Bureaucracy and infrastructure issues hinder Brazil crane market

Underdeveloped infrastructure and bureaucracy are holding back Brazil's potential for crane manufacturers but growth is still strong and global manufacturers are pushing to make their presence known. Euan Youdale reports

Brazil is the 6th largest economy in the world, but ranks just 67th when it comes to transport infrastructure. Almost 50% of the road grid has significant maintenance problems, with 88.3% of federal highways being single-carriageway and 42% of them having no hard shoulder. Bridges and viaducts are either too narrow or in disrepair.

According to João Dominici, executive vice president of Brazilian crane and transport association Sindipesa, the problem will be eased by a proposed investment of R$1.48 trillion (US$713 billion) into roads, railways, ports and airports by 2016. In fact there are more than 12,000 major works confirmed, most of which are in progress, with oil and gas, transport infrastructure and energy being the applications attracting the largest government contributions.

According to Helen Joyce, Brazil bureau chief of The Economist, the country promises still greater growth and is one of the few stable environments for the construction industry. Speaking at KHL's Cranes and Transport Latin America Conference in May, Joyce says the significant increase in the middle class, consumer demand and credit availability as well as a developing mortgage market, are all signs of a strengthening economy.

Apart from infrastructure, the obstacles lie in a heavy tax burden: 40% of GDP, high interest rates, a highly-priced and under-skilled labour market, corruption and heavy bureaucracy, says Dominici. The latter has led to a bottleneck of projects, many of which will struggle to complete in time for the likes of the Rio de Janeiro 2016 Olympics and the Brazil 2014 World Cup.

Between 2001 and 2011 some R$166 billion ($80 billion) was invested in infrastructure, amounting to less than 1% of GDP per year, adds Dominici, "The country would need to have invested at least 3% of GDP only to avoid the deterioration of existing infrastructure."

Julio Eduardo Simões, president of Brazil's largest crane rental company, Locar, agrees. "There are a lot of construction projects but nothing has been really started. All the rental companies bought a lot of cranes, so have a lot of cranes that are not working. But once the projects start there will be a lot of competition and these cranes will start work."

Locar has 350 cranes, the biggest being a 1,350 tonne capacity Liebherr LR 11350 lattice boom crawler, while the most common are 100 to 250 tonne all terrains, which work in the steel, paper, offshore and petrochemical industries.

"Rental rates have dropped by 30% since two years ago. We think that it will increase again though - as the projects stopped the prices went down."

Simões forecasts Locar's growth at 20% a year for the next five years. "Business at the moment is not very good because of the problems but the projects need to happen for the World Cup and the Olympic Games."

Rough ground

At June's M&T Expo exhibition in São Paulo, Brazil, it was clear the major international manufacturers were all too aware of these looming projects and are competing to gain strong footholds in the market. Sany, Manitowoc and Terex all launched new rough terrains into the market. The latter two were built in new Brazil-based factories, partly to avoid heavy import duties.

Uri Toudjarov, vice president at Zoomlion's rough terrain and crawler distributor Global Crane Sales, says its first RT was to be shipped to Brazil in June. In the next 12 months Global is looking to supply 30-40 rough terrains into the country.

Toudjarov claimed Chinese manufacturers have the advantage in Brazil, adding that Zoomlion is selling 130 to 150 truck cranes in the country each year and charges 30% less for a crawler than other recognised brands. "It is a price conscious market and it is about rate of return. Prices have increased unreasonably but rental rates remained the same."

Terex Cranes' 50 tonne capacity RT555 Progress represents its initial step in a renewed drive to capture the Latin American market. Developing markets represent 30% of Terex business and Latin America takes about 25% of that.

With the first phase of the Cachoeirinha-based Terex plant complete, rough terrain parts are being brought in as complete knock-down (CKD) kits from the established Waverly, USA facility for assembly. In the second phase, Terex aims to receive accreditation for local companies to supply components.

Kevin Bradley, Terex Cranes president, says the acquisition last year of industrial and port equipment manufacturer Demag AG would also prove vital in targeting the Latin American market. Using Demag's established extensive dealer network in the continent, Terex plans to retrain those employees to represent all Terex crane products.

"We are reinventing our approach to the Latin American market. We are leading with a focus on customer service by leveraging our new employees from Demag. We will also bring product specialists to those regions - the approach has to be regional," Bradley adds, "We do not feel good about our involvement in the market historically. We now need to take our share of the market by expanding investment in local service."

In June, USA-based Manitowoc also produced its first crane from its new factory in Brazil. The 59 tonne capacity Grove RT765E-2 rough terrain crane was assembled in the Passo Fundo plant 60 days ahead of schedule, says the company.

It was bought by Brazil-based Makro Engenharia and is the first in a 32-crane order from the rental giant, including 16 rough terrains and 16 all terrains, although the latter will not be produced in Brazil. Makro plans to put the cranes to work in mining, petrochemical and infrastructure projects throughout Latin America.

Last year Tadano set up a new base in Panama and a joint venture production, sales and service facility in Brazil. "...the Tadano Group is set to expand the share for Group products in the Latin American market, based on rapid response to market needs," a spokesman says. In Brazil, Tadano set up a production, sales, and service operation with its local sales agent T.D.B. do Brazil Industria e Comercio Ltda. (TDB). The plan is to import semi-finished cranes for full local assembly.

