FROM the outside Avenida João Gualberto 1740 appears just an average and unremarkable building on a busy street in the charming southern Brazilian city of Curitiba.
Inside it is a very different story.
It is actually the headquarters and nerve centre of Brado Logistics, Brazil's first intermodal railfreight operator and an up and coming player in the country's freight and logistics market. One of the two floors occupied by Brado is dedicated to the company's operations centre and is a hive of activity. A room of young people casually dressed are busily working away at computers and talking on the phone to clients, while on the wall a real-time map shows southern Brazil, Brado's four routes, its terminals and the current location of its trains.
"We developed the system ourselves," says Mr Alexandre Bueno, Brado's operations superintendent, proudly before pointing out its capabilities. These include showing what load a specific train is carrying for which customers, the train's load dates, time in transit and expected delivery time as well as asset availability and live CCTV feeds from any of the company's 12 container terminals. "The system is really easy to use and helps us to see quickly where our trains are and any of the shipments for a specific customer. We can monitor freight accurately so we are able to deliver shipments on time and meet our customers' needs and expectations."
The buzz of energy and enthusiasm evident in the operations centre, and among staff working in Curitiba, is backed up by Brado's impressive growth over the last three years. In total the company carried 63,940 containers in 2013, an increase of 19.3% over the 51,589 carried in 2012, which was 12% more than the 45,395 TEU transported in 2011, the company's first year of operations.
This upward trajectory has continued in 2014. In the third quarter, Brado reported a 25% increase year-on-year, and while Brado's CEO Mr Alan Fuchs says he was unable to comment on the full year results, annual growth will be in the range of 30%, and he expects the company to maintain its momentum in 2015.
"We are still very small compared with the total market, but with containers increasing in volume by more than 10% in each of the last 10 years, the market is becoming larger and larger," Fuchs says. "We estimate that we have just 11% of the market share on the export side (53,070 TEU) and 4% of imports (10,870). We want to reach at least 12% across imports and exports very soon."
Brado was formed in 2005 as a subsidiary of Latin American Logistics (ALL) and began commercial operations six years later. It is currently achieving average on-time performance of over 98% and operates intermodal services on 21,300km of railway on four primary routes; the metre-gauge Rio Grande do Sul corridor connecting Uruguaiana, Cruz Alta, Esteio, Porte Alegre and Porto de Rio Grande; the 1500km broad-gauge Larga corridor from Rondonopolis to Campinas, São Paulo and Santos; the metre-gauge Parana/ Santa Catarina corridor from Cascavel and Cambé to Ponta Grossa and the ports of Paranaguá and São Francisco do Sul; and the Mercosul corridor, which uses standard-gauge infrastructure from Zárate, north of Buenos Aires in Argentina, to the Brazilian border where it is transferred to metre-gauge and continues to Porto Alegre and Esteio, and north to Araucária, Ponta Grossa and Tatuí in São Paulo state.
Concessionaires ALL and MRS Logistics, with whom Brado shares tracks, provide paths on their networks, and supply traction and maintenance services, as well as transport Brado's container assets on block trains on some routes. ALL retains a 62.2% stake in Brado. However, this does not entitle it to a controlling interest. There is no ALL majority on the board of directors which Fuchs says prevents it from dictating Brado's rail asset investments.
In addition to ALL, Brado's other stakeholders are Deminvest, which holds 6.56%, Dimitrius, which has a 3.07% stake and BRZ which holds 5.9%. Public fund FI-FGTS purchased a 22.22% stake for Reais 400m ($US 148.7m) in 2013.
Fuchs admits that the biggest challenge for Brado thus far has been to educate a market used to lorries to use the railway for intermodal logistics. It is doing this by promoting itself as a sustainable, safe and cost-efficient solution that is up to 20% cheaper than the road alternative. And while its current market share is impressive given the short period it has been in operation, he says through further investment in its assets there is significant opportunity for growth using the available capacity on its four existing corridors and on potential new routes that the company is currently investigating.
"Our commercial team has a very difficult task to get people to change their logistics solution because we are used to using lorries in Brazil, but it is happening and it is happening fast," Fuchs says. "The market now believes that they can have a different solution for containers, not just lorries, but the railway as well, and Brado is the main company in Brazil providing such services for the market."
To achieve its growth goals Brado instituted a Reais 1.2bn five-year investment programme, which commenced in 2012 and prioritises investments in new locomotives and wagons, along with increasing terminal capacity, IT improvements and training. It is funding the programme through a combination of the balance sheet of the company, long-term debt, primarily through loans from the Brazilian Development Bank (BNDES) which offers favourable rates, as well as stockholder investment. Fuch says FI-FGTS's investment has gone entirely to support this strategy. However, in the long term he says the company will have to consider other means of raising capital.
"I believe that in the future, we don't know when yet, that the company will be big enough that when we need more capital it will make sense to turn this company public," Fuchs says. "We believe that an IPO is not the final goal but a way to raise capital more efficiently when the company needs it. I would say that we still have enough capital to perform our business plan, but we know that we must be bigger than we are today."
