Groundhog Day in Brazil

No, this is Barcelona airport (and yes, it is in operation)

I came back from Spain last weekend and came through two airports there: Palma and Barcelona. Both are huge and whereas Palma is a bit old, it is still fairly efficient and even sports valet parking. Barcelona by contrast is a modern, efficient and great airport to fly into and out of or to connect through: Transit is fast, waiting times short, with a great shopping area and a pretty good Spanair lounge.

Then I flew into Guarulhos and noticed how much there still is to do...But the airport claims to be ready for the world cup, with a MOP (Modulo Operacional Provisiorio, i.e. a provisional terminal). I was also "lucky" to experience this MOP on a business trip this week: Whoever has flown through many of these RyanAir airports in Europe will be able to picture this well: A very simple structure with many chairs and a small counter which sells semblances of food - if you are willing to fork out 3.00USD for a bottle of water - has the charm of a bus station. Oh yes, my flight also left late and came back late the next day... And I also did not find a parking space, I did what everybody does. As there is no alternative and the generous 3000 spaces are never enough...

What else is new this week?

• The minister of tourism quit after allegations of corruption - that is number 5 this year. The new minister (also from the PMDB) has named his number one priority getting ready for the world cup. Sounds like Groundhog Day to me.
• A new hobby of thieves, blowing up ATMs, seems to be catching on. This week, the 500th (yes, five hundred) ATM was blown up trying to get some easy money. Unfortunately for the culprits, the money was tainted with special ink, as is the case of most ATM if they are tampered with. The Civil Police is searching chemical industries in the whole region for possible losses of chemical products used to make explosives... 500 ATM, that is alot of explosive in just 9 months...
• Inflation is expected to hit around 7.5% this year, and GDP growth should not surpass 3.5%
• The USD hit a 12-month high vs the BRL - this will help exports and possibly slow down some speculative capital inflows
• To protect the Brazilian car industry, the government has increased the IPI (a tax) for small cars with no Brazilian components to 35% (up from 7%)
• Construction Workers at the 2014 World Cup Stadiums in Rio and Belo Horizonte have been on strike (B.H. sind this week, Rio since September 1)

Looks like the last couple months will not be boring. ;-)

UPDATE 17.09.2011: According to the Infraero website, the MOP in Guarulhos is not temporary, but can be used "for a very long time, if required".

Ash and Fog

Made it!

The volcanic ash cloud from unpronouncable Icelandic volcanoes appears to have become a regular phenomenon in Europe. Well, welcome to the club. In São Paulo the winter is approaching and with it the regular phenomenon of fog. Fog is so intense in the Guarulhos Airport area (THE major airport) that the airport regularly closes during fall and winter mornings. This morning was another case - I have two colleagues flying in and both were diverted to Campinas airport, where they are hanging around now before they get sent back to São Paulo - immigration in Campinas is, for some odd reason I do not understand, not possible.

I wonder what the considerations were, when the military junta decided to build the major airgateway into São Paulo in the foggy hole of Guarulhos in the 80s...

But there is really interesting news too: Emirates has asked the governmental airport administrator INFRAERO permission to start using the A380 on their Dubai-São Paulo flights starting December. Their 777-300ER are at 90+% capacity (just like most other airlines heading down here) and they would like to cram in more people. Apparently this could work, if one of the taxi runways were closed during landing and take-off (the A380 seems to have a veeeery large wingspan) and if some adjustments for parking positions were made (for example by scrapping old VASP 727 rotting away on the airport). Infraero has not given a final position yet. Apparently Lufthansa, Air France and Singapore Airlines (which just recently took up Singapore-Barcelona-São Paulo) have also inquired about A380 capacity in GRU. Immigration, which is hell on earth already today, is likely to get worse.

P.S. Emirates will also be flying Dubai-Rio starting in 2012, so the selection of routes into Brazil is expanding.

Now official: Airports will not be ready for the World Cup

Reality today... and in 2014... and in 2016...

The renown (governmental) institute IPEA has now confirmed what most realists have known for a while: The airports will not be ready for the World Cup in 2014. Notable exemptions are Curitiba and Tom Jobim in Rio.

While the Minister for Civil Aviation (a brand new ministry) Wagner Bittencourt still claims that the timeplan is "adequate", he seems to be in denial, ignoring the IPEA data.

