Logistic Challenges in the Face of Exploration
March 16, 2009 In the last five years, Brazil has been working its way towards becoming a major exporter of cotton. Based on the International Cotton Advisory Committee (ICAC) records, from 1991/92 season to the 2002/03 season, Brazil was a net importer of cotton. However, new high yields, especially in Mato Grosso and Bahia, have resulted in a shift. In 2003/04, Brazilian cotton production surpassed its internal consumption by almost half a million tons, thus becoming a net exporter. For this upcoming season, the ICAC projects a total production of 1.4 million tons of which half a million will be destined to export.
In the light of this growth, new issues must be tackled. “Infrastructure and transportation pose limitations on the producer’s ability to expand,” Woody Anderson, former Vice Chairman of the National Cotton Council, noted when reviewing a recent tour of Brazil’s cotton and textile industries. “Over time, if these issues are addressed, we have to expect Brazil’s production to continue to expand,” he continued. Addressing these issues is directly related to the potential growth of cotton production; while improvements will be complex and possibly costly, most of these factors can be improved upon.
The Current Situation
Brazilian producers get their cotton ginned and, for the most part, keep the ginned bales at the farm until it is time to ship it. Some cotton merchants have started to move cotton to warehouses prior to the time of shipping in order to minimize the impact of transportation time and contingencies in the final shipment execution. However, the rising cost of storage near port facilities explains why still much of the cotton destined to export sales does not get moved from the farm until an actual shipping instruction is issued by the merchant.
At the time of putting the cotton on the water, most merchants value the service provided by freight forwarders who skillfully mediate with shipping lines to provide better freight rates and to facilitate other aspects of the relationship with the marine carriers. At this juncture, custom brokers keep up to date with legislation changes and play a vital role in providing timely documents upon vessel departure.
The Challenges
Being the second largest country in the western hemisphere, vast distances constitute one of the challenges exporters face. The main cotton producing states of Mato Grosso, Goias and Bahia are separated from the main ocean ports of Santos and Paranagua by a range of 1200 to 1500 kilometers (750 to 940 miles). Highways are the main means of transportation in Brazil in the movement of both passengers and freight of goods. Trucking is the dominant form of transportation due to its reliability and convenience, thus 100% of the country’s cotton is moved to the ports by truck.
Highway systems that connect important urban centers are well developed and many have multiple lanes. However, this is not always the case in the interior where most of the cotton is grown and ginned. Much of the cotton transportation is carried out in busy two-way highways where trucks moving different commodities compete for space. Road deterioration due to weather conditions and heavy usage is also a factor. While the government has granted some highways to private companies to maintain them in exchange for tolls, this has only been a partial solution to the problem. Thus, shippers estimate an average of 5 to 7 days for trucks to cover the distance between the farms and the port.
Weather is another important factor; most cotton is shipped out of the country from August to March. For the most part, these months coincide with the rainy season. Cotton cannot be loaded on to trucks when it is raining, and some of the country roads that lead to farms may become impassable for several days after a heavy rain.
The vast majority of cotton exports leave the country through two major ports – Santos and Paranagua. Santos, the largest ocean port of the country, was originally inaugurated in 1892 and started operating with approximately 125,000 tons. Today, it moves almost 80 million tons a year. The port authority CODESP (Autoridade Portuária – Companhia Docas do Estado de São Paulo) reports a 35% increase in the total annual movement in the last 5 years, from 2003 to 2007. During this time, container movement increased 60%. With such a rapid growth, difficulties have arisen and infrastructure cannot keep up the pace with rapidly growing production and trade. Paranagua is the second port of importance, but is the main port for grain export.
These challenges contribute to delays that must be foreseen and provided for by the ones executing shipments. In a market where just-in-time shipments are the norm and where risk is accounted for under letters of credit with set shipment and expiration dates, the former scenarios and possible consequent delays are not to be underestimated.
Once cotton has reached the port and cargo is loaded on the vessel, timely issuance of documents is another great challenge. Public agencies with long processing times and carriers/agencies with computer systems that are in developmental stages are problematic. Still, others are based on simple human error that may be exponentially threatening when combined with lack of experience and little attention to details.
There are still other issues that involve local situations over which exporters have little control such as strikes and delays in the issuance of official documents.
Facing the Challenges
Most of these factors provide a challenging ground for creativity and perseverance from those that value the business of cotton and the increasingly better qualities that are produced in Brazil. So, what approaches could be helpful?
- Good Communication
The value of good communication between all parties involved cannot be overemphasized. Previously planned timely reports that are brief and concise keep all parts aware of any eventualities that may arise. - Training
All parts involved must know exactly what is expected from them and the best way to get to it in the least time possible. - Skilled Professionals
Experience has shown that even for those running the operation from overseas, having a team of skilled professionals that are familiar with the culture working on site is priceless. The personal bridges built by the local office with all the actors in the process are of inestimable value. - Empowerment
Although experience may tempt many to apply systems that have worked in other countries, local standards and ways of getting things done cannot be overlooked. It has been proven that well trained professionals that are empowered to run most areas of the operation from the local office get more accomplished in less time than those having to wait for many unnecessary checks and re-checks to be performed by a remote office.
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