Highway Robbery Pushes Best Stock From Trucks to Ships

Paranapanema SA (PMAM3), Brazil’s biggest refined copper producer and best stock in the past year, is switching to ships from trucks. While the change almost triples transport times, it cuts costs by 21 percent by eliminating a threat found on Brazilian roads: Thieves.

Paranapanema is transporting 65 percent of its domestic deliveries by ship this year; last year it sent nothing by sea. The Dias D’Avila, Brazil-based company plans to move 80 percent by water at year’s end after 15 loads were hijacked along roads in 2012, interim Chief Executive Officer Edson Monteiro said.

“There are a lot of trucks stolen, a lot of violence -- we invest a lot in security,” he said in an interview in Rio de Janeiro. “Nothing has been done in the past 10 years to improve transportation by roads. Brazil is very weak on this issue.”

Companies like Paranapanema are braving port bottlenecks and longer shipping times to avoid Brazil’s aging highway network, where gangs armed with machine guns and rifles regularly board trucks -- either by bribing drivers, using force or even kidnapping family members -- and steal goods from copper to food. Almost 1 billion reais ($468 million) of cargo was stolen last year on Brazil’s roads, 37 percent more than in 2006, according to the Sao Paulo cargo transport companies’ union, known as Setcesp.

‘Achilles’ Heel’

“Security is Brazil’s Achilles’ heel,” said Fabio Bechara, prosecutor and legal adviser for Sao Paulo state’s security secretariat. The state accounts for more than half the estimated 13,000 road robberies each year, Setcesp says. “This is a profitable business for those who get the cargo,” he said.

Trucks transport about 60 percent of Brazil’s domestic cargo and the surge in thefts is among logistical barriers limiting revenue increases for companies and growth for the country. To ease bottlenecks, the government is seeking private investors to build and operate 7,500 kilometers (4,660 miles) of new roads as part of an infrastructure investment plan totaling $235 billion.

Security officials in Sao Paulo are stepping up monitoring of thefts and increasing existing patrols on roads, Bechara said. Insurance companies are helping to pay for preventative measures such as armed vehicular and helicopter escorts and reinforced doors akin to those found at bank vaults, said Ricardo Cestenario, director of transportation at insurance company Generali Brasil Seguros, a unit of Trieste, Italy-based Assicurazioni Generali SpA. (G)

Copper and Food

Copper is a popular commodity to rob because it is hard to trace, he said. While copper has slumped 13 percent this year on slowing growth in Chinese demand, the metal used in plumbing and wiring still trades at almost triple the levels of a decade ago. Food is the most-targeted cargo, representing 37 percent of the total last year.

One reason hijackings have picked up is because current laws are too lax to dissuade robberies, Cestenario said. The penalty is one year in prison, Bechara said. Less than 20 percent of stolen cargo is ever recovered, Setcesp estimates.

“Robbing truck cargo has a much lower penalty compared with robbing banks or dealing drugs,” Cestenario said by telephone from Sao Paulo. “It’s much more attractive for a gang to specialize in this segment.”

The press office for Brazil’s Federal Police didn’t reply to an e-mail seeking comment by Bloomberg News yesterday.

Paranapanema handed investors a 146 percent return in the past year through yesterday, the most among 192 Brazilian companies with a market value of at least $750 million, according to data compiled by Bloomberg. The shares declined 9.3 percent in 2013, compared with a 12 percent drop for the Ibovespa Small Cap index, and fell 5.9 percent to 4.50 reais at the close in Sao Paulo today.

Four analysts tracked by Bloomberg rate the company buy, one recommends selling and one says hold.

Longer Transport Times

For Paranapanema, shipping refined copper products from its plant in Bahia state to a distribution center in Rio state is an eight-day trip, including loading and unloading at ports. Even though the 1,700-kilometer trip would take three days by truck, the Atlantic Ocean route is cheaper, less bureaucratic and safer, said Monteiro, who was named as interim CEO in January after the resignation of Luiz Antonio Ferraz Jr.

The new shipping strategy is helping Paranapanema reduce transport costs from 305 reais a metric ton to 242 reais, in addition to cutting carbon-dioxide emissions by 65 percent.

Trucking costs also climbed as much as 30 percent after new legislation was passed giving drivers longer breaks, Monteiro said. For additional cost savings, Paranapanema is considering moving its Rio distribution center closer to the port, he said.

“We need to look for alternatives,” Monteiro said. “We adopt new practices, but they always figure out how to foil the system.”

To contact the reporters on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net; Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Jessica Brice at jbrice1@bloomberg.net

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