Brazil's Tank Fleets -- Weather Latest Economic Turmoil to Hit
Jan 1, 1999 12:00 PM, Charles E Wilson
Economic crises are nothing new for Brazil's tank truck industry. Carriers have been through plenty of economic turmoil over the past couple of decades, and they are taking the current difficulties in stride.
Bulk shipments in some sectors have declined, and some trucks have been parked. However, most fleet managers remain optimistic, saying they expect the economy to strengthen after the first quarter of 1999.
Fleet managers and equipment suppliers say they are generally pleased with the steps being taken by Brazil's federal government to deal with the crisis. Recently reelected President Fernando Henrique Cardoso and his administration are leading the effort to return stability to the Brazilian economy.
Steps taken by the Cardoso Administration include negotiating a $42 billion rescue package from the International Monetary Fund. Even before the presidential election in October 1998, Cardoso's finance ministers implemented policies to stop the sudden flight of investment capital that had caused the economy to sag.
Brazil is the latest in a series of countries needing assistance in the wake of a financial crisis that has sent an estimated 40% of the world plunging into recessions. That crisis, sparked by a 1997 collapse in the real estate market in Bangkok, Thailand, toppled economies, and even governments, throughout East Asia.
Eventually, the contagion spread to Russia, and foreign investors became fearful about all emerging markets. When Russia defaulted on its loans and devalued the ruble in August 1998, investors began retreating from Latin America. Brazil was suddenly losing more than $1 billion a day in foreign investment capital, and the country's foreign reserves plummeted.
Economic stability seems to be returning with the IMF infusion, and Brazil has eased its interest rates. As part of the bailout agreement, Brazil said it would reduce government spending about 8% from 1997 levels.
A wide range of price increases were implemented in the oil sector to boost government revenue. Gasoline prices jumped 10% and the refinery price for LP-gas climbed 22%, putting it on a par with prices in the international market.
Brazil's economy matters because it is the world's ninth largest, and a financial disaster in the region's biggest country could topple markets throughout Latin America. Brazil accounts for 45% of Latin America's gross domestic product.
The economy is as big as the country itself. Geographically, Brazil is the fifth largest nation on the planet, bigger even than the continental United States. Occupying the eastern half of South America, the nation has a population of around 165 million people.
About 58% of Brazil's population is concentrated in the southern and southeastern states, which account for roughly 16% of the land area. This is where most of the 17,026 miles of railroad track are concentrated. It is also where the best roads and highways can be found.
Chemical Optimism The south and southeast are the industrial heartland of the country and are home to most of Brazil's chemical plants. Chemical production is a key industrial sector in Brazil, and output has remained steady. In addition, a number of expansion projects have been announced recently. Overall, Brazil's chemical sector is expected to invest $5.5 billion in new projects and expansions through 2000.
Dow Chemical is one of the most bullish, announcing that it still expects total investments in Brazil between 1996 and 2000 to reach $400 million. That figure remains unaltered despite the turmoil plaguing the country's markets. Company officials added that Dow's Brazilian unit, Dow Quimica, achieved 1998 sales that were on a par with the previous year.
Other companies involved in expansion projects include Ipiranga Quimica and Odebrecht, which will double capacity at the Copesul cracker in Triunfo, Rio Grande do Sul, to 1.13 million metric tonnes in 1999. In addition, Odebrecht subsidiary OPP Petroquimica is building a 260,000 metric tonne per year polyethylene plant at the Triunfo complex.
Petroquimica Uniao is moving ahead with plans to increase ethylene capacity at its Sao Paulo plant to 670,000 metric tonnes a year by 2000. BOC officials say their company will build a $10 million CO2 purification and liquefaction facility at Cubatao. The production rate will be 100 tons per day, and the plant will be on-line in mid-1999.
Import Demand Despite the new production capacity that is under construction and under consideration, Brazil still must import significant quantities of chemicals to satisfy market needs. Increasingly, these products are coming from other South American countries.
One reason is Mercosur, the economic union that includes Argentina, Brazil, Paraguay, and Uruguay. The 1991 trade agreement slashed import tariffs between 1991 and 1994, and duties on chemical products dropped from as much as 60% to 14% in Brazil.
A number of chemical company mergers and acquisitions have occurred as a result of Mercosur. Formation of the trading bloc has encouraged many companies to concentrate their business in either Brazil or Argentina.
