April 15, 2013

Congestion in Brazil's Transport Chain Due to Lack of Investments

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

The lack of coordinated investments for improving the infrastructure in Brazil has led to chronic congestion all throughout the transportation chain in the country starting at the local grain elevators and continuing all the way through the ports of Brazil. The chronic problems have led to lost business opportunities for Brazilian exporters and a 20% increase in transportation costs, which of course are passed back to the Brazilian producers in the form of lower prices paid to producers for their grain.

According to the vice president of the Brazilian Logistical Marketing Association (Abralog) Edson Carillo, the delays at the ports have occurred at the same time that commodity prices have been declining allowing importers to cancel some of their contracts for higher priced grain and allowing them to re-price the grain at lower prices sometime in the future.

Carillo doesn't view the current problems in Brazil solely as the result of record large grain production, but the result of a chronic lack of investments in improving the infrastructure over many years. In 2005, the Brazilian government developed a long-term National Plan for Logistics and Transportation, but six years after the plan was developed, there is little progress to report.

According to the president of the National Association of Freight Transporters (NTC), Flavio Benatti, one of the underlying causes of all this congestion is a lack of storage space either on-farm or at the local grain elevators. When farmers produce a record large harvest such as this year, it overwhelms the capacity of the transportation system to handle all the grain in a limited timeframe. If more storage was available in the countryside, the grain could move in a much more orderly fashion to export facilities.

The lack of storage space forces the grain companies to move their products in a shorter time frame resulting in long lines of trucks waiting for days to unload at Brazilian ports or interior rail terminals. In a sense, the trucks are being used as "rolling storage units."