August 11, 2016

Freight Rates Decline in Brazil due to Excess Capacity

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

The combination of poor crops and a shrinking economy is forcing freight companies in Brazil to lower their freight rates in order to say in business. A disappointing soybean crop and a disastrous safrinha corn crop has led to a significant reduction in the amount of grain being transported from central Brazil to the ports in either southern Brazil or on the Amazon River. Additionally, the Brazilian economy has shrunk by 3-4% GDP for two years in a row resulting in less demand to transport goods.

According to a report from Reuters, the National Association of Freight Haulers (NTC) indicated that 41% of the freight companies in Brazil have reduced their freight rates and another 40% of the companies have frozen their rates. Even if they froze their rates, this still represents a reduction in the rates because the current official rate of inflation in Brazil is 8.5%.

Making the situation more complicated is an excess of trucks in Brazil. For the last several years, the federal government has offered low interest loans for the purchase of trucks. The program was originally started in order to stimulate industrial production, but he interest rates were so attractive that companies and independent drivers alike took advantage of the program to ramp up their truck purchases. When the program was introduced, the Brazilian economy had not yet started to stall. Unfortunately, now that there are more trucks on the roads, there are fewer loads to transport.

The loads most impacted have been bulk commodities such as grain or industrial products. The total amount of bulk loads has declined by 12.9% since the first of the year with a decline of 9.8% in packaged loads.