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September 14, 2012

New Rules Drive up Freight Rates in Brazil

The new law in Brazil that reduced the number of hours that a truck driver may work in a 24-hour period is having a profound impact on freight rates in the country. The legislation which took effect on July 17, stipulates longer rest periods between working hours and a half an hour of rest for every four hours of driving. As a result of these new rules, drivers are opting for shorter hauls and avoiding the long hauls thus reducing the number of trucks available for long hauls and driving up freight rates.

Independent truckers have especially been hard hit and they are avoiding long hauls because they lose money. The number of truckers bidding for long hauls has dropped significantly because only the established trucking companies are contracting for long hauls. The trucking companies must raise their rates because they must now employ more drivers to adhere to the new rules. In Mato Grosso, for every driver from a trucking company, there are three independent drivers in the state.

These new rules are especially important for states such as Mato Grosso that are in the center of the continent and a very long way from population centers and port facilities in southern Brazil. Independent drivers will now only take short hauls within the state and not the multiday trips to Brazil's southern ports.

Since the legislation took effect, freight rates in Mato Grosso have already jumped 40% on average. Over the last twelve months, long haul rates have risen 60% and short haul rates have risen 18%. According to the Mato Grosso Institute of Agricultural Economics (Imea) and the Cargo Transport Association of Mato Grosso (ATC), the current freight rate from Sorriso in central Mato Grosso to the Port of Paranagua in southern Brazil is R$ 245 per ton compared to R$ 205 at the end of July when the law took effect.

This is not the peak trucking season in Mato Grosso and everyone is worried that during the peak of the harvest season, there may not be enough trucks available to keep the combines rolling. The state already has a truck deficit of 20% and many drivers migrate to the state during the harvest season to haul grain. If the independent drivers no longer want to do the long hauls, then the deficient will become even worse. To complicate the situation even more, approximately 60% of the grain in Brazil moves by truck and the 2012/13 Brazilian soybean crop is expected to be much larger than the 2011/12 crop.