Experts have long advocated the privatisation of the airports to ensure that infrastructure grows ahead of (or at least with) deman - but the government remains stubborn that airports remain a national interest and thus must be state operated. Now it is too late...

Of the 13 airports under construction and modernisation, 9 will not be ready by 2014... among these the unimportant Sampa Guarulhos, Salvador and Brasília. And what is worse, these will not be ready for the 2016 olympics (Only Porto Alegre and Belo Horizonte will be) - so do not plan any extensive travel outside of sporting events in 2014 or 2016.

This blog, as one of many sources, has repeatedly highlighted that there is a huge risk of the aiports, most specifically Guarulhos not being ready for the World Cup 2014, nor the Olympics in 2016. And this is not only based on other news sources or what I hear and read. I fly in and out of Guarulhos at least once a month and just recently signs have gone up announcing the modernisation and expansion of the security area and passport controls... Unfortunately, as in many cases, it will take a long time until something starts happening - but the renderings on the posters look nice.

Oh, and to add to the troubles, the Itaquera Stadium in Sampa, which apparently should host matches during the World Cup (if they ever get construction started), will not be ready for the Confederations Cup in 2013.

And I will not even get started on any bullet train discussion - this is just sad.

Growth in Europe Meets Growth in Brazil

Maybe not enough capacity in the future...

 Photograph from Hyougushi at http://flickr.com/photos/71481771@N00/397656432

Last week I met with a few fellow (German) expats for drinks in Vila Madalena and during the evening we found out that of the six people at the table, four had been on the same flight coming in from Munich two days before.

It is pretty amazing. Just about a year or so ago, Lufthansa flights from Germany were full, but not to the point of bursting. This has clearly changed. On my flight to Germany about two weeks ago, they transported two passengers on the jump seat... on the way back, same thing. In addition, at least four people were downgraded, frustrating my upgrade attempt.

Lufthansa already has daily flights from MUC and FRA to GRU and will also take on FRA to RIO this October. In addition, TAM also flies daily to FRA from GRU and RIO. I believe that this will not be enough - I have heard rumors of taking in a 747 for the MUC-GRU instead of the A340, which would offer another 70 pax seats (the A380 will never fly the route as GRU is barely equipped to receive a normal 747). I have also heard a rumor of DUS-GRU and of TAM taking on GRU-ZRH in addition to the daily Swiss flight.

If you consider the amount of German companies in Brazil and the growth both countries are going through, the Lufthansa-Exec responsible for South America clearly has a "good Problem" on his hand right now... The only frustrating thing about all of this, is that all flights will go through the GRU and GIG gateways... clearly a disaster.

Crisis, what crisis?

PS, Korean Air apparently read my post about Hyundai ;-) and is increasing the frequency of flights between Seoul, Los Angeles and São Paulo. Thanks, http://expatbrazil.wordpress.com/.

ipad to be produced in Brazil

Now this is interesting news. According to market rumors, Apple is planning a billion dollar investment in a factory in Brazil to produce, among other things, the ipad 2... And there is more than a rumor to it. I know where the site is located... on the freeway (between Jundiaí and Indaiatuba) that I often take on weekends to a nice hotel fazenda. In the past months I had wondered about a huge building sporting the Foxconn-Logo on the side, but stupid me never considered that this might be for Apple.

Surely there is a huge fiscal and financial incentive involved, in addition to an ipad costing half of what it would if it had to be imported, thus making it accessible to a much larger part of the Brazilian population. Currently, the ipad sells for an eyewatering USD1000 in Brazil.

Apparently production is to start in November. If this is true, then the price for ipads in Brazil will fall by half and Brazil will have a nice hightech toy to export. The only problem about the export is that the ipads will have to pass through the Guarulhos or Viracopos Airports or the Santos Port. But let that be our worry when the time arrives.

Apple-afficionados, get ready...

Logistics Backlog

For those of you who can read Portuguese, here is the article on the backlog in Santos.

As mentioned several times already, infrastructure is a massive problem in Brazil. Especially with the economy hot as it is (growing at 7-8% in 2010), infrastructure is starting to crack at the edges.

The delay of 15 days or more for ships to get into Santos, the main Brazilian port, has been commonplace since the beginning of the year. Once ships do arrive, it takes another 10 days to get the container out of the port and to your warehouse (if this is in the São Paulo metro area). The view is pretty spectacular (not to say frightening for logistics managers) looking out from an airplane flying over Santos to São Paulo - you can see ships lined up for dozens of kilometers, waiting to be let in.

