network is 3,4 kilometers of rail for every thousand square kilometers of land area, far below Germany, which has an index of 135,0, for example. Among the sectors that most cited this problem are the Automotive, Energy, Construction Material and Telecommunications sectors.

The fact that Brazil has a low availability of routes means that few companies use more than one railroad to transport their goods. Among the companies surveyed, only 24% of those that already use the modal operate with more than four different railroads. Using only one railway is the reality for 40% of organizations.

The high total cost of using rail is another problem highlighted by professionals. In addition to the railroad price, the companies compute transshipment costs and the price of road freight to take the goods to the railroad terminals at the points of origin and destination. The contractor also has to bear the cost of holding extra inventory and supporting the increased total lead time for the operation. Pulp and Paper and Electronics companies were the ones that most cited this reason for not using railroads.

Two other factors were also pointed out by the companies as relevant problems: the concessionaires' lack of interest in transporting certain goods and the unavailability of wagons.

To mitigate the problem of unavailability of wagons, companies have increased investments in wagons over the years. In 2006 there were 72.148 wagons in traffic on the network and, in 2007, 82.577, an increase of 14%. Another practice that has become common to guarantee the availability of wagons is the option, on the part of the companies that use the railways, to invest, themselves, in the purchase of wagons. For these companies, owning the wagon is to minimize problems with unavailability, while for the railroads it is the possibility of these users being permanent customers, since there is no competition in the modal.

Figure 5: Main reasons for not using railroads, according to logistics professionals

Low speed is pointed out by 21% of professionals as one of the factors for not using railroads, mainly by Wholesale and Foreign Trade companies. Traditionally, Brazilian rail transport no longer had a high average speed, and, in recent years, this average commercial speed has reduced. The drop was, from 22,2 km/h in 2003, to 20,9 km/h in 2007, while in the USA the railroads reached 40,5 km/h in 2007.

The need for direct or indirect investment (to get around the unavailability of wagons, terminals or railway branches) was pointed out by logistics professionals as being a negative point for transporting by rail. As companies often do not have the financial conditions to invest in this modal, this becomes a barrier to the growth of rail transport in Brazil. Allied to this, there is a great offer of road freight.

The risk of accidents was one of the last reasons cited by logistics professionals for not using the trains, and this reflects the commitment of concessionaires to reduce the accident rate. In 2003, there were 35,7 accidents for every million trains/kilometer, while in 2007 this index was 14,0, a reduction of 61%. Even so, the Brazilian numbers are well above the North American ones, with 5,31 accidents for every million trains/km.

Despite existing problems, the growth in movement shows that railroads have a very large potential to be explored. This feeling is shared by the contracting industries themselves. The expectation of Brazilian companies is that, by 2010, there will be an increase in the share of railroads for cargo transport.

Among the logistics professionals of the country's main companies, 36% of those interviewed admitted that they intend to expand their cargo handling by rail. Another 62% intend to maintain this movement, and 2% believe that the participation of the railway modal should be reduced. Among companies that want to increase their participation, it is estimated that the average growth should be 24%.

The greatest incentive will come from companies in the Agroindustry and in the Steel and Metallurgy sector, which are currently two of the main users of the modal.

Figure 6: share of the railway modal in companies until 2010

Although they plan to increase the use of rail transport, companies are still concerned about the future infrastructure of the modal. For 50% of those interviewed, quality will not change until 2010 and 7% say that the situation will get even worse. Optimists with regard to railways account for 43% of Brazilian logistics professionals, who believe in some improvement in the quality of the tracks by next year.

Figure 7: Quality of the railway modal until 2010, in the opinion of the companies

Aware of the problems, concessionaires have increased investments in recent years. From 2003 to 2007, the financial contribution grew 151%, going from R$ 1 billion to R$ 2,7 billion, with a good part of the resources (about 40%) destined for the purchase and recovery of wagons and locomotives. Future perspectives point to some improvements for the country, if government actions, such as those foreseen in the PAC, materialize.

BIBLIOGRAPHY

AAR – American Association of Railroads

ANTT - National Land Transport Agency

ANTF - National Association of Railway Transporters

Ministry of Transport

Panorama ILOS – Logistic and Railway Operators: the best in the perception of their users

World Fact Book

Authors: Monica Barros and Alexandre Lobo