Industry has its best moment since the 1970s

The Brazilian industry of locomotives and freight cars lives its best moment since the 1970s. In that period, 30,600 cars and 638 locomotives were produced. Within his decade, from 2010 to 2019, it shall manufacture near 40,000 cars and 2,100 locomotives, according to estimations from ABIFER (Brazilian Association of the Railroad Industry).

The market restarted its growth after the privatization of the railroad segment. And boosted this growth since 2002. As from 2003, the industry already invested US$ 616 million in projects for increasing the production and technology projects, according to the entity.

Privatization caused a consumption bubble, and then the growth becomes cyclical and depending on specific projects, according to Ricardo Chuahy, CEO at AmstedMaxion, leading company in the freight car industry, with share of 67% of the 3,261 units manufactured in 2010 (2,165 cars).

The major post-privatization customer was Vale and the most carried product was iron ore. As the years go by, the demand from companies for railroad transportation has grown, to the detriment of transportation on roads, while the exports increased and the freight diversified, as well as the cars.

One example is Cosan, which created Rumo last year, a transport and logistics company, to move 10 million metric tons of sugar by crop. This enterprise enabled AmstedMaxion to sell 500 cars to the company in 2010. This year, the company intends to deliver near 2,600 cars and 500 car bodies (the lower part of the equipment) to the market. For 2012, AmstedMaxion holds option for sales of 1,982 cars to Vale.

Such scenario is driving the manufacturers to expand their investments in productivity improvements and development of new solutions. The competition, which vanished with the market shrink more than two decades ago, is also back. From 2001 to 2008, AmstedMaxion held 74% to 100% of sales in the country; in 2009, its share was 57%; and reached 67% last year. The remaining market portion is shared between Rondon, which entered in the segment in 1998, and Usimec, capital goods organization of Usiminas.

The locomotive market also attracts new competitors. The sales of these machines increase proportionally above car sales, according to Vicente Abate, Chairman at ABIFER, including the need for fleet renewal. And they must reach a total approximate number of 2,000 machines within 10 years, amounting to near US$ 3.6 billion, according to Guilherme Mello, President and CEO at GE Transportation for Latin America.

By planning investments of US$ 18 million in five years, from a total amount of US$ 306 million being invested by the GE Group for expanding its operations in the country, the company virtually services 100% of the market, which ordered 68 units in 2010 and must reach 100 units in 2011.

This year, the company is delivering the last 1,400 HP locomotives from a lot of 50 units contracted in 2010 by Cosan, in addition to ten additional units sold to the logistics operator ALL and 90 units to MRS, from which 60 units refer to a sales agreement for 115 machines signed in 2010 with the company. The same agreement includes provision for the purchase of 100 additional machines by MRS.

Two other manufacturers are making their debut in the market. One of them, EIF, created in 2001, holds manufacturing plant in Três Rios, Rio de Janeiro. It produces shunting locomotives up to 2,000 HP and imports pre-owned locomotives from the United States. The second manufacturer, MGE, is the major Brazilian manufacturer of components, holding plants in Diadema and Hortolândia, State of São Paulo, and was acquired in 2008 by the American company Caterpillar. “The competition evidences the market potential,” states Mello. And the fleet also grows: it includes today 2,700 machines, 1,100 above the figures in 2002 (1,600).

According to Mello, the country imports a few number of locomotives. Usually, the most powerful machines come from the foreign market. But half of the components for locomotives made in Brazil, including engines, are purchased abroad: “Expanding the share of domestic suppliers is a big challenge as the quality level of the products follows a global standard,” explains Mello.
The last decade was the best for manufacturers of coaches, when the domestic industry produced 1,943 units, against 950 in the 1970s. But the current decade shall be better, according to Abate. This is because the country produces more than 400 machines per year, for three years in a row, and shall manufacture 450 units in 2011.

The market started heating in the 1980s, which was a period when the domestic industry manufactured 1,460 coaches, declining in the 1990s, and resuming the recovery in the 2000s. However, in that decade, most of the production was exported (1,424 coaches from the 1,943 units manufactured).

But the industry has its complaints. In the opinion of Abate, the production could be even better if the governments purchased more from domestic manufacturers, by exercising the preference margin of 14%, the so-called competition isonomy, guaranteed by the World Bank.