20 Oct 2015
Hopes for Better Times After a Bad Year for Brazil's Marine Sector
Hit by corruption allegations and excessive bureaucracy over the last 12 months, 2016 may see a new dawn for Brazil's maritime industries, at least according to a number of exhibitors and attendees at this year's Marintec expo in Rio.
Despite a year of uncertainty and confusion for Brazil's marine engineering, there was a distinct atmosphere of energy and optimism prevailing at the Marintec South America – 12th Navalshore. The show brought together 370 exhibitors from 17 countries, across seven International Pavilions, and drew an estimated 16,000 visitors. Overall, exhibitors covered every aspect of the industry, from construction to retrofit and maintenance, propulsion, electronics, communications, platforms, safety and services.
One of the largest stands at the show came courtesy of Weichai (the Shandong Weichai Import/Export Corporation), based in Weifang in Eastern China. Explaining the company's presence in South America, Luis Lu Song, Weichai's Marketing Manager, said: "We are the biggest engine manufacturer in China. Our engines go into trucks, buses, construction machinery and other specialist equipment. Here in Brazil, though, our main market is marine.
"We have had an office in São Paulo, Brazil, for seven years. We have local sales and after-sales teams, as well as seven service centres across Brazil."
The company is very well established in Brazil and a regular attendee at Marintec, but, like many other businesses, it has found trading conditions difficult of late. Lu said: "This year has not been so good. The exchange rate of 3.5 Reals to the US dollar means our price is not so competitive. We also have to face high taxes, some local protection, and payment problems as we cannot get credit from BNDES (the Brazilian Development Bank). As a result, we are looking for a local partner to help us set up manufacturing here."
Such a move would follow the model Weichai has employed successfully across the world, with Lu saying: "We have manufacturing in India, Italy, Germany, France and the US. We own 30% of Linde Hydraulics, and 70% of the Italian luxury yacht manufacturers Ferretti. We are truly a global group."
Other trading groups were represented in clusters of stands. The Korean presence, for instance, consisted of Conotec, Decomarine, Dongjoo Engineering, Dong Kang Metal, Hanshin Electronics, Ilhung Co, Lino Co, Metal-Korea, Prosave, Sam Hoi Industrial, WSM and Jungang Polytech. Both Denmark and Holland had similar national pavilions.
So, too, did the Japanese, with a number of companies represented under the Japan Ship Machinery and Equipment Association (JSMEA) banner. The centrepiece of its presentation was a giant wall display featuring a schematic view of a complete Platform Support Vessel. It detailed all the components and accessories, from boilers, engines and turbines through to lighting, paints, seals and valves, along with the details of more than 70 Japanese suppliers.
The Chinese Pavilion, meanwhile, featured Jiangsu Josun air conditioners, Shandong Nanhai Engineering airbags and floating rubber fenders, Chongqing Donggang bearings, Hansun (Shanghai) Marine Technology (pumps, water generators, incinerators and sewage treatment), Elite Marine water treatment systems, and Zhejiang Shuangniao (TBM) chain hoists.
For TBM's Sales Manager, Xu Jun, coming to Brazil was a new experience. He said: "We have attended marine trade shows in Dubai, Singapore and Germany, but this is our first time here. We are primarily handing out literature – and looking for an agent."
Shanghai Rokem (China) presented buoys, lights, receivers, sonar and echo sounders, while Yangshan Marine (YSH) – a sales agent for domestic Chinese marine machinery, as well as for spares for Wärtsilä and MAN diesel engines – had on offer an impressive range of conditioners and valves. Wärtsilä, in fact, had one of the biggest stands at the show.
A number of the larger exhibitors were promoting a range of products and services from several overseas manufacturers, all handled by one Brazilian office. Macnor Marine, registered in Rio, represented 12 suppliers in all, with most of them based in Norway.
Leo Moteff, the company's Service Manager, said: "The reason we are structured this way is that, say there is a project to build a new vessel. The shipyards will look to put together all their suppliers for the hull, lighting, propulsion, accommodation at the start. We can then make a presentation covering price, delivery time and after-sales service. We have to be here in Rio to be involved in that bidding process."
