Taking Advantage of Brazil’s Growing Economy
Brazil is the key driver of growth in South America. It accounts for approximately half the population of the continent. From a logistics & distribution perspective it is worth noting that Brazil accounts for approximately half the land area of South America as well.
As Brazil’s economy has grown and it’s purchasing power has increased substantially over the past two decades, U.S. exporters of all sizes have rushed to take advantage of this markets great potential. However, trade and logistics processes within Brazil remain extremely challenging and can be a source of great trouble for exporters who are unprepared for the challenge of shipping their goods to this country.
Some of the challenges involved with shipping to Brazil include the following:
- Brazilian Customs – Customs regulations in Brazil are notoriously difficult to comply with. For example, if a U.S. exporter ships their goods to a Brazilian entity that is not an official importer of record, the goods can be confiscated. This can result in a total loss of product, and subsequent sales, as well as the cost of duplicating the order. Even if a legal solution is available to amend shipment documentation, the costs of demurrage and storage incurred during the amendment process would be onerous and can have a tremendous impact on order profitability and future sales. In many instances, product that is imported to Brazil with incorrect documentation or improper registrations has to be returned to the country of origin (often at the exporters cost) and re-shipped to Brazil under new documentation in compliance with the regulations.
- Cargo Theft – While the theft of goods is often a problem faced by local importers and distributors, this can be a significant issue for U.S. exporters who have their own offices or distribution processes in place within Brazil. Recent incidents have included spectacular train robberies reminiscent of the movies, however, general cargo is also frequently stolen especially in the Southeastern part of the country where freight volumes and retail spending is at its highest. U.S. exporters should be clear in defining the point at which their liability discharges in the shipping transaction, and for those shippers who are selling goods on a door-to-door basis, careful consultation with a logistics provider who offers insurance coverage is necessary. Theft of goods is likely to result in irreplaceable loss and can completely wipe out an exporters profitability and prospects for future business in the market.
- Infra Structure Challenges – The majority of goods distributed within Brazil move by truck. While the government of Brazil is working to address the quality of its road network, the current environment causes significant potential for delays in domestic distribution of goods. Additionally, inefficient road networks also add costs to delivery which can have a significant impact on the landed cost or retail price of imported goods. This has the potential to be a significant cost driver for U.S. exporters.
- Bureaucracy – Aside from Brazilian customs, there are many other agencies involved in the import process including the Ministry of Health which is significant for food & pharma exporters. Failure to comply with the requirements of these agencies to the letter can result in cargo being held at port of arrival despite the completion of Brazilian Customs clearance. It is very important for U.S. exporters to have their Brazilian counterparts completely check and verify all documentation prior to arrival into Brazil in order to avoid any potential problems at time of arrival. It is not uncommon for disputes to arise amongst different agencies within the Brazilian government where it comes to imported goods, and the costs of detention, storage, etc. that can arise are almost always borne by the shipper of goods.
While the potential for export business growth in Brazil is vast, U.S. exporters need to be aware of some of the pitfalls associated with this market.
Careful collaboration with an experienced freight forwarder or logistics services provider can mitigate some of the risks that can arise from customs and compliance issues in this market.