I recently interviewed a senior logistics executive at one of the top three largest logistics service provider firms in Brazil. This gentleman provided a very cogent and insightful set of ideas about what is happening in the logistics environment in Brazil. Brazil is one of the four largest growth market in the world, and with Chinese demand slowing (based on comments on a recent analyst call with Fred Smith, CEO of FedEx), Brazil may well become the engine for global economic growth for the next two or three years.
Some of the key insights that came out of our discussion follow.
In Brazil, integrated business models are the winning models. What I mean is that adding a lot of other services that we don’t render today – such as freight forwarding, technology-based services where you can sell software, some types of software to enhance the logistics of your clients, are all becoming more important to discerning customers in Brazil.
Freight brokerage is a big service that we are able to do very well, because we are so close in this market to the government agencies that operate, and understand what is happening on the ground better than anyone else out there. Our belief is the more integrated you become, the more your client will value you as a single service provider and the more willing they will be to consolidate their business with you, and pay a little more because of that.
The second big trend we see is technology. We hold a lot of discussions around this. Our TMS our (Transportation Management System) and WMS (Warehouse Management system) are proprietary – and we have a lot of discussions on whether we have the best technology, or whether we should we buy a third party software. But the more we understand this, the more we recognize that technology is a core part of our business. We undertand we must continue to invest in our proprietary technology in our operating systems –and that allows us to have a lot of flexibility –and that word is magic. We have grown because of all of our flexibility. We hear a lot of clients who leave the big LSP’s because we are flexible, and those companies are NOT. It has to do with company culture, and technology, and we treat it every year as a core competence of our service.
Another trend that we see that is not mature in Brazil is multi-modal logistics. We have a network that is 85% road transportation today. When we visit the US and meet with best in class LSP’s, we see companies moving to multi-model networks that combine rail, road, ship, and air. And they are developing intelligent ways to decrease cost of the freight, and we see a potential for that to develop in Brazil. But this capability depends on infrastructure investment in railroads and river transportation – and this will take more time to happen. Investments are coming, so look out and take a five to 10 year perspective.
One final issue has to do with security in Brazil. The level of robberies and theft is very high, so you don’t have a lot of option for transportation, and the cost to insure transported loads of valuable freight is very high. We cannot put big loads in a full truck load, because it might then be a $5M load, and the risk insurance will be too high. So we have to split it into five trucks of 1M each –and that is another restrictive issue on good optimization for logistics. When you split loads for risk management, you decrease the cost of insurance, but reduce the cost per unit of transportation cost!