In a similar grouping, Ulstein Belga Marine (Brazil), which has had a presence in Brazil for 34 years, offered navigation and automation systems, radio, satellite and internal communications systems from 15 high-tech suppliers. Vision Marine (Brazil) also represented a number of high-tech suppliers.
Explaining the need for its presence in Rio, Leandro Meireles, a Sales Consultant to Vision Marine, said: "Brazil needs to import a lot of high-technology equipment, but the costs of supplying from outside are too high. There is so much paperwork. By establishing an office here, we can overcome some of those challenges."
Overall, the difficulties of doing business in Brazil were a common theme among many of the exhibitors. Typically, many of the issues related to problems in dealing with official requirements.
Through Petrobras, the world's fourth largest energy company, the Brazilian government manages 80% of Brazil's oil and 60% of its gas reserves, ultimately accounting for 50% of its marine industry. Active in 17 countries, including 12 in Latin America, the state-run enterprise, headquartered in Rio, is involved mainly in the exploration, production, refining and supply of oil and gas.
Much of its production and exploration takes place off the Brazilian coast and sees it manage 134 production platforms and 100 exploratory rigs, as well as an oil tanker fleet of 326 vessels. For 17 months now, however, the company has been mired in a corruption scandal, involving alleged bribes to politicians and executives in order to secure business deals. To date dozens of senior business people and politicians have been implicated, and planned future investment has been cut by 40% over the past year as the investigations continue.
In the longer term, though, some believe the corruption investigations may make the industry healthier. One such optimist is Renan Joel, Director of Marintec South America, the organiser of Marinetec.
He said: "After 10 years of growing at 19% per year, the Brazilian marine industry is going through a period of transition. It can regenerate, though, and the prospect of creating a positive regulatory framework will benefit everyone along the value chain."
Many of the trading difficulties associated with the country were addressed in one particular seminar presentation, How to Do Business in Brazil. Tellingly, this was jointly put together by several companies with years of experience in the area.
Jan Lomholdt, Managing Director of M&O – Maritime and Offshore Partners (Brazil), opened the proceedings by looking at some of the current challenges – high costs, slow returns, local content demands, lack of qualified personnel and corruption.
He said: "On the plus side, office costs have almost halved in the past 12 months. Difficulties for some are also proving opportunities for those companies that persevere.
"I have lived here for five years and many of my board members back home in Scandinavia are not very patient when it comes to waiting for a return on investment. If you are good on costs, though, and patient, and do all your paperwork correctly, you will ultimately be rewarded.
"The availability of qualified personnel has improved over the past three years, as people have done a lot of work on projects and gained a lot of experience. The corruption investigation is a big opportunity, particularly for those foreign companies that have not yet done business in Brazil. Inevitably, many of the existing service companies are going to be blacklisted.
"This is a positive change for the future. For us and companies used to working transparently, we want the industry to clean up its act and create a level playing field.
"Brazil is second only to Norway in planned offshore expenditure for the period 2016-2019. As a director, I want a share of that, however difficult it is. This is not a good year, but Brazil has only tapped into 10% of its oil reservoir. There is 90% to go over the next 10 years. We just have to be patient."
Taking up the baton, Erik Hannisdal, Managing Partner of Inventure Management (Brazil), explained that many of the problems associated with the country were caused by officialdom. He said: "Dealing with Brazilian bureaucracy requires a substantial workforce, so you have high up-front investments in staff and infrastructure. A European company uses 200 man-hours per year to pay its taxes. In Brazil, it is said to require 2,600 man-hours.
"It is worth being patient, however. The market has now hit the bottom and we have some better years ahead."
Moteff, however, had a slightly different view, saying: "Actually the marine business in Brazil is always going up and down – like a wave. The market has been freezing up a little, but maybe next year it will warm up."
Marintec South America was held at the SulAmerica Convention Center, Rio de Janeiro, from 11-13 August 2015.
John Haigh, Special Correspondent, Rio de Janeiro