I see it at my company and several of my suppliers, as we import a fair amount of raw materials from Europe, NAFTA and China. We have already also tried alternative ports, but the major ones in the south, such as Paranaguá and Itajaí are not much better and similarly clogged.

The situation is very similar at airports. It has become fairly common for cargo to get lost at Guarulhos (São Paulo) airport. Recently returning from Argentina, our plane had to park at an outside position (Guarulhos passenger load is at 120% of capacity, another problem...) and we took the bus, driving by the cargo terminal - containers, boxes, crates and drums all over the place - I am surprised that we are getting anything by air at all... Leadtimes for airfreight have also gone up - it takes, on average, 10 days to get a slot for an airshipment to Brazil, and as most of the freight goes through São Paulo (some goes through Campinas-Viracopos), there are few alternatives.

Picture of a country that may stop

The Estado de São Paulo, a major newspaper in São Paulo recently ran an impressively critical article about the infrastructure problem in Brazil. Renée Pereira, the author, highlighted six major points which may lead to what in Brazil is called the apagão, or blackout, highlighted by last Novembers Black-Out which left all of what has economic importance in Brazil without energy for two hours.

This black-out today is mainly pointed at logistics: With Ports, Airports, Roads and Rail at maximum capacity (in many cases over it), any further growth will lead to a gridlock which may then lead to a spiral downwards. Until 2008 this was a problem, but not so much - a combination of the Brazil faith in that "tomorrow" things will improve, a global crisis that took off some strain off the infrastructure for a few months and much slower growth prior to the crisis - made many believe, that things would somehow work out.

1. With Brazil barely dipping into the crisis and now speeding out, infrastructure is the big problem. Investments in ports are long-overdue and some problems are ridiculous: Take that several terminals at the main Santos Port cannot operate during rain, which makes them pretty useless during the heavy rainy season which lasts from end of November to March. 
2. Railways are a further problem - the railway network is at 28.000km - tiny, especially if you compare it to the (albeit well-developed) German network of 34.000km. In addition a large portion of the railway network in operation today is fully privately owned - a large portion belonging to the mining giant Vale, which exclusively uses it to ship iron ore to the (clogged) ports.
3. This puts a great strain on the roads, which transport 60% of all goods in the country today. Many roads, especially outside of the São Paulo area, are in a poor state of conservation and publicly funded - meaning that their state usually deteriorates over time. The poor state of the roads increases the costs of transport by 28% - in some cases the cost of kg/km is higher than in high income countries. Benchmarks I have done between my local logistics suppliers and German examples make it appear as if I were massively overspending on freight.
4. Airports fare not much better. São Paulo Guarulhos airport, the major hub in Brazil has been basically unchanged since the 1990s - but today operates at way over 100% of capacity - over the past 8 years, passengers have gone from 11m to expected 22m this year. With more freight being shipped back and forth and more Brazilians moving into the middle class and thus able to buy a ticket, will probably triple demand in less than 20 years (from todays clogged levels!). Guarulhos is not alone. This interesting statistics on wikipedia show 18 of the 20 major Brazilian near or over their capacity in 2009 (the first post-crisis year!) - in 2010 the situation is much worse. The Rio city airport Santos Dumont has surpassed the total 2009 passanger volume after the first 8 months of operation of this year. If you try to imagine further growth and then throw in a 2014 World Cup and 2016 Olympics, imagine the mayhem...
5. (and 6.) Finally access to energy (each citizen is average of 18h without power per year, 20min per week), water (only 85% have access to clean water) and basic sewage systems (only 58% have access to sewage systems) are also behind necessity, most of this access provided in the major metro areas. Especially the North-East of Brazil often seems like sub-saharan Africa...

Sadly, the author does not propose any solutions - although a mix of the following would surely be of great help: Privatize airports, roads and ports, support PPP in basic infrastructure and plan, plan, plan. Allowing uncontrolled growth, as is still common in São Paulo, ensures that private investors build residential and commercial buildings, factories and other industrial installations, but leave the roads, electricity and water supply to the state, without any form of coordination. In addition, strong public investment in basic infrastructure and the decentralization of all logistics needs from the São Paulo-Santos-Guarulhos triangle would surely give the country some room to breath...