Tower target

The 450,000 square metre plot lends itself to further expansion, said Manitowoc. Tower crane production will soon start there and no other product type is out of the question, adds the company. The factory hopes to assemble 60% of its rough terrains from local suppliers within five years.

Larry Weyers, executive vice president, The Americas, says Manitowoc has received a good number of orders, which added to the momentum of the factory development. "The market is very favourable, but there is competition. At first those that have made the first step have an advantage, so that's what made us accelerate the process."

The plan, says Weyers, is to build 40 to 90 tonne capacity rough terrains in the factory. "If demand requires us to increase that to 130 and 150 tonnes, we will do that. But right now we do not see that demand in the market."

The acquired land at the Manitowoc site allows expansion by up to four times, says Weyers, "There is no limit to products we can produce here." Ultimately, the company will be looking for a component supply base within 200 miles (320 km) of the factory.

Liebherr, on the other hand, has no plans to build a manufacturing plant in Brazil for crawler or wheeled mobile cranes in the immediate future. Georg Reinbold, area sales manager for mobile and crawler cranes, said, "We are investigating the possibility of producing custom products for this market, but we find that it is cheaper for the customer to import existing cranes rather than producing or assembling locally."

This is certainly true for products over 100 tonnes capacity where the affect of import duties are generally outweighed by the expense of the products and the lack of locally-produced alternatives.

Future manufacturing

Reinbold adds, however, that sooner-or-later, possibly in the next three to five years, Liebherr could set up such a facility. This outcome would depend on local suppliers being able to provide components and parts. For example, Brazil is not yet able to supply the high strength steel used on many of the manufacturer's crawler and wheeled mobile cranes. "We would be looking to a 50 to 70 tonne crane if we did start in this market," says Reinbold.

The 220 tonne capacity LTM 1220 all terrain is Liebherr's biggest selling crane product in Brazil. There are more than 150 units in the market, says Reinbold. The 4-axle, 70 tonne capacity all terrain is also popular.

While wheeled mobile sales are still buoyant, Reinbold says crawler sales have dropped off since last year while contractors wait for the promised major infrastructure projects to be signed off by the government. For mobiles, Reinbold forecasts sales of 90 machines a year for the next two to three years, but not more than five or six crawler cranes.

"We have to have patience and try and be as close to the customers as we can. The projects are there and they have to be done, so the investments will be made, but it is the bureaucracy that is holding it back."

Truck cranes

Caio Cunha, managing director of Sany truck crane distributor MLX, for north east Brazil, says Sany first came to the country in 2009. "Makro was the first company to purchase Sany truck cranes with an order of 36 units of 75 tonnes capacity."

Sany now has a factory in Brazil producing 25, 55, 75 tonne truck cranes and excavators. "Truck cranes up to 75 tonnes are popular because the chassis and upper are run off one engine, while cranes above that capacity have two engines, making them more expensive."

MLX covers nine states in the country and by the end of May had sold 22 this year. It also distributes 130, 180 and 220 tonne capacity all terrains, imported from China. "There has been a boom in the last five years for truck cranes and Sany has seen huge growth through its distributorship and price. The market for truck cranes is very good for the next two to three years with oil companies establishing themselves in the north of Brazil."

Localisation

Sany prides itself on its localisation policy which most manufacturers recognise as the only way to gain a footprint in the country. Sany now has 400 people in Brazil and at least one dealer for each product type in every country in South America, it says.

Reinforcing this theory is USA-based Link-Belt. This year it has set up a partnership with distributor BMC to supply its cranes to Brazil. BMC already has a network of sub-distributors in the country supplying a range of construction equipment. Chuck Martz, Link-Belt CEO and president, says, "We are very excited about the Brazilian market, it is a growing market with great opportunities."

Martz adds that providing local customer support in Brazil was vital for development in the country. "BMC's coverage in Brazil is tremendous, it is known for its product support and service availability. Link-Belt was an infant in the Brazil market. Now we are a toddler starting to walk slowly - we will run as fast as BMC will run with us."

First foray

Also getting in the on the act is Jost, which has set up a dealership in Brazil to offer its luffing jib tower cranes to the Latin American market for the first time. The long-established Germany-based tower crane manufacturer began the partnership with Target Trading this year to introduce its JTL range and portal design.

The compact design of the crane along with the ability to leave it in cramped inner-city locations standing on four columns, straddling roads and throughways, means it will be ideally suited to cities like Brazil, says Alexander Jost. The manufacturer's JL range will also be available in the country. "We hope to sell about 40 in Latin America in the first year."

As Detlef Arno Roeber, who is sales manager for the Jost dealership, explained, imminent new stringent laws, particularly the NR18 construction law, will provide a good opportunity for luffing jib tower cranes after it is implemented in the third quarter 2012. One of the main issues addressed by the law is oversailing by flat top tower cranes. "In big cities where there is not a lot of space there will not be a lot of choice but to use luffers," comments Roeber.

Another announcement from Jost is the launch of 30 new models to fill in between its existing range of nine products. The plan is to now offer many set models, covering all potential demands, rather than customising each unit to customer requirements, as has been the case until now.

Rogério de Antoni, director, Americas at Italian articulated loader crane manufacturer Hyva sums up the Brazilian market. "Brazil is a very diversified market now, and we are already working on more articulated loader cranes for the country across the range up to 60 tonne-metres."