Red tape clogs transport chain

Red tape clogs transport chain

PSA, owner of Peugeot and Citroen, has lofty ambitions in South America. It established a direct presence in Brazil last year by opening a small assembly plant, and plans to produce more cars to fill the forecourts of a promised 200 dealers next year, double the present number.
Whether, as a latecomer to this market, the group can take on and beat the established powers in the region, such as VW, Fiat and Ford, only time will tell. But any gains in market share PSAmakes will be to the benefit of Gefco, its in-house logistics provider.

Two models, the Peugeot 206 and the Citroen Picasso, are being produced at Porto Real in south-east Brazil, between Rio de Janeiro and Sao Paulo. Initial capacity is 200 vehicles a day, shortly to increase to 300, but during IFW's visit last month, output was running at just 80.

Even this modest rate of car production presents an interesting logistical challenge in a developing country.

Around 60% of parts are currently sourced in Brazil and Argentina. A number of manufacturers have joined Gefco in a "tecnopol" or supplier village adjoining the factory. Other components are trucked to Porto Real either as full loads or part loads, a relatively new concept to Brazil.

Ten Gefco trucks a day carry out a "milk run", collecting from manufacturers in the Sao Paulo area. Jereme Bodet, general manager freight for Gefco Brazil, says the company intends to double the milk run next year as it consolidates more components and performs value-added services before delivering to the production line.

Gefco directly handles parts from seven suppliers, under 300 product codes, at its R$7.2m (€2.8m) warehouse. Items, such as internal door trim, now delivered palletised direct to the plant, will go through the Gefco facility in future so it can be supplied in small quantities to order.

Opportunities to consolidate parts and carry out sub-assembly will increase as local sourcing grows to 80% next year.

Bodet says engine parts and other components could be supplied from within Brazil, which is already the case with other carmakers.

Gefco is also responsible for movement of complete cars.

Models made in Europe for distribution in Brazil, such as the Peugeot 406, produced in France, and the Italian-built Citroen Xsara, are shipped to Rio by Grimaldi.

The port of Rio has a privately operated 14ha car terminal, Multi-Car Rio, which will be serviced by a new 750-metre quay when dredging to a depth of 12.5 metres is completed later this month. Gefco checks cars at the quayside for damage but Louis Defline, president and MD of Gefco, says the aim is to set up a full Europeanstyle pre-delivery inspection process, including fitting radios and other accessories.

Gefco imports parts five days before they are needed on the line, but operates at minus 10 days if the source is Argentina – a reflection of diehard customs formalities which the company is working hard to streamline.

"It can be more difficult to import from Argentina than from Europe, " says JeanPhilippe Lacroix, international customs and tax manager. "Multinationals want a single market and, in a better economic situation, I'm sure Mercosur [the trading bloc of Brazil, Argentina, Uruguay and Paraguay] will implement this, " he adds.

Some frustrating protectionist measures are still in place – for example, 25% of the cost of shipping has still to be paid to the customs authorities on entry – but at least the paperwork is speedier.

"Two years ago we explained what we do in Europe. They went away and thought about it and now we have the "canal express" preentry system in Rio. It has been extended under the name "blue line" to other ports in Brazil, says Lacroix.

Gefco can now get goods released from Rio port in two days. It used to be 20.

The port of Santos serves Sao Paulo, site of Gefco's Brazilian spare parts hub, and is a tougher customs environment than Rio. Air freight also poses problems.

"We fly in some high-value and emergency shipments, but you need a lot of stamps from a lot of different authorities and it is three days before goods are ready for collection, says Lacroix.

"So, it's less efficient than Rio port."

There are also complications within Brazil, whose federal structure means taxes are set at state level. Agricultural producer states in the north have different ideas about VAT to southern industrialised/consumer states and this lack of harmonisation – and accompanying paperwork – makes national distribution difficult.

"They must change their tax system, but there is not the political will to do it, says Lacroix. "Some people are keen to help, but it's a fight between the states and the national government.

More than 90% of Gefco's distribution – cars from Rio or spare parts from Sao Paulo – is by road, using five or six hauliers. The Brazilian rail network is limited outside the south-east, although the company believes it could make more use of coastal shipping services.

Urgent spares sometimes have to be air freighted to the north, owing to the huge distances involved. Fortaleza, for example, is 4,000km from Rio – several days' drive.

Finding the necessary supply chain skills locally is the final challenge facing logistics providers in Brazil.

Cost, and the fact that foreign workers can usually only get a year 's visa, means Gefco cannot rely on bringing in French management, explains Defline.

"Brazil is 30 or 40 years behind Europe, but we are working closely with a university in Rio to make sure we get the kind of graduates we need, " he says.

This may bring benefits outside the automotive sector.

Cultural ties between the two countries mean many French companies invest in Brazil.

With its parent company giving it critical mass, Gefco is now being actively encouraged to seek business in other sectors and is talking to a pharmaceutical manufacturer.