Executive Summary

• The COVID-19 pandemic has led to nationwide supply chain and logistics disruptions in Brazil, which by virtue of the country’s size has the potential to adversely impact operations across South America. 14 of Brazil’s 26 states and its Federal District of Brasilia have implemented the minimum threshold of quarantine measures which have disrupted the ease of business operations nationwide. Divergent federal and state policies of pandemic management have resulted in contrasts between federal designations of essential and operational realities.
• State restrictions on movement have adversely impacted staff attendance, leading to decreased capacity in component production and cargo delivery. Non-essential businesses have been closed altogether, though convoluted designations of “essential” have led to confusion and further disorder.
• Brazil’s fragmented emergency management approach has concerned its neighbors. This has led to a heightened law enforcement presence in Paraguay and calls from heads of state in the Southern cone to undertake actions to amplify scrutiny of Brazilian truckers. If such measures were implemented, it could noticeably hamper transcontinental shipping, perhaps even impeding on trans-Pacific commerce from Chilean and Peruvian ports. 
• While there are no regulatory impediments to cargo shipments through land, sea, and air routes, the current mismanagement of the crisis jeopardizes the productivity of Brazilian logistics operators working across the continent.
• Reopening of supply chain operations in Brazil has also been challenging. Mobility resumptions have led to congestion at ports such as Itapoa and Itajai and increased wait times at the Port of Santos. A mandatory quarantine period has been implemented for vessels that have detected the virus on board, continuing the disruption of operational timelines. Further, it has been reported that several blank sailings are anticipated for future South America to Asia routes, jeopardizing notably strong routes dispatched from Brazil.
• Manufacturing, particularly automotive, is starting to come back online after being halted for many weeks. The extractive industries may be next to face shutdowns given the heightened reporting of COVID-19 outbreaks in mines and on oil rigs.
• As lockdowns may gain traction in Brazil as an effective public health measure, production activities may be adversely impacted by increasingly restrictive measures. It is therefore imperative that supply chain managers, producers, and business continuity planners continue to track infections in conjunction with supply chain assets so that potential disruptions can be anticipated and mitigated.

Background

Brazil’s first reported case of COVID-19 was in Sao Paulo on February 26, 2020, which was confirmed to have originated in Lombardy, Italy, the center of Europe’s virus outbreak. The resulting spread of the virus to the rest of the country has produced a noticeable impact on the country’s industries and logistics networks. By virtue of the country’s geographic and economic size, this has the potential to reverberate throughout the continent.

The response to the pandemic was initiated by the Federal District of Brasilia with a Public Health Emergency declaration on February 3, preceding the confirmation of any infections in the country. Since the initial outbreak, the federal response has been primarily relegated to the land, sea, and air borders, while the leading response has been from the state governments and Brasilia. 23 of 26 states and Brasilia adopted traffic restriction measures as a baseline effort on March 26. Faced with minimal federal support, states have been working to synchronize efforts through a judicial affirmation of mutually inclusive quarantine mandates between neighboring states. 

As of June 9, Brazil, with over 739,503 infections, is confirmed to be the world’s second most infected country, behind the U.S., with current projections showing no signs of a plateau in the infection curve. Incumbent measures adopted both on a state- and federal-level show little indication that some of Brazil’s more critical industries, such as automotive, metallurgical, energy, and agricultural, will be entirely shut down. However, measures controlling population movement and the health considerations of employees increase the risk of future production disruptions due to staffing shortages. Moreover, while there are no regulatory impediments to cargo shipments through land, sea, and air routes, the current management of the crisis jeopardizes the productivity of Brazilian logistics operators working across the continent.

This report analyzes the impacts of COVID-19 on the export-oriented production sectors of the Brazilian economy as well as logistics movement within the continent. The report also examines the regulatory environment amid the crisis and elaborates on what supply chain managers can expect as the situation evolves.

State Level Restrictions Due to COVID-19

While the federal health emergency declaration was the earliest manifestation of regulations pertaining to COVID-19, a divide has emerged between Planalto and the state governments as to appropriate protective public health measures. Rio de Janeiro and Sao Paulo, the most populous states in the country, were the first to implement movement restrictions and social distancing requirements. The two states have quarantine rules authorized through May 31, and while either have yet to implement a lockdown, the governors of both states have been reported as considering such measures. Other states undertaking similar COVID-19 management efforts include Maranhão, in the northeast, and Roraima, in the north bordering Venezuela. A similar public health emergency in Venezuela has informed the state’s response, which included strengthening extant border security measures. The federal and sub-federal governments have since faced a challenging attempt to balance between public health and the economy. 

