Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
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-mystifying 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 monthly 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 rivers in the middle of the Amazon jungle, has only one road in and out—the poorly maintained Brazil Route 174, which cannot accommodate heavy truck traffic. The nearest consumer market is 1,500 miles away, Flores says. But tax incentives designed to promote manufacturing in underdeveloped areas are so attractive that dozens of multinational companies—Sony, Phillips, Nokia, Samsung, and Whirlpool, to name a few—bring raw materials and components in for assembly and ship out finished products, mostly for domestic consumption.
The lack of highway access means manufacturers are forced to use freighter aircraft, barges, and small ships to move the goods in and out of the jungle. Heavier goods travel four days up the Amazon River and the Rio Negro to Manaus and four days back down the Amazon for export or domestic consumption. Air freight is typically reserved for high-value, lightweight items, such as cell phones.
It's hard to imagine that the benefits of manufacturing in Manaus outweigh the logistical drawbacks, but companies that manage to qualify for the full range of tax breaks can halve tax liabilities that would otherwise account for 45 percent of the goods' value, according to Flores. That more than compensates for the added logistics costs, he says.
Be realistic about transportation
The transportation challenges may be daunting, but they're not insurmountable. In Brazil, where there's a will, there's a way—even in some very remote areas. Earlier this year, for example, the global freight forwarder Damco and a local barge company launched an all-water service from Porto Velho on the Madeira River to Manaus. The service will help businesses in the remote states of Rondonia, Acre, and Mato Groso export cotton, leather, minerals, lumber, and beef.
Because Brazil is such a vast country, it's important to be realistic about what's feasible when it comes to transportation, experts say. "The country's economy is expanding quickly, but the infrastructure, including ports, airports, and roads, has not been able to keep up," Scroggie says.
Infrastructure has been in the spotlight lately because Brazil will host soccer's World Cup in 2014 and the summer Olympics in 2016. Better roads, ports, and airports will be needed to support those events. But more than 90 percent of respondents to a survey of supply chain professionals in Brazil, conducted by BDP International earlier this year, questioned whether much-needed improvements would actually be completed in time to meet the demands of these events.
In the meantime, the country's seaports are putting a lot of money into improving their facilities, says Rogers. And an expansion project in São Paulo has added a six-lane highway along with a "ring road" that routes trucks around the city center. Diverting trucks to the ring road has already reduced traffic volume inside the city by 40 percent, Scroggie reports.
Whether a company does business with big chain stores, with mom-and-pop stores in the city, or with customers in the Amazon jungle, Scroggie advises setting realistic expectations regarding both transit times and delivery agreements. Companies must make sure their contracts' transportation provisions are consistent for all parties, and that any penalties or consequences for late or failed deliveries are clearly spelled out in agreements throughout the supply chain, he says. Agreements should also take into account the varying regulations and conditions imposed in each state, he adds.
Another matter to settle in advance is how transportation-related communication will take place. For example, it may take several weeks to get a signed proof of delivery from a small retailer in the interior because the physical document has to make its way back through the logistics network. "You have to have agreed-upon rules about how that will happen," Scroggie says.
Use 3PLs to your advantage
As Brazil becomes an increasingly important player in global supply chains, logistics outsourcing is taking on a bigger role. More than 60 percent of respondents to the BDP International survey said they were outsourcing more of their transportation-related functions to third-party logistics companies (3PLs). Respondents also said they were relying more on specialized service providers to gain better control of inbound shipments and improve compliance with import regulations.
Big-name multinational 3PLs are active in Brazil, but there are also a number of homegrown competitors. "Brazilian 3PLs tend to be smaller than the companies multinationals typically deal with," says Rogers. Some of the better-known Brazilian 3PLs include Rapidão Cometa, Grupo Júlio Simões, and Tagma.
The big multinational 3PLs have an advantage because they can participate in global contracts for multinational clients and they hire bilingual staff, Scroggie says. The local logistics companies may have a pricing edge, but with the exception of some of the larger firms, they typically employ only Portuguese speakers.
