Water Crisis Impacts Northern Brazil Region and Puts Strategic Sectors at Risk

Historic drought in the Amazon threatens logistics condominiums and local commerce, raising concerns about supply and logistics amidst record dryness.

Fernando Pinho, Operations Manager of Grupo Mega, shares insights into the daily routine in the region

By: SiiLA News

11/23/2023

One of the country's main economic hubs, Manaus, is falling victim to its worst drought in history. Since the measurement of levels at the Port of Manaus began 121 years ago, the drought has caused river levels to decrease by up to 12.70 meters. The impact, besides being environmental, is also economic, affecting companies that use rivers for transportation and local fishermen.

With isolated riverside communities, wildlife loss, canceled classes, and navigation impracticalities, the riverside region has had its local economy threatened. The drought also affects the economies of northern states; according to the Association of Port Terminals and Cargo Transshipment Stations of the Amazon Basin (AMPORT), there has been up to a 50% reduction in the cargo capacity of bulk convoys on the region's rivers.

According to Flávio Acatauassú, CEO of AMPORT, this phenomenon is a consequence of reduced rainfall in the lower Amazon rivers, a result of El Niño, a phenomenon caused by abnormal warming of the waters in the Pacific and North Atlantic Oceans.

"The lower Amazon rivers, such as the Tapajós, depend on rainwater to increase flow, and any drought severely impacts the decrease in available water levels. Therefore, we are adopting some serious measures to optimize navigation in the area, seeking to cause the least impact on cargo transportation for Brazil and abroad," explains Acatauassú.

The impact of the water crisis is already being felt in the region. The electronics manufacturer TCL SEMP stated that, to mitigate negative effects, they have suspended operations.

"Due to the drought in the Amazon region, TCL SEMP operations are currently suspended. The company's activities are expected to resume shortly to generate the least possible impact on the receipt and dispatch of products, and the current scenario does not affect the Black Friday period—preparations for the event were made in advance," states the company via email to the REsource team.

Retailer Magazine Luiza (MagaLu) reported that they expedited the supply of appliances in the region to ensure that the drought does not affect delivery logistics, especially for items such as televisions and air conditioners.

In the market mapped by SiiLA, a real estate market data analysis company, the region has three Class A+ logistics condominiums: Distribution Park Manaus I, II, and III, housing companies like Mercado Livre, Honda, Carrefour, and others.

Additionally, according to the SiiLA GROCS platform, northern region shopping centers are experiencing increased sales. Currently, class B developments, the majority in the region, average R$ 1,630.75/m², values that may be affected due to the drought in the area.

"The price increase is quite possible due to product scarcity to the end consumer, the rising cost of logistics and transportation of materials from the Free Trade Zone to distribution centers. This scenario is due to the widely used mode in the region, facing problems arising from the drought. Therefore, there may be additions in this B2B commercial arrangement that affect the B2C commerce," explains Rodrigo Bandeira, vice president of the Brazilian E-commerce Association (ABComm).

Bandeira also warns that the risks of drought may affect not only the Amazon region but the entire Brazilian territory, given the importance of the industrial area in the Brazilian economic and industrial scenario.

"The Manaus Free Trade Zone produces many electronic components and consequently interferes with many of the segments most sought after by consumers, especially with the proximity of important dates such as Black Friday and Christmas. Locally, what is most likely to be felt is the lack of supply, i.e., a shortage of inputs, components, and raw materials for the manufacture of new products," he says.

Impacts on production, storage, and transportation

Companies operating in cargo transportation via river routes are also concerned about the drought. Grupo Mega, one of the main companies in river transport, states that it needs to adapt during this period, such as reducing shiploads and increasing the number of vessels in the water to meet demands.

"During ship loading, we had many barges with low cargo, which affected daily schedules, as we spent a lot of time rearranging the barges when we put the wheel loaders inside them. This lowered our performance," says Fernando Pinho, operations manager at Grupo Mega.

With more difficult and easier navigation points, Pinho explains that the operation in the Paraense city of Santarém, where the Tapajós River meets the Amazon, was one of the most difficult and critical during this period. The municipality was one of the most affected during this year's drought. The tourist region of Alter do Chão, known as the "Brazilian Caribbean," had its landscapes transformed due to the drought.

"The most critical operation, where it was difficult to operate, was the ship in Santarém, where it was planned to load by land, but the low river prevented vessels from approaching the port where it would be loaded. This forced the exporter to use 6 barges, one attached to another, to provide the minimum depth for our barge with the MHC crane and barges not to run aground. The operation was very restricted because of this. We had grounding incidents under these conditions, and we had to adjust daily according to the river level," he reports.

In an interview with REsource, Pinho states that navigation costs increased by 30%; in September, the movement was 50% below expectations, and in October, it was 25%. The company, which accounts for 10% of exports from the Northern Arc, said they took advantage of this period to perform annual maintenance on their vessels and plan to invest in solutions to prevent similar crises in the future, such as acquiring a floating tipper for Santarém.

The vice president of ABComm explains that there is a need for alternatives and emergency strategies for situations like this, even if it raises product costs.

"Alternative strategies are the main focus, even those involving implementing other modes. Due to the urgency, it is a top priority that needs resolution, even if it increases logistical freight. On the companies' side, especially those in other segments that do not depend so much on the Free Trade Zone, the expectation is that they focus efforts on categories such as fashion, beauty, cosmetics, and sports," he advises.

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