Brado currently owns 36 locomotives - 10 broad-gauge and 26 metre-gauge - and has ordered an additional five in 2014 with work now underway to decide its budget for 2015. The five-year plan calls for an investment of Reais 181m in new locomotives and Fuchs says it is purchasing General Electric AC44 locomotives for its broad-gauge services, and Dash 9 locomotives for metre-gauge using a BNDES programme which offers low rates for purchasing Brazilian-built locomotives with over 50% of local content.
He added that Brado is encouraged by GE's continuing development of Evolution ES43BBi, a new 80km/h metre-gauge locomotive. This unit was conceived by GE's Brazilian engineers and incorporates eight axles to meet the challenges of operating heavy and high power locomotives on relatively poor infrastructure where axleloads are limited. The 3.35MW unit has a tractive effort of 60,000kgf and two of the locomotives operated in multiple are capable of hauling 42 99,790kg wagons, while three locomotives can haul an 82-wagon train. It also has a slim profile to avoid problems with the restrictive loading gauge.
"This is basically an AC44 for metre-gauge, which is more efficient than the Dash 9s, and should be available by the end of next year," Fuchs says. "If they succeed with this project then I am sure we will be their customer."
Overcoming the challenges of operating on Brazil's network is also evident in the development of a low-cost long-stack wagon, a project initiated by Brado and completed with the assistance of Amsted Maxion. The 80ft-long wagon is capable of accommodating two 40ft or four 20ft containers but only uses two bogies. Brado is now operating 545 of the wagons on its broad-gauge services, while for metre-gauge it has developed a dual-wagon which uses a single braking system for two wagons. Brado has 300 of these in service, and with Reais 850m allocated towards further procurements, this figure is set to increase.
The plan also allocates Reais 135m to enhancing Brado's intermodal terminals which includes improving efficiency by introducing more rubber-tyred gantry cranes. The use of these systems helps to reduce the time a train spends at the port, freeing up capacity for additional services. Work is also underway to introduce new IT systems that will improve productivity at terminals.
Some of these investments will ease the difficulties with last mile, which Fuchs says remains one of the major challenges to Brado due to restrictions at some ports which offer only limited railway infrastructure and some that do not offer any at all. As a result Brado regularly has to hire trucks for its last mile operations, which Fuchs says is expensive and time-consuming.
Investments by various ports in extra tracks and their capability to handle longer trains will enable Brado to increase productivity. For example a double-track project is underway at the port of Parana that will accommodate 80-wagon trains, while TCP Port in Parana completed a project in November to accept 40-wagon trains. Fuchs also believes that port of Santos concessionaire Santos Brasil will invest in duplicating its current railway connection if it activates an option to extend its concession by 25 years in 2022. However, eliminating lorries altogether appears a long way off with five of the six terminals at the port of Santos not having a railway connection and one concessionaire, BPT, stating that they have no space to add this capability despite increasing the volume of containers it is handling.
Brado is also benefiting from investments in infrastructure by ALL and MRS Logistics. This includes ALL's project to double-track the 264km Campinas - Santos section of the Rondonopolis - Santos corridor, which is due to open in 2015, and Fuchs believes it will be a major factor in the route becoming the company's primary corridor to meet growing demand at the port of Santos.
"The concessionary agreement is working well in that they are improving the service, and they are investing a lot of money," Fuchs says. "They understand that containers are not coal and that you need a very specific level of service to make it viable. When you talk about coal, iron-ore or soybeans it doesn't matter if they reach the port by a specific date, you just control the amount of product. If a specific container does not reach the port on time then this is a problem because a container has its own identity. The concessionaires understand this really well."
While Brado's operations look set to grow on the Rio Grande do Sol, Larga and Parana/Santa Catarina corridors, it is a different story on the Mecrosur corridor where Fuchs says volumes are decreasing.
He cites continuing political and economic difficulties in Argentina for the fall in performance and admits that he does not see much prospect for improvement while these problems persist and the government fails to invest in the maintenance of the railway. "It is a very old railway with very old track and rolling assets," Fuchs says.
"This corridor represented a third of our income in the past and now I would say it represents around 15%." He adds that with its other corridors growing so fast that this is where Brado will concentrate its efforts and investment.
In addition to investing in its existing corridors, and exploring the use of other routes across Brazil, Brado is keeping a close eye on the new lines currently being developed by the government. Under the new concession model Brado would be able to purchase paths on these routes from Valec, which could transform it from a company focusing on the south of Brazil to a nationwide operator.
"We are studying these projects and are interested in talking to Valec," Fuchs says. "We cannot say right now what we will do but we are studying and are very interested by the government's development. Aligned with the model they are looking to introduce, you buy a percentage of access to these lines so if we succeed we will share capacity with other operators carrying different products."
The apparent commitment by the government to support Brazil's private railway companies and grow the country's freight network is certainly music to the ears of a small but up and coming player like Brado. Its success in its first three years of operation has established containers as a mainstay of Brazil's mixed-traffic freight network. And with its investment plan now well underway, and an energetic and enthusiastic management team driving the company towards further growth, containers, and Brado's logo, are set to become a common sight on railways and at ports across Brazil.