Third-party service providers have already made big inroads into Brazil's warehousing market. It's common to see large multi-client facilities or warehouses that are shared by multiple logistics providers. "A warehouse may have 1 million square feet but five different 3PLs, each with 200,000 square feet," Scroggie reports. Whether a company operates its own warehouses and DCs or outsources depends in large part on volume. For example, French retailer Carrefour outsources its DC operations, while Wal-Mart Stores runs its own facility, though it outsources its e-commerce fulfillment.
Growth and change
Companies seeking to learn more about logistics management in Brazil will find there's no shortage of resources. They can choose from a variety of logistics and supply chain conferences, trade shows, and degree programs, including conferences and seminars organized by ILOS, which collaborates with the Council of Supply Chain Management Professionals. In addition, IntraLogística, the monthly magazine published by Instituto IMAM, offers an excellent introduction to warehousing and material handling trends in Brazil.
But those in the know warn that logistics-related information can have a short shelf life. The logistics and supply chain scene in Brazil is growing fast and changing almost daily. "Brazil has changed dramatically in the 10 years I've been going down there," says Rogers. "If your perception of Brazil is based on what it was a few years ago, you'll be wrong. If your perceptions are even two years old, they'll be out of date. And if they are five years old, not much is the same."
Economic activity in the logistics industry expanded in January, growing at its fastest clip in more than two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI jumped nearly five points from December to a reading of 62, reflecting continued steady growth in the U.S. economy along with faster-than-expected inventory growth across the sector as retailers, wholesalers, and manufacturers attempted to manage the uncertainty of tariffs and a changing regulatory environment. The January reading represented the fastest rate of expansion since June 2022, the LMI researchers said.
An LMI reading above 50 indicates growth across warehousing and transportation markets, and a reading below 50 indicates contraction. The LMI has remained in the mid- to high 50s range for most of the past year, indicating moderate, consistent growth in logistics markets.
Inventory levels rose 8.5 points from December, driven by downstream retailers stocking up ahead of the Trump administration’s potential tariffs on imports from Mexico, Canada, and China. Those increases led to higher costs throughout the industry: inventory costs, warehousing prices, and transportation prices all expanded to readings above 70, indicating strong growth. This occurred alongside slowing growth in warehousing and transportation capacity, suggesting that prices are up due to demand rather than other factors, such as inflation, according to the LMI researchers.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
As commodities go, furniture presents its share of manufacturing and distribution challenges. For one thing, it's bulky. Second, its main components—wood and cloth—are easily damaged in transit. Third, much of it is manufactured overseas, making for some very long supply chains with all the associated risks. And finally, completed pieces can sit on the showroom floor for weeks or months, tying up inventory dollars and valuable retail space.
In other words, the furniture market is ripe for disruption. And John "Jay" Rogers wants to be the catalyst. In 2022, he cofounded a company that takes a whole new approach to furniture manufacturing—one that leverages the power of 3D printing and robotics. Rogers serves as CEO of that company, Haddy, which essentially aims to transform how furniture—and all elements of the "built environment"—are designed, manufactured, distributed, and, ultimately, recycled.
Rogers graduated from Princeton University and went to work for a medical device startup in China before moving to a hedge fund company, where he became a Chartered Financial Analyst (CFA). After that, he joined the U.S. Marine Corps, serving eight years in the infantry. Following two combat tours, he earned an MBA from the Harvard Business School and became a consultant for McKinsey & Co.
During this time, he founded Local Motors, a next-generation vehicle manufacturer that launched the world's first 3D-printed car, the Strati, in 2014. In 2021, he brought the technology to the furniture industry to launch Haddy. The father of four boys, Rogers is also a director of the RBR Foundation, a philanthropic organization focused on education and health care.
Rogers spoke recently with DC Velocity Group Editorial Director David Maloney on an episode of the "Logistics Matters" podcast.
Q: Could you tell us about Haddy and how this unique company came to be?
