Executive Briefings

Tougher Agribusiness Logistics Costs Strike Brazilian Industry

2013 is likely to be a very difficult year for agribusiness logistics in Brazil, according to a report from Rabobank. Transport costs in the country have risen significantly due to three factors: new legislation impacting the working hours of truck drivers, a sharp increase in diesel prices and rising export volumes for major commodities.

In the next three to four months, the upward pressure on internal freight rates will be intense, owing to the expected large export volumes of soybeans, corn and sugar. Despite current construction projects to improve Brazil's transport and exporting capacity, virtually nothing can be done to alleviate the current pressure on the system in the short term, or to prevent it from intensifying.

Andy Duff, Rabobank analyst, said: "Transport companies have been faced with major implementation costs, compounded by a rise in the price of diesel of more than 10 percent in the space of three months. As the dominant method for transporting major commodities to the ports, the cost of road freight tends to dictate the freight rates for all modes of transport. For this reason, the new legislation on truck drivers' working hours - stipulating that drivers must take more frequent breaks - has had a substantial impact on commodity transport costs. The challenge for transport companies is maintaining the flow without having to acquire many more vehicles and find many more drivers."

Compounding the challenge, Brazil's exports of soybeans, corn and potentially sugar are all expected to rise in 2013, based on higher production forecasts. Favorable margins for soybeans and corn (which run on a July/June crop year) have been the key drivers behind expansion of production of both crops in Brazil. Sugar production (which runs on an April/March crop year) is expected to rise modestly this year as a result of a recovery in cane yields in the Centre/South after two difficult years.

Read Full Article

In the next three to four months, the upward pressure on internal freight rates will be intense, owing to the expected large export volumes of soybeans, corn and sugar. Despite current construction projects to improve Brazil's transport and exporting capacity, virtually nothing can be done to alleviate the current pressure on the system in the short term, or to prevent it from intensifying.

Andy Duff, Rabobank analyst, said: "Transport companies have been faced with major implementation costs, compounded by a rise in the price of diesel of more than 10 percent in the space of three months. As the dominant method for transporting major commodities to the ports, the cost of road freight tends to dictate the freight rates for all modes of transport. For this reason, the new legislation on truck drivers' working hours - stipulating that drivers must take more frequent breaks - has had a substantial impact on commodity transport costs. The challenge for transport companies is maintaining the flow without having to acquire many more vehicles and find many more drivers."

Compounding the challenge, Brazil's exports of soybeans, corn and potentially sugar are all expected to rise in 2013, based on higher production forecasts. Favorable margins for soybeans and corn (which run on a July/June crop year) have been the key drivers behind expansion of production of both crops in Brazil. Sugar production (which runs on an April/March crop year) is expected to rise modestly this year as a result of a recovery in cane yields in the Centre/South after two difficult years.

Read Full Article