As of June 09, 00:00 GMT, Everstream Analytics has found that all 26 states and the Federal District of Brasilia have ordered at least some form of official stay-at-home order or mandate for the closure of non-essential businesses. Some states, such as Rondônia, lifted their orders on May 5, while others, such as Sao Paulo, have extended their orders through the end of May. None of the orders appear to be indefinite, with governors setting specific deadlines and then proroguing reopening on an as-needed basis, rather than referring to outdated information from original orders. Federal circuit court rulings have also supported the mutual applicability of state restrictions such as bilateral non-essential entry restrictions.

The federal government’s ability to implement public health measures designed to supplement those of the states, cities, and federal district remains a topic of debate. In the absence of a definitive executive or judicial opinion, the ambiguity of jurisdictional primacy may pose a challenge in implementing any overarching federal effort beyond the minimal and baseline efforts which have been performed to date.

Manufacturing Impacts

Automotive, as the second-largest industry in Latin America, has been challenged after facing business disruptions stemming from original equipment manufacturer (OEM) consolidation in the region. The closure of several OEMs production facilities was initially tied to decreased demand, and many plants have begun to reopen after about 45 days of closure. Automotive accessory suppliers, such as tire maker Bridgestone, have shuttered plants, and production halts from component suppliers in China and Japan have exacerbated delays in restarting production lines. The news outlet Estado de Minas reports that year-to-date, the industry has seen a nationwide loss of 10,000 jobs at assembly plants and 20,000 jobs at component manufacturers. Furthermore, with a production halt of over 30 days, 30 percent of distributors specializing in the automotive industry will be unable to bounce back from the losses without some form of assistance.

Manufacturing disruptions due to COVID-19 began with personnel furloughs and production reductions in early March. This later evolved into multi-day production halts, and eventually into indefinite halts for enterprises facing uncertain and exacerbating conditions, such as parts shortages. In the early days of the crisis, manufacturers were primarily concerned with state-level restrictions imposed on interstate and intermunicipal travel. This had adversely impacted work attendance at manufacturing facilities, according to unions and industry federations in Rio de Janeiro in reference to that state’s Decree Number 46.983, which limited rail and maritime mobility. A manufacturing enterprise might be exempt from state working restrictions, such as those specified by Rio de Janeiro’s Decree Number 46.980. As a result, industry federations like Firjan have described a precarious situation facing interlinked industries like manufacturing, where a disruption to one component’s production line can halt that of another, through to the finished product. On May 8, the Bolsonaro administration designated industry, including manufacturing, transportation, and energy, as well as construction as essential businesses which can remain open. These designations supersede potential sub-federal measures intended to close manufacturing enterprises vis-à-vis social distancing justifications. 

As a result of the pandemic, several energy production units have had to go offline for brief periods of time. The most notable fields with combined extraction and refining potential are the Santos and Guanabara basins in the states of São Paulo and Rio de Janeiro, respectively, with additional notable facilities located along the Bahian coast and in the northern states of Amazonas and Para.

Logistics Impacts

Air freight

Most of the flight restrictions in the country have been relegated to travelers, where disembarkation has been restricted for non-Brazilians, residents, or those without expressed authorization. Air cargo has remained relatively unimpeded, with activity sustained to the point that the Civil Aviation National Agency (ANAC) gave authorization to commercial carriers to transport cargo in order to accommodate the intensifying pressure on supply chains. 

As of April 26, however, due to an underutilization of this authorization, some carriers announced that they will gradually resume previously halted passenger services to select cities in the North, South, and Center-West, and to state capitals. LATAM Brasil, one of the largest 3 airlines by domestic share and the most internationally connected,has not yet disclosed its plan to restore flight connectivity. 

Ocean freight

Ocean freight continues relatively unimpeded, as evidenced by the minimal restrictions on maritime crews and vessel docking in Brazil, contingent only on positive medical screenings. Citing Federal Law number 7.783/89, Provisional Measure 945/2020 has designated port activity as essential, which has guaranteed its continued operation. 

Yet, practical challenges persist, such as reports of port congestion at Itapoa and Itajai, increased wait times at the Port of Santos, and the quarantine requirements for vessels due to the detection of COVID-19 on board. Moreover, it has been reported that several blank sailings are anticipated for South America to Asia routes, on which Brazil is included, and whose shipping volumes have heretofore been strong, but may be in jeopardy.

Ground

All of Brazil’s land borders have been closed since March 24. Cargo has been permitted to pass between Brazil and its neighbors, albeit with an inspection regime in place at the border. 

Brazil’s emergency management has concerned its neighbors. This has led to a heightened law enforcement presence in Paraguay and calls from heads of state in the Southern cone to undertake actions to amplify scrutiny of Brazilian truckers. If such measures were implemented, it could noticeably hamper transcontinental shipping, perhaps even impeding trans-Pacific commerce from Chilean and Peruvian ports. 

