CVRD's long haul: Brazilian mining giant moves cargo along its main rail, but needs trucks to finish the job.

Being No. 1 in a very heavy industry--iron ore mining--has some unintended consequences. Moving all that rock, for instance, means branching out into seemingly far-flung enterprises, including cargo.

Brazilian iron-ore giant Companhia Vale do Rio Doce's (CVRD) has had to make such investments in railroads, ports and ships. Its large-scale mining operations depend heavily on logistics, making the company a major cargo mover as well. "To be competitive in mining, you have to be competitive in logistics," says Guilherme Laager, executive director of logistics at CVRD.

Now, as the mining company pushes to transform its logistics services into a successful stand-alone business, it will begin to rely on trucks to pick up cargo where the tracks end. CVRD already operates railroads and distribution centers, and vessels and ports through its Docenave navigation arm. The company is promoting its container shipping service on the company's railroads to a final destination or as a connection to ports and inland areas.

Expansion plans include a US$290 million investment through 2004 to buy 66 locomotives and 3,500 cargo wagons to increase railway cargo capacity. According to state concession laws, the company must also ship general cargo. Accordingly, CVRD now moves approximately 10% of all soy produced in Brazil.

Looking to focus on its own needs, CVRD began to strategically choose transportation operations that would most benefit its main business. The company sold a 50% stake in the Sepetiba Tecon port in Rio de Janeiro to Brazilian steel producer Companhia Siderurgica Nacional (CSN) and a 32.4% stake in railroad Companhia Ferroviaria do Nordeste.

In exchange, the iron producer acquired an additional 11.95% stake in one of the country's main railways Ferrovia Centro-Atlantica (FCA). The railroad moves approximately 60% of the country's gross national product, primarily iron, steel and agricultural goods, through Minas Gerais, where CVRD has most of its production plants. In 2002, the company moved 23.3 billion tons of cargo via rail, half of which was sent across the FCA, and Laager expects demand to reach 70 billion tons. At press time government approval was pending to allow CVRD to increase its share beyond the 20% government limit.

Trucks derail cargo. "In a country like Brazil ... it's intelligent to have a hub port and then feed the whole country in the north," says Laager. "[CVRD] can be a client of the port with operational contracts."

The company has already begun to create partnerships signing agreements with CSN and Japan's Mitsui Trading Company to pick up containers at their ports of arrival and take them to distribution centers located along its rail network, and in some cases, directly to the company. CVRD also started using truck and highway service to fill in for the areas it is not able to cover.

But big investments in highway development in Brazil over the last half of the century make it difficult for trains to compete. Trucks move throughout the entire country with easy access to major cities and small towns, whereas train networks are concentrated near the country's ports.

Since the railroads were privatized in the late 1990s, trains are transporting increasing amounts of agriculture and general cargo, says Paulo Vivacqua, president of non-profit transportation development organization Corredor Atlantica do Mercosul. But at an average speed of only 30 kilometers per hour, trains are getting beat out by trucks, which account for more than 60% of Brazil's internal general cargo shipping, according to Brazilian transportation research company Geipot.

Train service is expected to increase slightly in coming years, especially for large cargo shipments across long distances and as part of a combination of trucks, trains and ships, known in the trade as a multi-modal system, says Vivacqua. "[CVRD] should be multi-modal, but in a multi-partnership, because highway transporters are not going to give their market to the railways," he says.

CVRD, however, wants to make truckers partners rather than competitors. The iron company developed the Carajas corridor, a 900-kilometer rail from Espiritu Santo to Minas Gerais, As highway freight tariffs are expected to increase, shippers could cut costs using railroads for a part of the way.