A: Absolutely. We have believed in the future of distributed digital manufacturing for a long time. The world has gone from being heavily globalized to one where lengthy supply chains are a liability—thanks to factors like the growing risk of terrorist attacks and the threat of tariffs. At the same time, there are more capabilities to produce things locally. Haddy is an outgrowth of those general trends.
Adoption of the technologies used in 3D printing has been decidedly uneven, although we do hear about applications like tissue bioprinting and food printing as well as the printing of trays for dental aligners. At Haddy, we saw an opportunity to take advantage of large-scale structural printing to approach the furniture and furnishings industry. The technology and software that make this possible are already here.
Q: Furniture is a very mature market. Why did you see this as a market that was ripe for disruption?
A:The furniture market has actually been disrupted many times in the last 200 years. The manufacturing of furniture for U.S. consumption originally took place in England. It then moved to Boston and from there to New Amsterdam, the Midwest, and North Carolina. Eventually, it went to Taiwan, then China, and now Vietnam, Indonesia, and Thailand. And each of those moves brought some type of disruption.
Other disruptions have been based on design. You can look at things like the advent of glue-laminated wood with Herman Miller, MillerKnoll, and the Eames [furniture design and manufacturing] movement. And you can look at changes in the way manufacturing is powered—the move from manual operations to machine-driven operations powered by steam and electricity. So the furniture industry has been continuously disrupted, sometimes by labor markets and sometimes by machines and methods.
What's happening now is that we're seeing changes in the way that labor is applied in furniture manufacturing. Furniture has traditionally been put together by human hands. But today, we have an opportunity to reassign those hands to processes that take place around the edges of furniture production. The hands are now directing robotics through programming and design; they're not actually making the furniture.
And so, we see this mature market as being one that's been continuously disrupted during the last 200 years. And this disruption now has a lot to do with changing the way that labor interacts with the making of furniture.
Q: How do your 3D printers actually create the furniture?
A:All 3D printing is not the same. The 3D printers we use are so-called "hybrid" systems. When we say hybrid, what we mean is that they're not just printers—they are holders, printers, polishers, and cutters, and they also do milling and things like that. We measure things and then print things, which is the additive portion. Then we can do subtractive and polishing work—re-measuring, moving, and printing parts again. And so, these hybrid systems are the actual makers of the furniture.
Q: What types of products are you making?
A: We've started with hardline or case goods, as they're sometimes known, for both residential and commercial use—cabinets, wall bookshelves, freestanding bookshelves, tables, rigid chairs, planters, and the like. Basically, we've been concentrating on products that don't have upholstery.
It's not that upholstery isn't necessary in furniture, as it is used in many pieces. But right now, we have found that digital furniture manufacturing becomes analog again when you have to factor in the sewing process. And so, to move quickly and fully leverage the advantages of digital manufacturing, we're sticking to the hardline groups, except for a couple of pieces that we have debuted that have 3D-printed cushions, which are super cool.
Q: Of course, 3D printers create objects in layers. What types of materials are you running through your 3D printers to create this furniture?
A: We use recycled materials, primarily polymer composites—a bio-compostable polymer or a synthetic polymer. We look for either recycled or bio-compostable [materials], which we then reinforce with fibers and fillers, and that's what makes them composites. To create the bio-compostables, we marry them with bio-fibers, such as hemp or bamboo. For synthetic materials, we marry them with things like glass or carbon fibers.
Q: Does producing goods via 3D printing allow you to customize products easily?
A: Absolutely. The real problem in the furniture and furnishings industries is that when you tool up to make something with a jig, a fixture, or a mold, you tend to be less creative because you now feel you have to make and sell a lot of that item to justify the investment.
One of the great promises of 3D printing is that it doesn't have a mold and doesn't require tooling. It exists in the digital realm before it becomes physical, and so customization is part and parcel of the process.
I would also add that people aren't necessarily looking for one-off furniture. Just because we can customize doesn't mean we're telling customers that once we've delivered a product, we break the digital mold, so to speak. We still feel that people like styles and trends created by designers, but the customization really allows enterprise clients—like businesses, retailers, and architects—to think more freely.
