Brazil access

By Euan Youdale30 September 2013

Sergio Kariya, managing director of the rental division at Mills Estruturas e Serviços de Engenharia

Sergio Kariya, managing director of the rental division at Mills Estruturas e Serviços de Engenharia

Sérgio Kariya, managing director of Mills’ rental division, is confident the access equipment sector in Brazil will grow for the next 10 years. But, as he tells Euan Youdale, there are significant challenges.

Leading Brazil’s biggest aerial work platform rental company is fraught with difficulties concerning the economy, bureaucracy, infrastructure and taxes, but according to Sérgio Kariya it is companies like his, Mills Estruturas e Serviços de Engenharia, that will emerge victorious.

Such is the need for AWPs, says Mr Kariya, that big rental companies will continue to invest, despite toughing economic conditions - the higher exchange rate for the US dollar caused a slowdown of imports during the second half of 2013. But Mr Kariya is adamant this will only discourage small companies from buying new equipment, while Mills sees out its planned R$274 million capital expenditure during this year.

“Of course this will affect the small companies. But the market will adapt to the new scenario, and it will probably mean an increase in rental rates to keep the same margin that we have had in previous years,” explains Mr Kariya.

So, for the moment we will see smaller companies decreasing their investment; their cap-ex will be reduced due to the new situation and the medium to larger companies will keep on buying - they will stick to their plans.”

This Mr Kariya believes will lead to a period of consolidation. “I think we will see private equity houses buying medium-sized companies, along with a number of IPOs; I think that’s the probable scenario for the next few years.”

Although Mr Kariya could not say how growth during the next 10 years will translate in percentage terms, he says it is assured.

Unfortunately Mills’ expansion plans will be hindered by a number of issues in the country; one of them being a lack of skilled operators and technicians. “The market is growing so fast; in 2007 Brazil had something like 4000 machines, that is now up to 25000 units, so the skills and knowledge of the mechanics and technicians, and even from the sales guys, are not up to date,” he explains, “We have to train our technicians an average for 5 – 6 % of their working time, so we focus on training a lot.”

With no quick solution, the only answer is to remain focused on the goals. “We started with less than 40 people employees in the AWP section of Mills, now we have 450 plus; we started the company with three branches and now we are opening the 25th.“But we avoid hiring people from our competitors; we prefer to train and develop new employees ourselves and bring knowledge to our people in our market - this is the long term thinking.”

Costs incurred

Another challenge comes from cost incurred while bringing new machinery into the country, including its well-documented high import duties. “Adding all the freight forwarding costs, inland forwarding costs, bureaucracy in the US and Brazil, and import duties, the net dealer price of AWPs is 40% more than the same machine bought in the United States.”

At the moment, Mr Kariya says he usually splits Mills’ capital expenditure between JLG, Genie and Skyjack. Asked if he would consider investing in equipment manufactured in China, he replies, “There are some manufacturers that are getting there, but I think there are a couple of years or a few years during which they [the Chinese manufacturers] need to improve before we can make a decision to buy a product from China.”

Expanding on the transportation issues, he adds, “Freight forwarding on water is okay, but on land we do not have the infrastructure. When opening depots far from the cities we have to transfer machines from one vehicle to another, so the transportation costs are high.”

Improvements to the road network are underway, albeit at a relatively slow pace. “There are a lot of things going on, but it’s not as fast as we would like. Brazil is working hard to gain productivity as a country, but companies are still affected by having these extra costs.”

Spare parts have a similar price ratio to new machines, and can take up to 40 days to be delivered from the major manufacturers. Mr Kariya said manufacturers should help rental companies in Brazil more, with better after service and spare part provision in the country.

“Our lead times are longer than in the US, mainly because the factories are based in the US,” says Mr Kariya, “If there is demand here right now and I need to buy say 100 to 200 units, I cannot do it. So, lead times are one of the main issues. We need to plan even more, and our negotiations are more difficult. “I keep my own inventory; I have a large number of spare parts, because if I depended on them I would be in trouble. Add to this the transportation costs, the lead times, the logistics – we face all of these challenges on a daily basis.”

So, how does Mills cope with these significant costs? “Of course we need to pass some of those costs to our customers; we are not able to take all of it, so we try to increase our rates mainly because of this situation.”

Young industry

On a positive note, access equipment in the country is still young and the need for it will grow, partly as a result if the challenges discussed so far. “There is a lack of manpower and an increase in wages. When you add all of that to the industry, it needs to gain productivity and make things faster, and make things faster by using more aerial platforms.”

In the USA, construction sites measuring 70000 square metres commonly use around 400 units of access equipment, while, in Brazil, about 80 units are used in the same area. “There is a shortfall of MEWPs, so there will be growth whatever. The concept will keep on growing for the next 10 years.”

This, Mr Kariya assures, goes way beyond the 2014 World Cup and 2016 Olympics, both massive projects in terms of new stadia and infrastructure. “It is true that we have a lot of machines in all of these stadiums; six stadiums have been finished. But that did not result in a reduction in revenues; in fact we saw an increase in our revenues from the first quarter to the second quarter of this. There will be no decrease in demand and we will invest in equipment. There won’t be extra or over populated equipment in Brazil.”

With this inevitable expansion, does Mills have plans to push into other South American markets? “We are putting a lot of energy into Brazil,” Mr Kariya answers. “So we will concentrate just on Brazil for the moment. When it comes to other countries, we have the numbers but I would prefer not to comment on what is going on there.”

Of course, there is always work to be done in a fledgling market, with safety being one of the main issues. Mr Kariya explains, “There are still large gaps in safety here in Brazil, so we are reinforcing the concept of how to operate them safely, and that’s what we invest in. We are putting a lot of work in with managers of the largest companies and our customers to catch up with the lack of knowledge when it comes to AWPs.

“We are also looking at devices to increase the safety on aerial platforms and entrapment is a very big concern here, but we are mainly developing training to mitigate the occurrence of entrapment issues.”

One of the biggest challenges is to sell the concept of safety. “I would say every day is a breakthrough; most people not aware of AWPs - it’s a long term project of changing the mindset of people who use the equipment.”

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