Jun 14, 2018

Dispute over Freight Rates slows Grain Exports from Brazilian Ports

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

Even though the official truck driver strike in Brazil ended several weeks ago, there is still mass confusion surrounding the new freight rates that were agreed to by the government in order to end the strike. Dozens of commercial companies and organizations such as The Brazilian Association of Vegetable Oil Industries (Abiove) and the National Association of Cereal Exporters (Anec) have gone to court arguing that the new minimum rates are illegal and they have already asked the Brazilian Supreme Court to rule on the constitutionally of the rates. They contend that freight rates should be freely negotiated between the parties.

As a result, many grain hauling companies have suspended operations because they do not know what to charge to haul grain. This is having a big impact on grain deliveries to Brazilian ports and subsequently grain exports.

The real impact of the truck driver strike and the freight rate dispute has been felt during the first ten days of June. The number of vessels waiting at Brazilian ports to load grain is up 60% compared to the same period last year. The loading rate is also down 42% compared to last year.

The Williams Company reported that on Tuesday, there were 46 vessels waiting at Brazilian ports to load soybeans, soybean meal, and other products. A year ago there were 29 vessels. They also reported that there were 22 vessels being loaded at Brazilian ports on Tuesday compared to 38 vessels a year earlier. The Port of Santos receives approximately 40% of its grain by rail and the Port of Paranagua receives approximately 30% by rail.

The amount of soybeans exported from Brazil during the month of May set a new record because the ports relied on their grain stocks to load vessels in spite of the truck driver strike. That will not be the case during the month of June. The amount of soybeans exported from Brazil during the month of June will decline from a year earlier, but it is too early to revise projections. The Port of Paranaque for example, has 1.5 million tons of storage or enough to load approximately 20 vessels.

Brazil's Minister of Agriculture indicated that Brazil is missing out on exporting 450,000 tons of grain per day for the 11 day period or the equivalent of 60 vessels. These vessels are waiting at the ports for grain at a cost of US$ 25,000 per day.

The director of the National Association of Cereal Exporters (Anec) indicated that exporters have already sold 10 million tons of grain, but the grain is being held up in the interior unable to reach the port. This has resulted in 50 vessels waiting to load and there are another 60 vessels scheduled to arrive soon in Brazil that could face the same problem if the freight issue is not resolved.

One of the central issues in the impasse is that the agreement requires companies must pay for the truck to go both ways, even if the truck returns empty. Before, paying for the truck's return trip was optional and rarely paid.

The National Agricultural Confederation (CNA) calculates that these new rates can drive up freight rates as much as 150%. For trucks hauling grain from the city of Sorriso in central Mato Grosso to the port of Santos in southeastern Brazil, if the truck returns empty, the freight rate would increase 120%. If the truck returns full, the freight rate would increase 51%.

Not only is this dispute impacting grain deliveries to the ports, it is also delaying the deliveries of fertilizers to the interior. Fertilizer deliveries during the month of May totaled 1.78 million tons, which is down 27% from May of 2017.