In the north of the country, an enhanced inspection regime between the states of Amapa and French Guiana have been implemented. The state’s all-municipality lockdown ran from May 19 to 29 and proved to be a notable impediment for cross-border cargo. This was followed by reinforcements at Brazil’s border with Uruguay. Furthermore, on May 22, Brazil’s border closures with its neighbors was prorogued for an additional 30 days. 

For interstate domestic commerce, essential cargo is mostly exempt from movement restrictions laid out under state government Provisional Measures. Truckers shipping non-essential goods had aired their grievances through protests on Avenida Paulista in São Paulo on May 11. Due to short staffing, ground shipping of essential goods has also dropped in activity up to 25 percent since the start of the virus outbreak in early March. While this is an improvement from the 68 percent activity drop at the start of the crisis in March, risks of insolvency for shipping companies and enough labor availability remain.

Outlook and Recommendations

Brazil is emerging as the pandemic’s new epicenter. The absence of strong federal measures to complement those of the states and federal district may prompt state governments to strengthen their responses. As of reporting, Amapa has been the only state to implement a statewide lockdown covering all 10 of its municipalities. This idea is being circulated and considered in São Paulo and Rio de Janeiro, two states of principal productivity and overall national economic importance. It is also being considered in states such as Maranhão, which hosts one of Brazil’s most notable commodity export ports. Should these initiatives dissipate, city governments have demonstrated a willingness to enact lockdowns, with that of Recife effective through May 31. With little sign of relief in sight, the situation is anticipated to worsen before improving. 

Organizations with supply chain operations in Brazil are advised to consider the following recommendations:

• Stay abreast of regulatory developments at the sub-national level: Below the federal level, cities and states have considerable leeway to enact legislation pertinent to their own public health. These developments can adversely impact staff mobility, plant operation, or truck circulation throughout a locale or on a given thoroughfare. Supply chain managers and shippers are advised to stay informed of developments and adjust plans where necessary. 
• Anticipate shipping schedule disruptions and capacity reductions: The possibility of blank sailings will continue to risk disrupting planned shipping schedules for ocean freight and reduce capacity overall on individual trade lanes. Where these changes are known, shippers should identify alternate routes.
• Track locations of infections in conjunction with supply chain assets: While cargo may be currently exempt from most restrictions, there is no guarantee that this will not change. As lockdowns may gain traction in Brazil as an effective public health measure, production activities may be adversely impacted by increasingly restrictive measures. It is therefore imperative that supply chain managers, producers, and business continuity planners continue to track infections in conjunction with supply chain assets so that potential disruptions can be anticipated and mitigated. 

Appendix

Entity	Start	Measures	End
Acre	May 18	Vehicle circulation restrictions based on day of week	May 31
Alagoas	April 20	Restrictions on non-essential retail	May 31
Amapa	May 19	Lockdown	May 29
Amazonas	May 5	Partial lockdown (individual cities)	May 20
Bahia	March 19	Partial lockdown (individual cities)	June 15
Ceara	May 8	Partial lockdown (individual cities)	May 31
Distrito Federal (Brasilia)	March 11	Checkpoints and restrictions on non-essential retail	May 31
Espirito Santo	March 21	Restrictions on non-essential retail	May 25
Goias	March 17	Restrictions on non-essential activities	May 14
Maranhao	May 2	Partial lockdown (individual cities)	June 1
Mato Grosso	March 25	Restrictions on non-essential retail	June 4
Mato Grosso do Sul	May 4	Partial lockdown (individual cities)	May 18
Minas Gerais	March 22	Partial lockdown (individual cities)	May 15
Para	March 20	Partial lockdown (individual cities)	May 24
Paraiba	March 5	Restrictions on non-essential retail	May 18
Parana	March 20	Restrictions on non-essential retail	May 25
Pernambuco	May 16	Partial lockdown (individual cities)	May 30
Piaui	March 16	Restrictions on non-essential retail	June 7
Rio de Janeiro	March 19	Partial lockdown since May 10 (individual cities)	May 20
Rio Grande do Norte	March 19	Restrictions on non-essential retail	May 31
Rio Grande do Sul	March 31	Restrictions on non-essential retail	May 11
Rondônia	March 26	Restrictions on non-essential retail	May 17
Roraima	March 13	Restrictions on non-essential retail	Indefinite
Santa Catarina	March 26	Restrictions on non-essential retail	May 31
Sao Paulo	March 24	Partial isolation of the state capital and the Sao Paulo coast with lockdown under consideration	June 1
Sergipe	March 24	Restrictions on non-essential retail	May 25
Tocantins	May 16	Partial lockdown (individual cities)	May 23