The land of ‘order and progress’ is anything but
The next time you want to complain about the logistics and supply chain problems in the US, just think about what shippers and carriers have to deal with in Brazil.
During the commodity boom of the 2000s, Brazil became the world’s biggest producer of sugar, coffee, citrus, beef, the leading exporter of poultry, and the second largest soybean grower. However, the slowdown in the growth of the BRIC economies has resulted in a much different scenario in the latter half of this decade.
Commodity prices in Brazil are still nowhere near their earlier peak and the government continues to try to make up the difference on the backs of the truckers. One example is how the previous president, Dilma Rousseff, raised taxes on fuel to try to help pay off other government debts. This has especially punished small owner-operators who could barely cover their operating costs beforehand.
So while the rest of the world has experienced historically low oil prices, Brazilian tax policy has kept diesel prices high and shipping costs artificially inflated. In fact, earlier this year the Brazilian government passed a new tax that doubled the previous rate and that would have accounted for 54 percent of the total cost of a liter of fuel before it was suspended by a federal judge.
Furthermore, the indebtedness of truck owners has exploded due to weak commodity demand and unused capacity. According to a Brazilian National Federation of Transport (CNT) survey, falling cargo volumes and high operating costs have left 44.8 percent of Brazil’s truckers heavily in debt as they deal with the falling cargo flows. That figure rises to 52 percent for independent drivers.
Despite the excess freight capacity and the lessened movement of goods, there are still enormous problems for the country’s transportation infrastructure. Investments that were promised for roads and other transportation projects went to fund overpriced and mismanaged facilities for the Olympics and the World Cup and for other boondoggles.
“Logistics are jammed up,” Glauber Silveira, head of Mato Grosso’s association of soy growers, told Reuters. The growers lose about a quarter of their revenue to transport which is passed along and severely cuts into the country’s competitive advantage in agricultural production. “The buyer is losing out and the producer is losing out.”
In fact, according to Reuters, the average load from a farm to a port in Brazil costs more than twice the ocean freight fees to ship the product to China. These unsustainable hauling costs force commodities traders to bid higher for Brazilian ag products just to make sure it remains worthwhile for farmers continue to produce.
Further findings from the CET survey reveal that 46.4 percent of respondents cited the cost of fuel as the biggest threat to their business, with 40.1 percent claiming they cannot charge enough in freight to make up the difference.
To further add to the problem are safety concerns, for both cargo and driver, which prompts shippers to use cabotage, or ocean shipping from one internal port to another. This further increases available truck capacity and creates downward pricing pressure.
“The difficult circumstances for the truckers suggests to me that there are too many of them chasing too few jobs as we are now in recession, much of the fleet is antiquated and the safety of cargo, and the drivers of course, cannot be guaranteed, especially during the long, arduous journeys to and from the north,” one Sao Paulo shipper told JOC.com.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.