Transportation Costs Are Stunting Exports in Brazil and LatAm

Cargo trucks in Brazil Latin American exports' growth depends more on lower transport costs than on reduction of tariffs. This warning is in research "Unclogging the Arteries: A Report on the Impact of Transport Costs on Latin American and Caribbean Trade."

Produced by the Inter-American Development Bank (IDB), the study includes figures for nine countries: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Peru, Paraguay and Uruguay.

The study should be presented on Wednesday, October 1st, in Brazilian capital Brasí­lia, during seminar "Transport for Trade and Regional Integration", promoted by the National Confederation of Industries (CNI) in partnership with the IDB. The participants should discuss relations between transport costs and foreign trade in Latin America and propose solutions to the logistics bottlenecks that affect Brazilian exports.

According to the study, a 10% reduction in the value of tariffs would increase exports by these countries by less than 2%. On the other hand, if the same reduction were made in transport costs, foreign sales to the United States would grow 39%. This calculation considers stability of other factors, like exchange rates and economic growth.

To IDB economist Mauricio Mesquita Moreira, one of the authors of the research, the governments of the countries in Latin America are more concerned with tariff and non-tariff barriers and forget other greater obstacles, like transport. "The trade policy in the region is out of focus," criticizes Moreira.

The report also shows that if the countries in Latin America reduced freight costs by 10%, there would be trade growth of over 20% in the region. In case the reduction was in tariffs, the growth would be just 10%. The reduction of transport costs would benefit products made in Brazil, Chile, Ecuador, Peru and Uruguay and ore and metal exports by Argentina, Colombia and Paraguay.

Latin America spends 7% of export value on freight, almost double the 3.7% spent by the United States. In the case of Brazil, this cost is equivalent to 5.5% of the product price.

"Despite being lower than the Latin American average, the country has been spending much more with transport than the United States," stated Moreira. "Customs costs are not the main obstacles to foreign trade, with a few exceptions, as is the case with alcohol, cotton and orange. In most products, transport cost may be as much as 50% higher than tariffs."

The researcher points out that there is space for reduction in transport costs. However, he recognizes that the products exported by the countries in Latin America require greater freight allocation, which ends up increasing costs.

"The comparison between exports of one dollar of chips and one dollar of soy is very different, as the latter is significantly larger. If we divide the weight of the product by its value, transport cost is much higher for primary products than for electronic products," he explained.

Transport costs in Latin American are almost double that of the United States. According to the study, Argentina spends 22% more than the North Americans, Chile twice, and Paraguay, over four times. Latin American and Caribbean exports to the United States pay ocean freight almost 70% higher than those paid by Dutch products.

The report also shows that around 30% of the transport costs in Latin America are due to port inefficiency. To Moreira, this is the most important figure for the establishment of sector public policies.

"One of the main causes for inefficiency is port competition, which is smaller in Latin America than in the United States and the Netherlands," he pointed out. "In this area, it is possible to reduce government interference, like the agreements that restrict coastwise navigation."

Another obstacle is in air imports. According to the research, airfreight costs have grown faster in Latin America than in China and the rest of the world. Freight costs in the Caribbean in 2006, for example, were 36% higher than in 1995. In the same period, China kept the cost below the 1995 figure, despite higher oil prices.

Moreira adds that, in Brazil, airfreight is almost three times more expensive than in the United States. Another problem is that consumers and producers are not informed of these costs.

"If freight is 3% of the product value and the tariff 100%, freight will represent 1.5% of the price paid for import," he exemplifies. "Due to this apparently reduced value, people do not generally pay attention to freight costs."

Among the suggestions made by the IDB is incorporation of a transport agenda in trade talks. "This does not involve just infrastructure works, but also sector regulation. It is necessary to create a regulatory environment to stimulate competition and explore economy of scale," pointed out Mesquita.



  • Show Comments (7)

  • CH.C.

    To Joao & el al !

