THERE ARE two overlapping success stories to tell of Brazil's railways. One is the massive boom in world demand for Brazilian commodities that has underwritten a steep growth in freight revenues. The second is the transformation of the former Brazilian Federal Railways into several efficient operators capable of meeting the challenges of a growing market.
Whereas Rffsa suffered from a high degree of under-investment, leading to operational inadequacy, the privatised railways are now entering new territory. Operational excellence has been broadly achieved, which is allowing them to fund investment in relieving traffic bottlenecks that mostly affect the main commodity export routes. With government support, further investment is expanding the network to tap the potential of the country's interior.
The leading companies spawned since privatisation are MRS Logística, América Latina Logística and Ferrovia Centro-Atlântica. A major consolidation took place in 2006 when ALL acquired Brasil Ferrovias. The two heavy haul networks, Estrada de Ferro de Carajás and Estrada de Ferro Vitória a Minas, were already efficiently run before their owner, the mining giant Companhia Vale do Rio Doce, passed into the private sector. CVRD has subsequently integrated FCA into its operations (RG 12.03 p802), and significantly raised its performance.
Mineral and grain traffic continue to dominate freight growth. The three leading railways – EFVM, EFC and MRS Logística – all are heavily dependent on the movement of iron ore, which totalled 340 million tonnes in 2006. ALL and FCA growth has been mainly driven by the soya market, although oil products, cement, fertilisers and bauxite traffic are also growing across the network. However, there has recently been a slump in traffic associated with Brazil's important steel industry: pig iron, coal, coke and limestone.
Performance indicators for the last 10 years show clearly how successful the structural reform has proved for Brazil's railway operators. The larger players have gathered an unstoppable momentum in raising tonnage, delivery speeds, efficiency and profitability, enabling them to finance comfortably further expansion.
All of the companies are well-capitalised and willing to invest in capacity enhancement. Brazil's National Rail Transporters' Association (ANTF) said in May that concession operators would invest US$1·82bn in 2007, against US$1·14bn in 2006. This would allow them to raise freight volumes by 9·2% to 435 million tonnes/year. Economic growth had led to an extra US$500m being added to earlier investment plans.
Central to the current growth spike is container traffic, where ANTF sees a 26% rise to 259 000 units in 2007 from the 205 000 carried last year. Around 40% of investment this year will be in infrastructure and 35% in rolling stock – there are currently 90 000 wagons and 2 650 locomotives on Brazil's railways.
The federal government has also pledged to spend US$830m this year as part of a US$4bn 'Growth Acceleration Programme', or PAC, for the period 2007-10. This covers 13 projects totalling 2 518 route-km.
PAC is aimed not only at expanding the rail network into new areas but, perhaps more importantly, sustaining the growing freight flows and easing some of the notorious bottlenecks. These schemes include:
- Priced at US$325m, the Ferroanel will bypass São Paulo City at a tangent through its northeast quadrant on the way to Brazil's premier port, Santos. This will be of paramount importance to ALL and MRS Logística, whose export routes are currently choked by heavy urban passenger traffic in central São Paulo.
The 65 km Ferroanel has been discussed for at least 10 years but real progress is now being made. Contracts are expected to be awarded by the end of this year for the section linking Campo Limpo Paulista, north of the city centre, with Engenheiro Manoel Feio to the east.
- The most significant bottleneck project outside the Ferroanel is that at São Felix e Cachoeira in Bahia state. This 17 km bypass, with a 600 m bridge, will avoid extensive shunting in an already congested town centre and within an historic station building and free up the only south – northeast rail link between Belo Horizonte and Salvador. Despite chronic traffic hold-ups, operator FCA has managed to develop an express freight business to serve Ford's huge car plant at Salvador with a 'just-in-time' container service carrying parts. Salvador is home to the Southern Hemisphere's largest petrochemicals complex, which sends its products in the opposite direction.
- The diversion of the railway away from the centre of the junction town of Barra Mansa in the highlands of Rio de Janeiro state will also benefit MRS and FCA freight flows down the escarpment to the coast.
- As part of PAC several other avoiding line projects are underway to skirt the towns of São Francisco (8·3 km) and Joinville (19·9 km) in Santa Catarina state, and Araquara (39 km) in São Paulo state.
All of these urban upgrade projects – and there are others contemplated by individual states and municipalities – have the added benefit of freeing up valuable land for development, while also reducing road accidents and cargo theft from freight trains as they traverse the urban areas.
New line progress
The Ferrovia Norte-Sul (RG 3.04 p151) is proceeding on two fronts. From the north an additional 358 km is being laid to Palmas in Tocantins state at a cost of US$700m. The first 190 km to Araguaína, the first major town in Tocantins, was completed in May 2007 at a cost of US$230m. This connects Tocantins to the port of São Luis via EFC metals. From the south a US$600m, 280 km extension from Anápolis to Uruaçu in Goiás state is also to be built. Work on both sections is planned for completion in 2009.
FNS will open up for agricultural development a massive area of mostly level, arable savannah. As well as export grain traffic, the railway will be able to raise its productivity by hauling fertiliser on the return trains. Last year FNS carried 1·6 million tonnes, with soya exports forming the main traffic until recently, given that the deep-water port at São Luis is well-placed to serve the North American and European markets.