All of this activity has meant more business for the tank truck carriers that serve Brazil's chemical industry and companies that consume the chemicals. While chemicals are hauled by as many as a hundred carriers in Brazil, the fleets that specialize in chemicals number around 15. One of the largest of these is Transultra S/A Armazenamento e Transporte Especializado of Santo Andre, Sao Paulo, with 176 tractors and 345 tank trailers.
"We have been serving this market for decades," says Paulo de Tarso Martins Gomes, Transultra director. "We were one of the first chemical transporters in Brazil, and we have expanded services steadily to meet the growing needs of our customers. We focus on niches where customers want quality service.
"Along with other Brazilian tank truck carriers, we are beginning to operate over longer distances due to the market changes brought about by Mercosur. We're serving customers in locations as far away as Chile."
Petroleum transportation is far different. Trips are shorter and competition is much stiffer. Hundreds of petroleum haulers operate throughout Brazil. The largest fleets have as many as 1,000 transports and tankwagons. Besides for-hire trucking operations, the market includes large operations tied to major refiners and marketers. Service station and convenience store operators are beginning to buy their own transport equipment.
More Enforcement Regulatory controls over hazardous materials transportation were relatively lax in the past, but the federal government is now working to strengthen enforcement. Brazil turned to Europe for its regulatory model and published new rules within the past year that closely follow the ADR road transport guidelines.
A key objective is to reduce fatal accidents involving commercial vehicles. One of the worst accidents in the tank truck industry's history in Brazil occurred in mid-1998 on the Via Anhangfera (SP 300) roughly midway between Campinas and Araras in Sao Paul state.
At around 2:50 on a foggy morning, a truck driver lost control of a petroleum transport containing 26,000 liters (6,800 gallons) of diesel and 6,000 liters (1,500 gallons) of gasoline. The rig rolled over and skidded to a halt, spilling a river of fire down the median that separated the four-lane divided highway. Two buses drove into the flames, and 53 people burned to death. The fire was not completely extinguished until after daybreak.
The truck driver was among those killed in the accident. Investigators have determined that in all likelihood the driver had been behind the wheel well in excess of the 10-hour daily limit. They also point out that the tractor-trailer rig was old and hadn't been maintained properly.
The newly adopted highway code tries to address those kinds of issues through stricter enforcement of fines and sanctions. However, the code also has opened up new opportunities for truck fleet operators.
Road Trains Truck weights and configurations are addressed in the new highway code. The regulations allow a 45-tonne (99,000-lb) gross combination weight (GCW) for a rig consisting of a three-axle tractor and a three-axle trailer. The GCW is 40 tonnes (88,000 pounds) for a two-axle tractor with a three-axle trailer. Tandem-axle trailers are rare in Brazil.
Road trains are becoming more popular following adoption of the new code. "It's a new product for Brazil, and it is ideal for long-distance runs," says Paulo de AB Gomes, director of engineering/sales at Recrusul S/A.
Two lengths are allowed. Trains that are no more than 19.8 meters (65 feet) in length can operate 24 hours a day under the government rules. Combinations from 19.8 meters to 30 meters (98 feet) are restricted to daylight hours. Payload for the 19.8-meter train is in excess of 49 tonnes (108,000 pounds), and the 30-meter train can carry around 57 tonnes (125,000 pounds) of cargo.
The trains are used for a wide variety of cargoes, including gasoline and edibles. Shell do Brasil has become a big proponent of trains for gasoline shipments. Delara, a tank truck carrier in southern Brazil, is using trains to haul beer ingredients to breweries in Sao Paulo. The high interest in trains is one example of the change that is occurring among Brazil's tank truck carriers. "Our customers are asking for more sophisticated equipment," says Carlos Gilberto Wosiack, Recrusul export director. "Tank trailer builders such as ourselves are responding by developing new products."
There seems to be no shortage of cargo tank builders in Brazil. The dominant tank builders in Brazil are Randon in Caxias do Sul, Rio Grande do Sul, and Recrusul in Sapucaia do Sul, Rio Grande do Sul. They each build a full line of trailers, including dry vans, reefers, and flatbeds. Truck-mounted tanks are supplied by a multitude of small builders.
Heil Trailer International is a new player in the market, selling aluminum petroleum trailers built at a new plant in Argentina. Trinity Industries also is new to the Brazil market, having established an operation there in late 1998 to supply pressure vessels for storage and transport use.
