Long tail of Brazil trucker strike raises rates, rolls cargo

Long tail of Brazil trucker strike raises rates, rolls cargo

Port of Itajai, Brazil.

Decades of truck-oriented Brasilia administrations and a bias against rail created a vulnerable trade transport system. The spring truckers’ strike exposed it, and months later trade logistics has yet to recover. (Above: A container ship at the Port of Itajai, Brazil.) Photo credit: Shutterstock.com.

Fallout from the spring Brazil truckers strike is still roiling the country’s logistics sector, with shippers paying up to 150 percent more to secure surface capacity and seeing some of their exports miss sailings because of overbooking.

The higher rates are a function the minimum freight rate pricing table (FRPT), one of the concessions given to truckers to end the 11-day strike.

Several official bodies/trade professionals have reported that the transport cost increases since the FRPT’s imposition have been 30 to 150 percent, depending on the cargo transported and distances.

What’s more, the truckers’ strike also exposed the inadequacy of Brazil’s infrastructure — one that is also too dependent on trucking.

Brazil’s 7,400-kilometer (4,598-mile) coastline is suited to more cabotage, but the legacy of several administrations (1956 to 1985), all of which favored the trucking industry and removed rail infrastructure, still haunts the country. Although estimates vary, surveys suggest 30 to 35 percent of general cargo and dry bulk (mostly soybeans and iron ore) moves by railroad, but just 3 to 4 percent of containerized freight moves on the rails, despite the Brasilia’s pledges to increase that share to 20 percent.

Landside affects oceanside transport

Moreover, as noted, the landside problems have affected the oceanside of transport. Maersk Line managers are reporting that about 5 percent of all cargo is being left behind each month at Brazilian ports, due to overbooking caused by the truckers’ dispute and pricing tables; equal to one empty vessel per month.

Mark Juzwiak, head of institutional affairs for Aliança Navegação e Logistica Ltda and Hamburg Sud, said many companies are flouting the FRPTs — with their lawyers arguing they are unconstitutional — but his companies are sticking to them, despite the extra costs. Hamburg Sud group, now part of Maersk Line, is looking at expanding its trucking operations.

“We already run our own trucking operation in Manaus [a city of 2 million in the Amazonas jungle region],” Juzwiak told JOC.com. “And although we do not really want to move further into the trucking business, if these tables continue then we will seriously consider it. We are looking at options.”

Juzwiak is working with Syndarma and CentroNave, (which represent foreign-flag and Brazilian-flag shipowners in Brazil, respectively), to get the fixed trucking rates overturned, as they are creating an uneven playing field for transport providers. Some are playing by the new rules, such as Aliança and Hamburg Sud; and some are still playing by the old rules and rates.

“It is all very complicated as some companies are still contracting truckers, as per the old contracts but they are running a risk because [the] law now says they must apply the higher rates,” Juzwiak said. “However, we are complying with the law and the new tables. The government now is at the end of its term so let’s see what happens next.”

Consultant Robert Grantham, of Solve Shipping, said it might make sense for a cabotage operator such as Aliança to operate a truck fleet, but warned that it would make less sense for ocean carriers, who are better off sticking to their core business.

FRPT’s constitutionality

The National Confederation of Agri-Businesses (Confederação Nacional da Agricultura e Pecuária do Brasil: CNA) offered testimony this week to an inquiry headed by Luiz Fux, the minister for the Brazilian Supreme Court (Supremo Tribunal Federal: STF), into the June FRPT legislation’s legality. Anti-monopolies body Cade has already ruled that the FRPT is “probably unconstitutional as it is against the interests of the consumers and truckers themselves as it will increase final goods prices and create serious distortions in the competitive dynamics of road transport.”

The CNA has also communicated its complaints about the “legal uncertainty” surrounding contracts of affreightment and the probability that many shippers will start setting up their own trucking divisions, despite trucking not being their core business.

Other critics, however, say that any fixed minimum freight rate system cannot work in a free market system.

“The concept itself does not make sense … fixing rates at the highest level with so many reais per kilometer,” said one container line executive, who spoke on condition that he not be identified. “It will stoke inflation and then inflation will eat into it after six months…then the fixed rates will not be enough for the truckers and the government will say  ‘No! they are fixed you cannot have a rise!’…. It just creates confusion and does not take into account the complexity of the trucking and transport business in Brazil.”

Brazil’s National Confederation of Industry (CNI) is also working with the CNA to lobby the Temer administration and all October presidential election candidates. CNI is requesting that the deal be scrapped. Other powerful shipper groups, such as ABPA, for the poultry industry; Fiesp, for industries in the state of São Paulo; and Firjan, for the state of Rio de Janeiro; plus bodies such as CentroNave and Syndamar, also are applying pressure to the STF to ditch the freight rate tables.

However, removing the rates risks another crippling truckers’ strike and blockade, which Brazil’s struggling economy can ill afford.

Hardest-hit sector

Soy exporters have been hit the hardest by the new rate table. Given United States/China trade tension, soy exports to China could have increased, but the new rates hindered that; costs have increased 30 percent to a whopping 150 percent since the truckers dispute, depending on the journey, the commodity, etc.

ABPA, the Brazilian chicken and protein export association, also lowered its 2018 chicken export forecast from 3 to 4 percent growth to a 2 to 3 percent reduction, or 4.2 million metric tonnes (4.6 million tons). ABPA president Francisco Turra during a press conference in São Paulo, said that the fallout from the truckers’ dispute has added “on average, around 35 percent to our exporters' logistics costs,” and will add 15 percent to chicken prices for the Brazilian consumer.

Further, pork exports are suffering even more, with 2018 forecasts now at 620,000 metric tonnes, down 10 to 12 percent compared with 2017, when, said Turra, a rise of 5 percent had been expected at the start of 2018.

Turra blames the direct trucking costs for chicken moves and also for the sharp increase in corn prices, which is trucked to the farms and production units.

And Washington Flores, the president of both Bandeirantes and Deicmar, two Santos port terminals specializing in less-than-containerload and roll-on, roll-off cargo, respectively, told JOC.com that cotton exports in containers were also struggling as a result of the truckers strike and subsequent imposition of the freight table.

Flores said the cotton season is from late June/early July to February/March and throughout that period Bandeirantes stuffs about 400 FEU per month out of about 4,000 FEU handled per month. He said that by the end of July this year the facility had stuffed zero containers and business for it, and other inland port terminals such as Fascina, Localfrio, and Hipercon, were only slowly getting back to normal volumes, due to the FRPT.

Contact Rob Ward at rcward788@btinternet.com.

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