When the global economic crisis hit in 2008, Inace, a Brazilian shipbuilder whose exports of luxury yachts had been soaring, quickly changed course and began producing offshore vessels for Brazil’s booming oil industry. Michael Sommers looks at how taking this new tack has brought the traditional shipbuilder new opportunities for growth in a market that knows no bounds.
In recent times, it hasn’t been smooth sailing for INACE, a shipbuilder based in the northeastern Brazilian state of Ceará. Four years ago, the company was all set to plunge into global waters. Convinced that there was no reason why a traditional builder of aluminum fishing boats, from one of the traditionally poorest regions of Brazil, couldn’t apply its expertise to the manufacture of luxury yachts, INACE had launched its first recreational vessels at a U.S. boat show in the late ‘80s and subsequently enjoyed great success.
By the 2000s, the medium-sized, family-owned company had become an industry leader – not to mention the only Brazilian player – in the lucrative yacht market. Although it custom built vessels for Brazilian clients, its combination of technical expertise, high quality materials and low labor costs had reeled in a growing number of clients from North America and Europe as well. By 2008, buoyed by annual growth rates of 30 to 40 percent and increasing foreign demand for large luxury vessels, INACE was churning out an average of nine yachts a year and predicting a day when exports of large, specialized, luxury vessels would account for 90 percent of its business.
Then, very suddenly, the currents shifted. The global economic crisis sent North American and European economies into a tailspin from which they have yet to recover. Meanwhile after a brief dip, Brazil’s economy experienced an unprecedented boom. While the U.S. dollar sank to record levels, the Brazilian real soared in value. Profitable exports and cheap domestic labor quickly became things of the past.
Instead of floundering, INACE quickly rode the tides of change. Brazil had recently made a historic discovery: in the pre-salt layer just off its coastline lay enough oil to make Brazil energy self-sufficient and transform it into one of the world’s largest producers and exporters of high quality crude. The state-owned energy giant, Petrobras, suddenly found itself with an enormous demand for vessels that could provide various services both offshore and at Brazil’s major ports. “We answered their call,” says Flávia de Barros, INACE’s general director. “And all at once we were servicing an entirely new and very thriving market.”
It wasn’t the first time the company had plunged headfirst into a new and unexplored market. In fact, INACE’s entire existence came about purely by the happenstance of an unexpected opportunity. The year was 1965 and Fortaleza native (and Flávia de Barros’s father) Gil Bezerra had just graduated with an economics degree and started a job at a local bank. Back then, Bezerra’s only interest in boats was as a means to indulge in his favorite pastime: lobster fishing. At the time, lobster boats were hard to come by so Bezerra designed his own wooden craft and had it custom made by local carpenters. Once launched, the resulting vessel made such a splash that local fishing companies began asking Bezerra to make boats for them as well. Not only did he comply with their demands, but he ended up purchasing an abandoned oceanfront strip in the center of town. After investing in infrastructure and equipment, he transformed it into a state-of-the-art shipyard known as Industrial Naval do Ceará (INACE).
Bezerra’s timing was perfect. When INACE went into production in 1969, the fishing sector along Brazil’s Northeast coast was really taking off as it transitioned in scale from artisanal to industrial. Fishermen required boats that were larger and more sophisticated than previous models and INACE complied, becoming the region’s first large-scale, assembly-line manufacturer of electrically soldered aluminum boats. Over the next 20 years, the company produced around 1,000 boats – the equivalent of 80 percent of the entire fishing fleet of North and Northeastern Brazil.
By the early ‘80s, INACE had consolidated its hold on the fishing market and was casting around for new opportunities when the Brazilian government launched an incentive plan to beef up the country’s naval sector. Always attuned to new opportunities, INACE began producing torpedo launches for the Brazilian Navy. The Navy was so impressed with the quality of the company’s small launches, that in the mid-1990s it commissioned INACE to build two large patrol ships, which until then, had been supplied by a German manufacturer. INACE rose to the occasion by investing in new equipment and developing techniques that were considered pioneering not only in Brazil, but around the world. As a result of the speed and resistence of these superior crafts, the Navy made a record number of arrests in its combat against illegal fishing and INACE become a dominant player in a whole new market sector.
Today, INACE is still the leading Latin American manufacturer of aluminum/steel explorer yachts and is the only Brazilian shipbuilder that supplies patrollers to the Brazilian Navy. Together both segments accounts for around a two-thirds of the company’s revenues. The remaining 30 percent is derived from offshore vessels, which is quite impressive considering INACE only entered this market in 2007. Even more impressive is the fact that next year, the offshore segment will already have eclipsed the other two in terms of importance. Says Barros: “The offshore market is really heating up right now and there are so many good opportunities to take advantage of.”
Opportunities such as the 30 offshore vessels required by Petrobras that have shipbuilders from north to south competing for contracts. To comply with Petrobras’s ambitious needs, INACE pulled out all the stops, investing in new technology and hiring new project engineers and suppliers. The result is the super speedy, high-tech, 50-meter-(160-foot)-long UT 4,000 fast supply vessel. Now ready for delivery after five months of testing on the high seas the UT 4,000 is, according to Barros, a pioneering boat that is “the first of its kind.”
“The UT 4,000 represents a major milestone for the company; this is as big a breakthrough for us as when we built our first patrol boat for the Navy. Not only is the UT 4,000 the largest small-medium sized aluminum vessel ever built in Brazil, but it’s also the most sophisticated. All ship controls are automated and there’s a lot of complex and delicate technology and components involved.”
CHALLENGES AND ADVANTAGES
Bringing the UT 4,000 to market was not without its challenges. A lack of specialized workers meant that INACE not only had to step up its already considerable training program, but that it sometimes had to contract workers from outside the state, and even the country. Moreover, while industry incentive programs encourage Brazilian shipbuilders to use national suppliers, Petrobras’s exacting demands made it necessary for INACE to look overseas for materials and technology – even though the resulting customs’ bureaucracy often resulted in trying and expensive delays.
INACE also faced stiff competition from other shipyards wanting to get in on the action. Although homegrown manufacturers are given priority over international companies, Brazil has a lot of players attracted by the burgeoning offshore market. “This is a very new market that we’re still in the process of discovering. It’s also a very competitive one,” admits Barros. “And yet have a lot of advantages in our favor.”
Among these advantages is INACE’s long history in the shipbuilding market, which has garnered it a reputation for quality as well as flexibility in terms of customizing projects to meet clients’ specific needs. INACE can also be more competitive in terms of price; despite the fact that production and labor costs have increased across the board, they are still less expensive in Ceará than in South and South-East of Brazil. Similarly, although the industry in general is suffering from a lack of qualified specialized labor, the fact that INACE has had training programs in place for decades gives it an upper hand. “We really invest a lot in training sanders, painters, and especially solderers. We always have,” confesses Barros. “As a result, these labor shortages affect us less than they do most of our competitors.”
Although INACE’s growth over the last two years has been stationary, the company expects levels to increase beginning next year. In expectation of rising demand, the company finished constructing 10 new storage warehouses on its 14-hectare shipyard, which will be able to accommodate the larger vessels the company is working on. Currently, production capacity is for 30 vessels. While last year INACE delivered six, this year it will surpass that number, completing eight. As the offshore market continues to pick up steam, the company intends to keep pace. If experience is any indication, INACE certainly knows how to navigate changing economic circumstances as well as it does changing tides.