Contrail reaches an agreement with MRS

To obtain a significant part of the business involving the transport of containers, which is currently made by lorries which go to the port of Santos, and make this transport change to rail, MRS Logística has just established a commercial partnership with Contrail, which should become the largest contract for this kind of cargo movement in Brazil. The aim here is to transfer about 45% of the current volume of containers handled by the port of Santos per year to train transport. At present, only 3% of the containers are transported to the port by rail.

This new partnership shall reshape the transport of containers in the region around Santos and São Paulo, these are the convinced words of Guilherme Quintella, the controlling shareholder of Contrail. According to Mr. Quintella, this is an innovative model that shall be adopted in Brazil for this type of operation, with the use of special cars. Another advantage, he says, is that this shall mean that more than 1 million lorries per year shall be removed from the motorways heading to Santos, and also those main roadways of other cities such as São Paulo and other cities of the metropolitan area.

The forecast of this businessman is that Contrail, when operating at full capacity, shall have an annual movement handled of 1.2 million TEUs and shall make some R$ 800 million (€ 344.69 million) per year. Each TEU shall correspond to a 20-foot container – TEU is the abbreviation, in English, for Twenty-Foot Equivalent Unit.

The business comprises three phases, within the space of five years, and plans total investments, over this period, of R$ 600 million (€ 258.52 million). These funds shall be used in the construction of terminals for capture and distribution of containers, in fleets of lorries and other assorted equipment. MRS shall also have the responsibility of investing in the increase of the fleet of locomotives and also in the production of special locomotives, of the double-stack variety, which allows up to two containers to be stacked.

MRS, first set up in 1996, with the privatization of the railways in Brazil, currently operates some 1.7 thousand km (1,056.5 miles) of track in the States of Minas Gerais, Rio de Janeiro and São Paulo. At present the company’s main cargo transported is iron ore. Contrail is controlled by EDLP, a participation company run by Guilherme Quintella. This company is active has been railway logistics in the country ever since the 1980s. Its partner in Contrail, with a participation of 33% of the equity, is executive Augusto Pires, who has come from the beverage producer AmBev and also from the ALL railway transport company.

The first phase, according to Mr. Quintella, shall be implemented within a year and the plan is that a total volume of 300 TEUs shall be handled every  year. This project comprises the construction of the Intermodal Transport Terminal of the Port of Santos (Terminal Intermodal do Porto de Santos – TIPS), on a site area of 300 thousand square meters, on a site that belongs to MRS and which lies in the municipality of Cubatão (SP). The function of this Terminal shall be that of a large hub which shall operate as a regulator and orderer of the railway transport flow of containers to the different terminals in the port of Santos, adds Mr. Quintella. He also highlights that the TIPS shall be a white-flag terminal, which means that it shall operate with all shipping lines and all terminals in the Santos Lowlands (Baixada Santista).

Operations at the TIPS shall start with the use of double-stack cars, common in countries such as the United States, and MRS already plans to order about 100 of these cars. This order marks the company’s début in using this model, taking one container stacked upon another, which, as Mr. Quintella informs, increases transport efficiency and reduces costs. For this reason, the concessionaire shall have to invest to adapt the tracks to support this operation.

In a second phase, within the space of three years, Contrail shall install four intermodal terminals beside the MRS rail network in several different points: one in the centre of São Paulo, another in the ABC conurbation, a third in the East Zone of the Greater São Metropolitan Region and the fourth in the Paraíba Valley. Mr. Quintella also informs us that these terminals, together with the TIPS in Cubatão, shall be able to handle 700 thousand TEUs per year.

This phase of the business is associated to the investment package totaling R$ 230 million (€ 99.10 million) which MRS is now making in Greater São Paulo and also on the line down to Santos, to speed up the flow of cargo along the railway. This injection of funds is for two main projects. One is the segregation of the current passenger line, with services run by state-owned company CPTM, and the other for cargo, run by MRS in the metropolitan area, which has been budgeted at R$ 100 million (€ 43.09 million). The other is the renovation of the tracks of the  cog railroad, in the mountain section, with an order for special locomotives that are due to arrive in 2011. This shall allow the trebling of the volume transported, to a level of 24 million tones per year, including the operations with containers using the double-stack system, as from 2012.

Eduardo Parente, the President of MRS, sees in this agreement an excellent opportunity in the company’s cargo diversification plan, as the cargo services are currently highly concentrated on mineral and steel products (iron ore, steel, coal, scrap metals and bauxite). The model presented by Contrail represents a significant change in the method of operations with containers, and also adds competitivity that the railway did not have when competing with Lorries. He estimates that, when the project is fully operational, five years from now, it shall account for about 10% of the total cargo transported by MRS. In 2009, this was only ‘% of the total volume of 135 million tones of cargo transported by the railway. We believe that this business shall produce significant gains in the long term.

The third stage in the MRS-Contrail contract in the operation of containers largely depends on action by the State and Federal Governments regarding the transposition of cargo, by rail, within São Paulo and neighboring cities. More and more, the sharing of tracks between goods and passenger services becomes more unfeasible, and this problem shall only get worse with the increase in volumes of passengers and goods transported.

The solution  lies in the segregation of more sections of the lines operated by the CPTM on the network belonging to MRS, and also the creation of a rail bypass of the Capital city, providing access to the city of Santos. For this last-mentioned project, there are two options, one to the North, between Jundiaí and Rio Grande da Serra, which has the interest of MRS, and the other to the South of the city. The definition shall depend on a study which has been ordered from the World Bank and which should be ready next year.

When this is solved, says Mr. Quintella, Contrail shall construct at least two terminals along the line operated by MRS. One of these shall be in the neighborhood of Lapa, in the West Zone of the city of São Paulo, and the other in the city of Jundiaí, which stands  37 miles away. This means that the company shall have an added capacity to transport 500 thousand TEUs a year, totaling 1.2 million TEUs.

According to the businessman, there is significant room for exploitation in the container movement business, which nowadays in the world accounts for 70% of commercial activities in general cargo. In Brazil, this activity has been growing at a rate of 15% per annum in the last seven years, having reached 7 million TEUs in 2008. Out of this total, 2.7 million TEUs were operated in the port of Santos, having been divided between the terminals of Santos Brasil (47%),