January 28, 2013

Freight costs for 2012/13 Soy Crop in Brazil Could Increase 20-50%

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

As Brazilian farmers start to harvest their soybeans, everyone involved with transporting the 2012/13 soybean crop are expecting the freight cost to increase significantly once again this year. According to research conducted by the Universidade de Sao Paulo, in the two top producing states of Mato Grosso and Parana, the soybean harvest should peak during the months of February and March and freight rates during that period may increase as much as 50%. In the other soybean producing states, the freight rates are expected to increase 20% to 40%.

The biggest concern everyone has is that it is projected to be a record large soybean crop and this is the first year for implementation of the new regulations in Brazil dictating how many hours a truck driver may work before he or she is required to rest. Drivers are only allowed to be behind the wheel for eight hours before they are required to rest for eleven hours. During those eight hours of driving, they must also pull over and rest for thirty minutes each four hours. There is already a chronic shortage of trucks during the peak of the harvest season and the fear is that many trucks will be parked for the mandatory rest periods instead of hauling soybeans to the ports.

According to the Brazilian Association of Vegetable Oil Industries (Abiove), during the peak of the soybean harvest, the trucking industry in Brazil will be short 50,000 professional drivers that would be needed to keep the trucks moving on a more consistent basis. The lack of available trucks is expected to put upward pressure on freight rates during the harvest. The freight costs in Brazil have tripled over the last decade to the point where they now account for 17% to 22% of the price of the soybeans.

Changing patterns of agricultural production in Brazil is also helping to drive up freight costs. Most soybean farmers in Brazil are now planting early maturing soybeans in order to allow enough time to plant a second crop of corn. This desire to plant a second crop is concentrating the soybean harvest into an ever smaller harvest window, making the truck shortage even worse.

Truckers and farmers have been complaining for decades about the poor condition of Brazilian highways, which forces trucks to dive slower thus leaving even fewer trucks available to haul soybeans. One of the surest ways to improve the condition of the highways is to convert them to toll roads. Generally, the toll roads are in much better condition than the average state or federal highway in Brazil. While the highway may be in better condition, the tolls are quite expensive, driving the freight rates even higher.

It was recently announced by the National Ground Transportation Agency that the major highway running north and south in the state of Mato Grosso, BR-163 (sometimes called the "Soybean Highway"), would be turned into a toll road by August of 2013. Tolls will be collected along the 821 kilometers stretching from the city of Sinop in the northern part of the state to the southern border with the state of Mato Grosso do Sul. Nine toll plazas will be installed and tolls for passenger cars will vary from R$ 2.4 to R$ 3.4 (US$ 1.18 to 1.67) depending on the location in the state.

The president of the Syndicate of Freight Companies in Mato Grosso (Sindmat), Eleus Vieira Amorim, indicated that freight haulers should not have to subsidize highway maintenance, which is the responsibility of the state and federal government. He states that freight haulers already pay numerous fees and taxes designated for highway maintenance and construction and that these additional tolls will drive up freight rates for everyone and cause hardships for the transportation sector.