In the old sheds of the General Electric plant in the city of Contagem (state of Minas Gerais), the employees are rushing to deliver an average of five locomotives per month. It is a tremendous change in the routine of those who are in the company for some time and spent years in fear of losing their jobs due to lack of service. There were periods when GE simply could not even get one order of new machines. What remained was maintenance and minor repairs.
The company even performed an assessment on if it would be better to cease operations in Brazil, says Guilherme Segalla de Mello, president and CEO for Latin America of GE Transportation, the arm of the American group dedicated to the manufacture and maintenance of locomotives.
The company survived the critical period of the 1990s, which had privatization of the railroads, decided to stay and now it lives the best time in decades for the railroad industry. Much of this period had narrow production, with the company vying for market with pre-owned imported locomotives.
Last year, the company has produced more than 100 locomotives for freight trains. It was a record of an atypical year, driven by two large contracts. This year, the company expects to manufacture about 60 units, which remains a very high level for Brazil and guarantee of employment for its 600 employees. For four decades, the plant worked in Campinas. Since 2006, the locomotives have been made in Contagem, in the metropolitan region of Belo Horizonte, where there was a repair center for years.
Warmed by new railroads that are to be delivered, the rail industry has recently attracted a second supplier. Caterpillar began in May to build its first locomotives in Brazil. The unit of Progress Rail Services, a company of the group, is also in Minas Gerais, in the city of Sete Lagoas, and already has 35 units ordered. The first machines should be ready in October.
The two companies – both American – are the only manufacturers in the country of locomotives for freight trains. Both are discussing new contracts and plan a very promising scenario for their business. A rare example currently in the industrial area. GE already exports to South America and African countries. Progress Rail also plans to export to the South American neighbors.
The figures of the Brazilian Railroad Industry Association (ABIFER) help to translate the moment of the industry: between 1990 and 1999, Brazil produced 111 locomotives. Only in 2011 the number was 113. In addition to locomotives assembled in the country, imported machines fed the domestic demand. The last time more than 100 locomotives were produced in Brazil had been in 1977.
In 2010, GE announced its largest investment in Brazil. It was US$550 million to several businesses. For the plant of Contagem, the share was US$35 million. About 60% of resources have been invested in the expansion of facilities. The unit that previously had a production capacity of 60 locomotives per year closed last year with a capacity of 120 locomotives. It produced nearly so to meet the orders of Cosan and MRS (which received the first and largest batch of an order signed in 2009 for 115 locomotives, with a choice of more 100 in five years).
The scenario for the next five years is that Brazil will buy about 100 locomotives a year rather than 40 to 60 of the previous years, says Mello.
Carlos Rosso, director-general of Progress Rail, works with an estimate two times more favorable, according to him based on the estimates of its customers. Brazil will buy 1,000 locomotives over the next five years and we are getting ready to take 50% of this market. The plant of Sete Lagoas is being prepared to produce 96 locomotives a year, says the executive. There are now about 70 employees, but by the end of the year it is expected that 80 more workers will be hired.
The mood of manufacturers has an explanation: Brazil currently has 29,000 km of railroads and, adding the projects under study and those already under construction, the country will have more 11,000 km. Transnordestina, North-South, East-West Integration Railroad and Center-West Integration Railroad are some of the new tracks. Added to this there is the reactivation of some stretches; the increased movement of freight by rail and modernization of the trains by the freight operators that are beginning to replace old locomotives with newer, more economical models.
Vale, MRS and ALL are among some of the main buyers of locomotives of Brazil. They pay US$1.47 million per unit, depending on the model. The purchases have received the support by a special financing line of the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES), which in return requires a minimum percentage of nationalization of the locomotives.
Over 40% of the first trains of Progress Rail will be for the domestic market. In the case of GE, some of their models already have more than 60% of domestic content.
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