Founded in 1997 in the midst of the privatisation of the Brazil rail freight market, the company has gone through widespread structural changes in the past 18 months following a takeover of previous parent, Latin American Logistics (ALL), by Cosan Logistics subsidiary, Rumo Logistics.

Julio Fontana 5187The acquisition brought to an end a long-running dispute between ALL and Cosan, a producer of bioethanol, sugar, energy and goods. Cosan had long complained about ALL’s purported failure to invest in additional capacity to accommodate the increasing volumes of sugar that it was dispatching to Brazil’s ports, even taking the railway to court. The $US 3bn all-stock deal was agreed in February 2014, and was finally approved by Brazil’s anti-trust regulator Cade in February 2015 following assurances that the new company would continue to provide third-party access to Cosan’s two dry bulk terminals at Santos port. Rumo began work two months later.

Bridging both sides of this change is Mr Julio Fontana, who previously served as president and CEO of ALL, and is now president and CEO of Rumo.

Fontana says that since the takeover Rumo has been conducting a major renovation and expansion of its logistics network with a focus on improving safety for employees and communities along the railway, creating new jobs and driving Brazilian economic development.

“As soon as Cosan acquired ALL, we made two important decisions: invest in people and renew our assets to enable our employees at Rumo to work better, using the right tools, and to focus on safety,” Fontana says.

“An example of this change was a programme to improve working conditions that was introduced shortly after the merger and designed to address one of our priorities: providing overnight accommodation for employees who are away from home. Throughout 2015, 40 lodging facilities for train operators were renovated and the administration of this accommodation was revamped. Over 7000 new knapsacks containing safety equipment, personal hygiene and mess kits were distributed. In addition, workshops and maintenance facilities have been reformed to improve safety and working conditions for personnel and to reduce our environmental impact.”

Projects like these are included in Rumo’s Reais 8.4bn ($US 2.52bn) investment programme, which Fontana says was revised at the start of 2016 and will run until 2020. It includes construction of new and expansion of existing freight yards, permanent way improvements, the acquisition of 170 new locomotives and 2307 new wagons, capacity improvements at the Rondonópolis terminal and improvements to access at the ports of Santos, Paranaguá, and São Francisco.

Rumo is primarily funding the programme through lines of credit from Brazil’s largest banks, including the Brazilian Development Bank (BNDES), in addition to support from credit and export agencies. Fontana says the railway is awaiting approval for a request for Reais 3.5bn in credit support. In addition, a reprofiling process for part of obligations totalling Reais 2.9bn and maturing in 2016, 2017 and 2018, was recently completed.

“This provides greater liquidity for the company to execute its investment plan,” he says. “The company also received a capital increase of Reais 2.6bn on April 13 2016, which demonstrates to our shareholders our commitment to the long-term business plan.”

Since the merger, the railway has already acquired almost 1600 wagons and 109 locomotives, replacing many of its ageing C-30 units with new AC-44s, which has reduced diesel consumption by 20%. Rumo similarly invested Reais 1bn in the maintenance of and upgrades to permanent way totalling 700km between 2015 and September 2016, which includes track doubling of certain line sections.

Fontana says the investment is already translating into contracts with new agribusiness customers. Indeed, the railway reported a 4.5% increase in volumes from 42.9 billion net-tonne km in 2014 to 44.9 billion in 2015 following significant improvements in operational efficiency. It has also increased throughput at the Rondonópolis terminal by 22% from 10.5 million tonnes to 12.8 million tonnes, and at the Port of Santos from 11.1 million to 11.7 million tonnes, an increase of 5.1%.

In 2016, despite adverse market conditions for the production and export of soybeans and corn, Fontana says the company has achieved some important results. Rumo carried 4.2 million tonnes to the Port of Santos in the third quarter of 2016, an 11% increase year-on-year due to favourable conditions for sugar exports. The company’s Ebitda for the first three quarter was Reais 1.7bn, an increase of 16% over the same period in 2015, while revenues rose to Reais 4bn during the same period.

Grain harvest

This momentum looks set to continue with the 2016-17 grain harvest, which accounts for 70% of Rumo’s total volumes, and currently looks very positive. With 92% of planting complete at the beginning of December, the indications are that soybeans volumes will grow by 7% and corn harvests by 28%. The state of Mato Groso alone is expected to report growth of 10% and 30% for both commodities respectively, with the state projecting that output in total will grow 9.6% from the previous year. In Paraná, where Rumo also has extensive operations, the increase is projected at 11%.

Fontana says the potential bonanza in available volumes will result in a big push from the railway to take advantage, and that following a Reais 600m investment in the corridor from the mid-west of Brazil to the Port of Santos via Oeste and Paulista networks, Rumo is well-placed.

With the agribusiness confounding recent political and economic problems in Brazil, he feels that the railway is in a strong position to expand its market share in its existing core commodity markets in the long-term. There is also potential for possible expansion into transporting fertiliser, which is not currently carried by rail. By the end of the four-year investment programme, Fontana predicts that Rumo’s freight volumes will be heading towards an impressive 70 billion net-tonne-km annually and that Ebitda will reach Reais 4.6bn.

“According to data from the National Association of Rail Carriers (ANTF), only 35% of agricultural commodities are shipped to ports by rail,” Fontana says. “To get an idea, in 2015, of all the soybeans exported through ports, only 29% arrived by rail, in the case of soybean meal, only 36%, and cereals, almost 47%. While approximately 55% of sugar arrived by rail. These figures can be improved.”


ANTF predicts that Brazil’s private freight railways will invest Reais 15bn in improving the freight network up to 2020, and naturally Fontana supports the sector’s capability to continue to invest.

However, two decades since privatisation, Fontana feels that the concessions system now requires updating in order to stimulate the next round of investments.

“Since privatisation, the country has changed considerably,” Fontana says. “The agricultural corridor was established in the mid-west and the volume of grain using rail has increased significantly. However, the railways urgently need a new cycle of investment. The fastest and most effective way to do this is by bringing forward the renewal of contracts, thus providing current concessionaires with a guaranteed time horizon to amortize large volumes of investments.”

For Rumo in particular, it is targeting a 30-year renewal of its Paulista concession, which covers 2039km and is due to expire in 2028. Fontana says the search is now on for adequate legal instruments that will both accelerate the contract renewal process and provide legal certainty for the federal government and the rail companies.

“It is a complex administrative process, which involves both technical and economic elements,” he says. “These points are being worked on in a partnership between the government and the concessionaire.”

He adds that in response to the interim-government’s recently-announced reforms, which will see concessionaire operators consulted over new line construction, he favours any initiative that creates the conditions for a more transparent and secure business environment for the private sector.

This perhaps was not the case in recent government attempts to introduce open-access operation on Brazil’s rail freight network, which was met with hostility by the operators, and ultimately dumped due to the difficulties with implementation.

For Fontana, the government’s main contribution now is to bring the process of renewing the concessions to a successful conclusion. As its investment programme has already shown, and will continue to demonstrate in 2017, Rumo is doing all it can to increase its attractiveness to customers and achieve its ambitious targets. By providing further long-term stability across the remainder of the network, he believes this will offer the railway the best possible opportunity to lead and implement further improvements to the network, to the benefit of all concerned.

“In practical terms this will mean larger export volumes, lower shipping rates for exporters, fewer trucks on the highway and significant gains for the environment,” he says. “Logistics in Brazil will directly benefit from the investments made by Rumo.”