strategicinsight
BY TOBY GOOLEY, MANAGING EDITOR
the rocky road to Rio
Brazil may be the new “land of opportunity,”
but longstanding logistics and bureaucratic headaches remain.
THE “ROAD TO RIO” IS A BUSY ONE THESE DAYS.
Brazil sailed through the global economic recession relatively unscathed, and its economy is more stable today than
perhaps at any time in its history. A growing middle class
has sparked demand for housing and retail goods. All of this
has combined to make Brazil one of the world’s few economic bright spots—and a very attractive market for manufacturers, retailers, and the businesses that serve them.
That’s why companies from around the globe are moving
into Brazil in a big way. But like the manufacturers that
rushed into China more than a decade ago, they’re discovering that new markets can present new challenges. To
make it in Brazil, businesses have to adapt to the country’s
unique logistics environment and play by some often-mys-tifying rules. Here’s a brief look at just a few of Brazil’s
many challenges and some strategies for dealing with them.
Get a good accountant!
Any discussion of logistics in Brazil starts with laws and
taxes, which are a frequent source of frustration for outsiders. Brazil is “highly regulated, it is protective of domestic industry, and you have to deal not just with inconsistent
laws and regulations but also with inconsistent interpretation of those laws and regulations,” says Humberto Flores,
president for the Americas of DHL Supply Chain’s technology and aerospace business unit.
As an example of inconsistent enforcement, Dale Rogers,
professor of supply chain management at Rutgers
University, cites an electronics manufacturer’s experience
with a law requiring products manufactured in Brazil to be
returned to their point of origin for disposition. Rogers,
who is also the leader of the supply chain sustainability
practice at Brazil’s Instituto de Logística e Supply Chain
(ILOS), says the manufacturer was excused from compliance in 2009, was required to comply this year, and will get
a break from enforcement again in 2011. “This sort of thing
seems capricious, and it can be confusing,” he says.
“Brazilian managers are very flexible and are able to change
course quickly. For the typical American, who thinks things
are going to stay the same, it’s hard to adjust.”
Brazil’s tax system is equally complicated. “There are
more than 70 different types of taxes, and there are month-
ly debits and credits. You have to be able to understand how
that will impact your business,” says São Paulo-based Bill
Scroggie, managing director of Penske Logistics in South
America. He advises adding tax experts to your team to help
navigate national and state tax codes. Tax compliance is so
important that competition for knowledgeable accountants
is fierce, he warns.
The tax regime has a big influence on transportation. For
example, the CTRC (truck bill of lading) and the nota fiscal
(fiscal invoice) are not just shipping documents; they are
supporting documents on which the complex Brazilian tax
system is based, confirming for tax purposes that a delivery
actually took place and that a sale has been completed. In
2008, federal authorities began a modernization program
that will standardize the tax bookkeeping system and convert it to an electronic system. The CTRC and nota fiscal are
in the process of changing to the new system. The modernized tax system will promote information sharing at all levels of government almost in real time, and it will save taxpayers money by eliminating paper documents and reducing bureaucracy, Scroggie explains.
The tax burdens are so heavy that sometimes “where you
route a truck is actually determined by tax rules rather than
what makes the most sense from an efficiency point of
view,” says Rogers. Companies often route shipments to
take advantage of varying state value-added taxes on sales
and services, he explains. Because those rates depend in part
on whether a transaction is intra- or interstate, it can be
cheaper overall to ship longer distances.
The bustling city of Manaus exemplifies how tax benefits
can take precedence over logistics efficiency in Brazil. The
city, located at the confluence of the Amazon and Rio Negro