    1) I dont see why you say adding 200 kms of roads would marginally increase costs. It would REDUCE transportation costs
    2) You see no near term solution for MT !!!!!! Great…..the pavement of BR 163 has been promised for the last 30 YEARS, if you did not know ! smiles ! Does that ring you a bell when I said so many times….never ever trust a Brazilian ??????
    3) Grains should not be transported by trucks on large distances ! WAYYYYYYYYYYY too expensive ! but by rails, barges or ships !!!!
    4) Brazilians ENJOY increasing production…..but hate to invest in infrastructure such as rails, ports, or paved roads.
    The return on investment is WAYYYYYYYY too long, and WAYYYYYYY not high enough….for speculators like Brazilians are !
    Sad facts, Sad reality, Sad truth.
    5) and since the government are keeping for their own well being a large part of the tax collection, of course less money can be invested for the long term. that is of course….WAYYYYYYYYY before….what they steal through their corruption practices ! Smiles

    6) about your statement on my sources “I hope these sources are still maintaining their jobs in the government” Sorry Joao, you mix up everything. Your government is not telling you what I wrote. Re-read what I said ! The sources are from FARMERS associations within the MT state !!!!!!!!!!! On corn from Argentina for your North Eastern chicken farmers…this was in TV Globo Rural around a year or so ago !!!!!!

    7) What you dont know yet about your Parana grains farmers :
    many (doesnt mean MOST) Parana grains farmers prefer to ship their grains to the Rosario/Argentina port for 3 reasons
    – cheaper transportation costs than to Brazilian ports (probably shorter distance or better paved roads)
    – more effective (but not great either from what I read) for unloading trucks than in Brazil
    – and last but not least Argentina is far more efficient to transform grains into flours and oil than Brazil !!!!!

    I repeat this comes from your own on the spot/on the job professionals, and not by your filthy government or governmental agencies people.

    Quite funny that I the idiot, from the landlocked liliputian country, is so far more knowledgable in what happens in Brazilian Agriculture, than what Brazilians pretend to know !!!!!! You can read only PRODUCTION ! NOTHING ELSE ! the more you produce, the more you are happy. the more you OVER produce the more you applaude your emperor ! smiles !!!!!!
    You have not figured out yet that if something double (grains for example) in US$ but that currency goes down by 50 % against your currency……..IT IS THE SAME ! NOOOOOOOOOO….improvement at all !!!!!!
    It just happens that it is not linear or parralel ! But look at the time frame of early 2003 and 2008 peak in grains prices and USD/BRL and you will get the picture !!!!!
    Since grains in early 2004 touch a peak……and had a new peak in 2008 by a wide margin……YOUR PRODUCER WERE MORE WEALTHY IN 2004 than at the 2008 peak.
    Yesssss…..your grains farmers in 2004 made so much profits they bought new tractors, harvesters and machinery…CASH ! No need of credits or subsidizes ! And of course they bid up land prices to buy more…also CASH ! For land by CASH, you probably know how land is traded : in sacs per hectare or …payable within 2 to 5 years depending of the agreement. But no need of banks loans ! Only the down payment is cash !

    Bubble….bubbler…bubble ! Even in your sugarcane fields. Sugar went from around 6 US cents per pound to 20 cents in 2005…and then down to 8,5 cents which is quite a big down move because during that down move the US$ also went DOWN against the BRL !!!!!! In Brl terms the downmove was around 70-75 % in just 2 years !!!!!!
    But nothing could stop the Brazilians sugar/ethanol producers to produce more more more more more !
    smiles bit so it is.
    Then to simplify…sugar recovered to 14, 5 cents…today ! But with a declining oil prices and a declining BRL, Cosan should generate NEW profits in BRL !
    In view of its recent collapse in stock prices…….I slowly……add shares….from today……1 hour AFTER THE OPEN because bot the BRL and the Bovespa should take a tumble…..just as the EU markets and the Euro are tumbling !!!!!!!
    But very light positions, because the hedge fund I manage is US$ dollar based, and being dollar bullish as you know, I dont want too much exposure in non dollars investments, including the Euro by the way !!!!! I could be wrong…but just dont want a double exposure in stocks and in foreign currencies !


  • Ilhaguru

    The ports and airports need to be privatized YESTERDAY.
    . . . and we CANNOT regulate pricing and other economic tools. Regulate safety if you wish, but not the business.

  • João da Silva

    Further More
    It would be interesting if our distinguished fellow bloggers and seafarers Forrest and “The Guest” give their opinion on this issue under discussion, as they have visited several ports all over the world. I am certainly interested in knowing their evaluation of our sea ports.

  • João da Silva

    [quote]2nd stupid question : was there not another CHEATING & LYING AS USUAL from your government promises over the last several years ?

    3rd stupid question : what in your view will be the trend of the farm land prices in Mato Grosso ? UP – stable – DOWN – or DEEP DOWN…FROM ACTUAL PRICES ? smiles !