As well as global metal demand, and agricultural commodities demand led by China, there is also a fast-growing market for alternative fuels. Brazilian ethanol derived from sugar cane has attracted massive investment in the 'new agricultural frontiers' which FNS crosses, comprising 1·8 million km². Biofuel plantations and distilleries are now mostly being developed on the periphery of the Central Plateau but the trend is for these to develop along the railway's area of influence.
Due for completion around 2013, the Transnordestina project (RG 4.06 p209) will connect the rail networks radiating from Recife and Fortaleza. Starting points for the new line will be the adjacent deepwater ports of Suape and Pecem, which are both endowed with generous, unobstructed retroport areas. Recife and Fortaleza are currently connected by a tortuous route, mainly along the coast. The new trajectory will cut off the country's northeast corner and tap the economic potential of a long-neglected and poor hinterland. The main section will be built over 650 km between Missão Velha in Ceara state and Salgueiro in Pernambuco. Another 1 150 km of existing track will be upgraded.
PAC will also provide US$1·6bn between now and 2010 for expanding the four urban rail networks in the large metropolitan regions of Salvador, Recife, Belo Horizonte and Fortaleza. The aim is to add a total of 609 million passenger journeys a year.
ALL is set to benefit from the completion of the US$250m Guarapuava Variante in Paraná state. This 130 km route is designed to provide a more direct link between the modern Guarapuava – Cascavel line (formerly known as Ferroeste) and the Curitiba region, replacing an extremely sinuous line which slows the heavy traffic of soya to the coast.
ALL is now also responsible for Ferronorte, which was begun in the late 1980s to extend northwest from São Paulo state into the newly-developing soya regions in Mato Grosso. The private company is exepcted to make available new investment for the railway, but ALL has yet to put forward concrete plans, presumably because of its preoccupation with absorbing Brasil Ferrovias' operations.
The rise of ALL
Brazil's railway privatisation has not been entirely plain sailing. A number of operators have failed, leading to significant consolidation. Formerly a private business, ALL became a listed company in May 2006 and ambitiously bought Brasil Ferrovias, which was itself an amalgamation of three other private networks: Ferroban, Ferroeste and Ferronorte.
With a partner operation in Argentina, ALL is Brazil's only cross-border railway operator. It serves a region where 75% of Brazil and Argentina's GDP is generated. It connects the seven most important ports and runs 960 locomotives and 28 000 wagons on a 20 000 km network. Some 60% of its revenue comes from agricultural commodities and it serves 78% of the two countries' grain export regions. The other 40% of its traffic is in manufactured goods.
Operating mostly in southern Brazil, ALL had been doing very well, overseeing a 72·6% rise in freight carried since 1996. Its main route carried soya for export through Paranaguá. The BF takeover has given ALL a second soya export corridor from the expanding agricultural region in Mato Grosso to Santos, where it shares the dual-gauge access route with MRS Logística.
ALL made two-thirds of BF's 4 500 staff redundant last year and completed the integration of BF operations in January. It hopes to make its new operations profitable by the third quarter of 2007, but ALL admits that the whole absorption process will take two or three years until BF performance has been brought up to the same standard as its own routes.
Gains have already been made in lowering accidents per km on the BF network, which is a good indicator of the state of the track and the rigour of its operating procedures. ALL is replacing 20 km of track around the Santos port area, and separation of rail from conflicting road traffic is already improving operations. In March there was a 20% rise in unloading rates (990 000 tonnes against 845 000 tonnes for the same month in 2006). ALL has also made joint investments with its customers to improve their commodity terminals at Santos.
The company plans to refurbish 200 locomotives and replace 20 000 tonnes of rail and 800 000 sleepers by 2010. It will invest US$250m this year buying 54 locomotives and in renovating 40 to 50 others, taken from the stored BF fleet along with 1 800 wagons. Most of the funds for putting the wagons back into traffic are coming from customers.
MRS tackles its bottlenecks
In May, MRS Logística announced plans to invest US$1bn in its 1 674 km network. MRS has been able to mostly use its own funds for investment, and has easy access to credit given its stable financial footing.
MRS's main business, export iron ore, remains buoyant thanks to long term contracts and soaring world prices. This year it expects to carry 130 million tonnes, up from 113 million in 2006, and it has set a target of 200 million tonnes for 2010. President Julio Fontana Neto said in 2005 that the company aimed to increase profitability by raising tonnage and diluting its large fixed costs (RG 6.05 p343), and it seems he is achieving this. In 2006 MRS registered profits of US$280m on a turnover of US$1·18bn, and it invested US$257m.
MRS has overcome the backlog in track maintenance, traction and wagons of its section of Rffsa. The company plans to spend US$350m on 850 new wagons, 20 new and 38 refurbished locomotives in 2007.
In addition to the work MRS is undertaking jointly with ALL to improve access to Santos port, its most impressive capacity enhancement is the US$80m conveyor project to supply the steelworks at Cosipa (RG 6.05 p344). MRS expected to receive a definitive environmental licence by the end of July after a four-year wait.
