Beginning in September, Brazil’s rainy season has already been marked by lower-than-average precipitation levels due to a strong El Niño event. The country has recorded around 40% of normal rainfall volumes in the last two months, with considerable impacts to the Amazon basin region.
The low levels of rain received at the start of the season have not been seen since 2015. The lack of precipitation has led to drought conditions on the Amazon River which has resulted in decreased water levels that are insufficient for cargo transit. Industrial activity in the city of Manuas, Brazil, relies on the river transit to source inputs and components for manufacturing, particularly for the automotive and electronics industries.
The same manufacturers rely on river transit to ship finished products from Manaus factories to consumer markets in the region and beyond. To date, the most impacted products have been motorcycles, cellphones, air conditioners, and televisions, while transportation issues have also extended to grain shipments.
Drought disrupts logistics networks across Northern Brazil
The recent drought across northern Brazil has caused historic lows in parts of the Amazonas and Madeira rivers, preventing the arrival of ships in Manaus due to draft limitations. Manaus has not received any ships for more than 30 days. Ships must now transfer their cargo to barges to reach Manaus. While the barges can navigate the stretches of lower water levels where a ship cannot, each barge must move slowly, and with only about a tenth of a ship’s cargo with current restrictions in place. There is also a shortage of available barges. Transportation costs have skyrocketed by 25% to 50%, depending on the contract, with the necessity for barges, cargo transfers and storage.
CMA CGM and Maersk have suspended direct service to the port of Manaus and have opted to divert to other ports including Pecem and Fortaleza. From there, limited alternatives transport truck and barge service to Manaus. The drought is currently even limiting barges on some local rivers to only 50% of total capacity.
The transportation difficulties have disrupted grain shipments. On rivers in northern Brazil, some grain shipments have been suspended while others are operating with reduced volume. Some grain exporters are avoiding the risks in the North of Brazil by diverting cargo to terminals in the South and Southeast.
Factories in Manaus face production challenges due to lack of cargo movement
The historic drought since mid-September is also threatening to halt production at many factories in the industrial hub of Manaus. The Manaus Free Trade Zone is home to factories that manufacture motorcycles, electronic devices, and home appliances. The Free Trade Zone employs over 100,000 workers and produces much of Brazil’s motorcycles and electronics, with a preferential tax system on exports and imports there. Many of these industries have already seen production affected due to the lack of transportation of inputs to factories for manufacturing and an accumulation of finished goods that cannot leave the factories.
Overall, more than 35 companies from the Manaus Industrial Zone will institute “collective vacations,” a solution to avoid layoffs, for workers at their factories while the drought continues. The local Metalworkers Union of Amazonas has stated over 14,000 of its workers will go on “collective vacation” due to production issues from late October to mid-November.
Everstream clients are receiving more detailed insights and recommendations about this risk.
Contact us to learn how we can give you a complete view of the risks affecting your end-to-end supply chain and what you can do to mitigate them.