April 15, 2014

Transport Costs in Brazil Rising Much Faster than Inflation

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

Approximately 65% of all the transportation of goods in Brazil is done by truck and those transportation costs have been rising at a much faster pace than inflation. During the last five years, the cost of truck transportation in Brazil has doubled while the amount of inflation during the same period was up 31%. In other words, the cost of transporting goods has risen three times faster than inflation during the last five years.

According to the newspaper Gazeta do Povo, in 2013, the cost of transporting goods in Brazil by truck increased 7.9% led by a 17% increase in diesel prices and a 10% increase in salaries. These increases though were not accompanied by increases in productivity.

The National Association of Cargo Transporters (NTC&Logistica) surveyed 132 companies and found that on average they passed along 5% of their increased cost to consumers, which is slightly less than the rate of inflation in 2013. They also indicated that they cannot continue to absorb these increased cost much longer without passing them on to the consumer. For some basic items in Brazil, transportation costs account for nearly half of the consumer cost of the item. As a result, one of the main factors for core inflation is the rising cost of transportation.

The president of the Association of Cargo Transporters in the state of Parana (Setceper) Gilberto Cantu also indicated that part of the problem is the limited number of input suppliers. Petrobras for example, is the only supplier of diesel in Brazil and there are only a few companies that produce trucks and tires. As a result, there is less competition among suppliers and fewer choices for transportation companies.

These increased costs could be better absorbed it they were accompanied by increased productivity, but that has not been the case. The lack of increased productivity can be attributed in large part to down-time on the part of the drivers. It now takes longer to haul products in Brazil due to increased waiting time to load and unload and new legislation that has limited the time a driver may be behind the wheel. The legislation along is estimated to have increased the trip time for long hauls by as much as 25%.

Most transportation companies in Brazil only manage to squeeze out 2% profit margins, which are considered very low and unstainable long term especially for companies carrying high debt loads.