New products for the Brazil market coming out of these builders include tipping dry bulk trailers based on European designs. Hopper trailers predominate in the market. About 200 dry bulk trailers of all types are built annually, and they are used to transport an increasingly diverse range of cargoes. Cement is still the dominant dry bulk cargo, but other products include flour, starch, plastic pellets, and soap ingredients.
Dry bulkers are constructed of carbon steel or aluminum and are designed for a two-bar (29-psi) operating pressure. Capacities range from 26 cubic meters (918 cubic feet) to 59 cubic meters (2,000 cubic feet) for plastics.
Chemical Trailers Annual demand for chemical tanks is in the 1,500-unit range. Most are constructed of stainless steel, with type 304 preferred for non corrosive chemicals and type 316 the standard for corrosives. About 95% of the chemical tanks sold in Brazil are uninsulated, according to Darci de David, Randon S/A sales supervisor. Perhaps 10% of the chemical tanks are multicompartment.
Capacity ranges from 15,000 to 36,000 liters (3,900 to 9,500 gallons), with 30,000 liters (7,900 gallons) being standard. Corrosives tanks vary from 15,000 to 18,000 liters (3,900 to 4,700 gallons).
Petroleum tanks dominate the market, and the total is in excess of 15,000 units. This count includes both trailers and truck-mounted tanks. Approximately 2,000 petroleum tanks of all types are built every year.
Carbon steel petroleum tanks predominate in Brazil. "Aluminum tanks are just beginning to gain favor with Brazil's petroleum industry," says Magda Custoduo, import department at Randon. "We expect demand for aluminum tanks to grow significantly over the next few years."
Petroleum transports typically can carry 30,000 liters, while tankwagons are available in 10,000- and 15,000-liter capacities. Aluminum trailers are available in capacities up to 65,000 liters (17,000 gallons). Six compartments are typical for petroleum trailers.
Large numbers of pressure vessels are in use in Brazil, transporting LP-gas and other products. Annual demand is in the range of 60 bobtails and 30 transports, according to Carlos "Chuck" Reynoso, president of Trinity Industries do Brasil Ltda. Current demand is for trailers with a 49,500-liter (13,000-gallon) capacity and bobtail tanks that hold 20,000 liters (5,200 gallons).
European Placards European-style placards are mandated on tanks carrying hazardous materials. Domelids on chemical tanks have a 500mm- (19-inch) diameter and those on petroleum tanks have a 450mm- (17-inch) diameter. Four-inch outlets are standard for petroleum tanks, and three-inch valves are used on chemical units.
With few exceptions, vehicle-mounted pumps and blowers are not that common in Brazil. Product transfer equipment generally is in place at customer locations.
However, blowers are used by cement haulers and are beginning to gain some acceptance with carriers that are handling plastics. Until recently, the blowers that were sold in Brazil were bulky oil-cooled units.
Compact blowers from Drum Industries were introduced to the market in 1997 following the formation of Syltone do Brasil Ltda. "We're selling equipment to about a dozen fleets now, and we've received a good response," says Juan Delgado-Parra, executive director of Syltone do Brasil.
Besides the Drum blowers, Syltone do Brasil is selling pumps, Webster PTOs, and Emco Wheaton hardware. "We're on target in most areas," Delgado-Parra says. "Our biggest difficulty has been in developing business for Drum's stainless steel pumps. A lot of stationary pumps are in use in Brazil. Fleets don't show much interest in truck-mounted equipment."
Installations are performed at a 350-square-meter (3,700-square-foot) shop in Campinas, Sao Paulo. The facility serves as Syltone's regional office, marketing Drum products throughout the Mercosur area.
Truck Choices Scania and Volvo tractors are seen most frequently at the Syltone do Brasil shop. These are the most popular heavy-duty tractors in Brazil. Other truck makes include Mercedes-Benz, Volkswagen, Ford, and General Motors. Navistar entered the Brazil market in late 1998 and is building trucks at a plant in Caxias do Sul, Rio Grande do Sul.
"Scania is probably the most popular heavy truck in Brazil," says Recrusul's Gomes. "Scania has been selling trucks in Brazil for over 30 years, and it was the first to sell commercial vehicles in substantial numbers."
Electronic engines are just beginning to enter the market. Antilock braking is being discussed by some fleets, but manufacturers say they haven't seen any serious demand. Some have questioned whether antilock braking could last long on Brazil's roads.
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