Customization is most useful in allowing people to "iterate" quickly. Our designers can do something digitally first without having to build a tool, which frees them to be more creative. Plus, because our material is fully recyclable, if we print something for the first time and find it doesn't work, we can just recycle it. So there's really no penalty for a failed first printing—in fact, those failures bring their own rewards in the form of lessons we can apply in future digital and physical iterations.
Q: You currently produce your furniture in an automated microfactory in Florida, with plans to set up several more. Could you talk a little about what your microfactory looks like and how you distribute the finished goods?
A: Our microfactory is a 30,000-square-foot box that mainly contains the robots that make our furniture along with shipping docks. But we don't intend for our microfactories to be storage warehouses and trans-shipment facilities like the kind you'd typically see in the furniture industry—all of the trappings of a global supply chain. Instead, a microfactory is meant to be a site where you print the product, put it on a dock, and then ship it out. So a microfactory is essentially an enabler of regional manufacturing and distribution.
Q: Do you manufacture your products on a print-to-order basis as opposed to a print-to-stock model?
A: No. We may someday get to the point where we receive an order digitally, print it, and then send it out on a truck the next day. But right now, we aren't set up to do a mini-delivery to one customer out of a microfactory.
We are an enterprise company that partners with architects, designers, builders, and retailers, who then distribute our furnishings to their customers. We are not trying to go direct-to-consumer at this stage. It's not the way a microfactory is set up to distribute goods.
Q: You've mentioned your company's use of recycled materials. Could you talk a little bit about other ways you're looking to reduce waste and help support a circular economy?
A: Yes. Sustainability and a circular economy are really something that you have to plan for. In our case, our plans call for moving toward a distributed digital manufacturing model, where we establish microfactories in various regions around the world to serve customers within a 10-hour driving radius of the factory. That is a pretty large area, so we could cover the United States with just four or five microfactories.
That also means that we can credibly build our recycling network as part of our microfactory setup. As I mentioned, we use recycled polymer stock in our production, so we're keeping that material out of a landfill. And then we tell our enterprise customers that while the furniture they're buying is extremely durable, when they're ready to run a special and offer customers a credit for turning in their used furniture, we'll buy back the material. Buying back that material actually reduces our costs because it's already been composited and created and recaptured. So our microfactory network is well designed for circularity in concert with our enterprise customers.
Generative AI (GenAI) is being deployed by 72% of supply chain organizations, but most are experiencing just middling results for productivity and ROI, according to a survey by Gartner, Inc.
That’s because productivity gains from the use of GenAI for individual, desk-based workers are not translating to greater team-level productivity. Additionally, the deployment of GenAI tools is increasing anxiety among many employees, providing a dampening effect on their productivity, Gartner found.
To solve those problems, chief supply chain officers (CSCOs) deploying GenAI need to shift from a sole focus on efficiency to a strategy that incorporates full organizational productivity. This strategy must better incorporate frontline workers, assuage growing employee anxieties from the use of GenAI tools, and focus on use-cases that promote creativity and innovation, rather than only on saving time.
"Early GenAI deployments within supply chain reveal a productivity paradox," Sam Berndt, Senior Director in Gartner’s Supply Chain practice, said in the report. "While its use has enhanced individual productivity for desk-based roles, these gains are not cascading through the rest of the function and are actually making the overall working environment worse for many employees. CSCOs need to retool their deployment strategies to address these negative outcomes.”
As part of the research, Gartner surveyed 265 global respondents in August 2024 to assess the impact of GenAI in supply chain organizations. In addition to the survey, Gartner conducted 75 qualitative interviews with supply chain leaders to gain deeper insights into the deployment and impact of GenAI on productivity, ROI, and employee experience, focusing on both desk-based and frontline workers.
Gartner’s data showed an increase in productivity from GenAI for desk-based workers, with GenAI tools saving 4.11 hours of time weekly for these employees. The time saved also correlated to increased output and higher quality work. However, these gains decreased when assessing team-level productivity. The amount of time saved declined to 1.5 hours per team member weekly, and there was no correlation to either improved output or higher quality of work.
