Jun 25, 2018

Unresolved Freight Rate Issue Complicates Logistics in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazil should be humming along right now taking advantage of the trade dispute between the United States and China by shipping out record amounts of soybeans. Instead, Brazil is sputtering along being hampered by the lingering effects of the recent truck driver strike and subsequent dispute over the increase in freight rates.

As soon as the increase freight rates were agreed to in an effort to end the crippling truck driver strike, there were dozens of lawsuits filed all over Brazil claiming that the new rates were arbitrarily and illegal.

In fact, there was a hearing last week in front of a Brazilian Supreme Court judge concerning this very issue. He heard from parties on both sides of the issue, the truck driver unions who claim the increases are needed for them to make a living and the freight companies who claim the rate increases are arbitrary and illegal. He gave both sides another week to resolve their issues before he would decide on further action. If the two sides cannot agree, it is anyone's guess what the judge might decide.

Not only is this dispute slowing the movement of grain to Brazilian ports, it is also slowing the movement of fertilizers from Brazilian ports to the interior of the country. Brazil imports approximately 70% of its fertilizers and the number one port of entry for fertilizers is the Port of Paranagua.

The latest figures from port authorities is that approximately 70 vessels are waiting to dock at Brazilian ports and that approximately 35 of those vessels are waiting to unload fertilizers. Approximately half of those vessels loaded with fertilizers are waiting to unload at the Port of Paranagua. The fertilizer blenders association estimates that fertilizer deliveries to the Port of Paranagua have been delayed by 60%.

The logistical situation in Brazil is probably going to get worse when the safrinha corn harvest ramps up. Producers and grain companies have suspended shipments of grain because they do not know the price of freight and they do not want to pay fees to truckers for their return trip. Paying for the truck to return was part of the reason why companies filed suit to block the program. In some areas of Brazil, the new freight rates are up 120% to 150% compared to before the strike. The cost of shipping grain from Mato Grosso to the Port of Paranagua is currently in the range of $2.50 to $2.75 per bushel.

The Mato Grosso Institute of Agricultural Economics (Imea) estimated that 12.5% of the safrinha corn crop in the state was harvested as of last Friday.