There are five bidders for the project, which should take 22 months to complete. The conveyor will add 8 million tonnes/year in capacity to the parallel rack railway incline, where 70% of the current traffic is iron ore destined for Cosipa. MRS train cycles from Minas Gerais to Cosipa will be cut from six to three days. In addition, MRS is a vociferous supporter of the Ferroanel, which the federal government is now backing. The state development bank Bndes will shortly present the government with detailed plans for the project.
CVRD leads the way
As the world's largest iron ore miner, CVRD continues to be the country's biggest rail freight operator in terms of tonnes carried. CVRD has become China's largest supplier of iron ore, at 80 million tonnes/year, and this contributed to the impressive US$7bn profit recorded by its mining and logistics businesses in 2006. Guaranteed long-term contracts have meant CVRD has been able to invest even more in its infrastructure and rolling stock.
The two heavy-haul railways carried 224 million tonnes between them in 2006. The older and more sinuous EFVM links Belo Horizonte with the port of Vitória, while the 1970s-built EFC connects Carajás in the Lower Amazon basin to São Luis. Both are around 900 km long.
The newer EFC network has fewer constraints on expansion. Whereas EFVM traffic rose just 0·5% in 2006, EFC's increased by 14·8%. CVRD is investing US$250m in EFC in 2006-08, extending 56 passing loops by 1·5 km each. Train lengths are being extended to 312 wagons, and some gross up to 30 000 tonnes, which will be necessary to feed the dedicated giant carrier ships now under construction for ore shipments to China. EFC also carries the growing agricultural traffic generated on FNS, which connects with its network at Imperatriz.
EFVM is about to gain a new 165 km coastal branch running south from Vitória to Cachoeiro de Itapemirim in Espirito Santo. Detailed plans have been drawn up and an environmental assessment was submitted earlier this year. The line will replace an older route through mountainous terrain, and will be more suited to capture ore and stone traffic in the area.
Following three years of trials, CVRD signed a contract in May with state oil company Petrobras, making it the largest biodiesel user in Brazil, and probably the world. By December, CVRD will be buying 33 million litres/month of 20% blend biodiesel, which will be produced at plants along CVRD's network. From the end of this year around two-thirds of its locomotive fleet will use the blended fuel.
CVRD also operates FCA, which it acquired in 1999. FCA has 450 locomotives and 11 000 wagons on a more sprawling network than EFC and EFVM. It covers 8 000 km, linking Rio and São Paulo via Belo Horizonte to Salvador in the northeast. It also shared many of the problems typical of the rest of the pre-privatised network: under-investment, inefficiency with consequently precarious infrastructure, low productivity and staff morale.
However, FCA has been an opportunity for CVRD to create new markets. FCA is mainly an agricultural commodities railway, where traffic has grown in line with the world boom in commodities. CVRD has successfully added express container freights to this portfolio with long distance deliveries of 'just-in-time' car parts.
FCA's traffic grew to 27·6 million tonnes in 2005, making it Brazil's fourth largest rail carrier after CVRD and MRS Logística, but tonnages fell again by 15·2% in 2006. This was a result of lower demand for traffics associated with steel production and reduced agricultural exports as a result of increased currency values. FCA is currently negotiating two expensive relief routes with the federal government to ease bottlenecks. One is a bypass for Belo Horizonte and the other will provide a more direct crossing of the nearby Serra de Tigre mountain range.
Today Brazil's privatised railways are almost unrecognisable from their predecessor company of 10 years ago. There is a general air of confidence, thanks to their relentless productivity growth and consequent capitalisation, which has allowed for an impressive programme of line construction and capacity enhancement.
Government support for new rail projects has been sluggish in its first term, but the federal government is now displaying a more pro-active attitude in getting projects off the drawing-board. São Paulo state is pushing ahead with the perennially-proposed line to the Guarulhos international airport (RG 7.07 p408), and new feasibility studies for the long-mooted Rio – São Paulo high speed train project were announced in April, taking a year to complete. Japanese, French, Korean and Italian parties have shown an intere st in the US$8bn 500 km project, which the government has indicated would be privately-financed.
- CAPTION: CVRD is investing US$250m to extend capacity on its Carajás iron-ore railway, where trains are now carrying up to 30 000 tonnes
- CAPTION: Ferrovía Centro-Atlántica has developed express container services to deliver car parts to the Ford complex in Salvador on a 'just in time' basis
- CAPTION: With soya exports through Paranaguá forming its principal baseload, ALL has seen a 72·6% increase in freight traffic over the past decade
- CAPTION: ALL is investing heavily to improve capacity on its main export corridor through Curitiba to Paranaguá
Table I. Brazilian railway performance (million tonnes)
2005 2006 Change
EFC (Estrada de Ferro Carajás) 80·6 92·6 14·8%
EFVM (Estrada de Ferro Vitória a Minas) 131·0 131·6 0·5%
FCA (Ferrovia Centro Atlântica) 27·6 15·1 -15·2%
MRS Logística 108·1 113·1 4·6%
ALL (América Latina Logística) 21·7 25·9 19·5%
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