Additional negative organizational impacts of GenAI deployments include:
Frontline workers have failed to make similar productivity gains as their desk-based counterparts, despite recording a similar amount of time savings from the use of GenAI tools.
Employees report higher levels of anxiety as they are exposed to a growing number of GenAI tools at work, with the average supply chain employee now utilizing 3.6 GenAI tools on average.
Higher anxiety among employees correlates to lower levels of overall productivity.
“In their pursuit of efficiency and time savings, CSCOs may be inadvertently creating a productivity ‘doom loop,’ whereby they continuously pilot new GenAI tools, increasing employee anxiety, which leads to lower levels of productivity,” said Berndt. “Rather than introducing even more GenAI tools into the work environment, CSCOs need to reexamine their overall strategy.”
According to Gartner, three ways to better boost organizational productivity through GenAI are: find creativity-based GenAI use cases to unlock benefits beyond mere time savings; train employees how to make use of the time they are saving from the use GenAI tools; and shift the focus from measuring automation to measuring innovation.
According to Arvato, it made the move in order to better serve the U.S. e-commerce sector, which has experienced high growth rates in recent years and is expected to grow year-on-year by 5% within the next five years.
The two acquisitions follow Arvato’s purchase three months ago of ATC Computer Transport & Logistics, an Irish firm that specializes in high-security transport and technical services in the data center industry. Following the latest deals, Arvato will have a total U.S. network of 16 warehouses with about seven million square feet of space.
Terms of the deal were not disclosed.
Carbel is a Florida-based 3PL with a strong focus on fashion and retail. It offers custom warehousing, distribution, storage, and transportation services, operating out of six facilities in the U.S., with a footprint of 1.6 million square feet of warehouse space in Florida (2), Pennsylvania (2), California, and New York.
Florida-based United Customs Services offers import and export solutions, specializing in remote location filing across the U.S., customs clearance, and trade compliance. CTPAT-certified since 2007, United Customs Services says it is known for simplifying global trade processes that help streamline operations for clients in international markets.
“With deep expertise in retail and apparel logistics services, Carbel and United Customs Services are the perfect partners to strengthen our ability to provide even more tailored solutions to our clients. Our combined knowledge and our joint commitment to excellence will drive our growth within the US and open new opportunities,” Arvato CEO Frank Schirrmeister said in a release.
And many of them will have a budget to do it, since 51% of supply chain professionals with existing innovation budgets saw an increase earmarked for 2025, suggesting an even greater emphasis on investing in new technologies to meet rising demand, Kenco said in its “2025 Supply Chain Innovation” survey.
One of the biggest targets for innovation spending will artificial intelligence, as supply chain leaders look to use AI to automate time-consuming tasks. The survey showed that 41% are making AI a key part of their innovation strategy, with a third already leveraging it for data visibility, 29% for quality control, and 26% for labor optimization.
Still, lingering concerns around how to effectively and securely implement AI are leading some companies to sidestep the technology altogether. More than a third – 35% – said they’re largely prevented from using AI because of company policy, leaving an opportunity to streamline operations on the table.
“Avoiding AI entirely is no longer an option. Implementing it strategically can give supply chain-focused companies a serious competitive advantage,” Kristi Montgomery, Vice President, Innovation, Research & Development at Kenco, said in a release. “Now’s the time for organizations to explore and experiment with the tech, especially for automating data-heavy operations such as demand planning, shipping, and receiving to optimize your operations and unlock true efficiency.”
Among the survey’s other top findings:
there was essentially three-way tie for which physical automation tools professionals are looking to adopt in the coming year: robotics (43%), sensors and automatic identification (40%), and 3D printing (40%).
professionals tend to select a proven developer for providing supply chain innovation, but many also pick start-ups. Forty-five percent said they work with a mix of new and established developers, compared to 39% who work with established technologies only.
there’s room to grow in partnering with 3PLs for innovation: only 13% said their 3PL identified a need for innovation, and just 8% partnered with a 3PL to bring a technology to life.