    4th stupid question : producing a lot is fine….but why producing a lot with a slim margin or at a loss ?????? [/quote]

    Today, you sound unusually [i]modest[/i] asking too many [i]stupid[/i] questions. 😀 😉

    [quote]They are from BRAZILIANS agricultural sources !!!!!! [/quote]

    I hope these [i]sources[/i] are still maintaining their jobs in the government 😉

  • CH.C.

    using the same as above example for soyabeans, the USA-Iowa soyabeans farmer makes a profit of US$ 716.- per hectare, a profit of US$ 372.- in Argentina, a profit of US$ 290.- in Parana, and a LOSS of US$ 48.- in Mato Grosso !!!!!

    2nd stupid question : was there not another CHEATING & LYING AS USUAL from your government promises over the last several years ?

    3rd stupid question : what in your view will be the trend of the farm land prices in Mato Grosso ? UP – stable – DOWN – or DEEP DOWN…FROM ACTUAL PRICES ? smiles !

    4th stupid question : producing a lot is fine….but why producing a lot with a slim margin or at a loss ??????

    Because lets face it when you take in account the land VALUE, and the machinery needed, farming is capital intensive.
    Now why dont you make the return on LAND VALUE and MACHINERY VALUES even for Parana farmers, let alone Mato Grosso ?
    Very small at best…is the answer ! Therefore a NO risk investment in Brazilian short term government debts is MUCH MUCH MUCH MORE REWARDING !!!!!!!

    REMINDER : From the peak in early 2004 to the bottom in around mid 2006 the brazilian farm land prices went DOWN by 50 % and DOWN UP TO 72 % IN MATO GROSSO !!!!!!
    And no need to make a parralel with the grains prices in 2005-2006 because since then oil prices and all inputs prices costs also zoomed UP ! What counts is the net profitability of an investment and its return on capital ! The only guarantee is that a farm price will NEVER EVER GO DOWN TO ZERO !!!!!!! But from high to low or very low….there is a wide margin !!!!!!

    Stop reading the “truth” coming from your Propaganda & Disinformation Dept in the Planalto, Brasilia.
    Start reading news and facts from the corresponding industry associations, producers, etc etc !!!!!

    Last but not least :
    The informations provided in my comments are not mine (the bad mouth or the bad tongue).
    They are from BRAZILIANS agricultural sources !!!!!!
    Sorry to those who believed otherwise !!!!!!

    Smiiiiiiiiiiiiiiiiiles !
    😉 😀 😉 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

  • João da Silva

    [quote]Among the suggestions made by the IDB is incorporation of a transport agenda in trade talks. “This does not involve just infrastructure works, but also sector regulation. It is necessary to create a regulatory environment to stimulate competition and explore economy of scale,” pointed out Mesquita. [/quote]

    CH.C À‚´s comments are extremely interesting, giving correct figures (as usual) comparing the transport costs from MT and PR to the Sea Ports. So are the suggestions made by IDB. In the case of Parana, the shopping port is Paranagua which is getting clogged according to the info I have. The alternative is is to add another 200 Kms of road transport further to the South and probably, the additional freight cost will be marginal. However, I see no near term solution for the farmers in MT.

    It is absolutely imperative that the government changes the regulations regarding foreign investment in the transport sector not only in the case of Sea Ports, but also Land as well as Air transport. If Brazil wants to continue exporting large quantities of grains, ores, etc; we have to seriously look into the issue of transport costs and come out with some innovative [i]solutions[/i]. However, my experience shows that the politicians are more interested in complaining than to take the issues seriously. 😉

  • CH.C.

    Oooofffff finally the truth surfaces ” Transportation Costs Are Stunting Exports in Brazil and LatAm ”
    Yessssssss……this is also what I tried to explain more than once.
    Of course, I was the one WRONG… per empty Brazilians brains junkies.

    But high oil prices were good…..apparently……for Brazilians ! smiles
    Is that NOT what empty brains said here…many many times ?

    Funny that your North Eastern chicken farmers get a much lower price for corn from Argentina, than corn from Brazil South or Goias, Tocantins which are only a few hundreds kilometers away from the North Eastern chicken farms !
    On top of that Brazilian corn must be paid CASH, but Argentina corn can be paid within 400 days at 6 % interests rate.
    And raising chickens dont need 400 days per “harvest” !!!!!

    And it is as true for your grains in Mato Grosso ! Your Parana farmers are doing relatively well, being closer to ports. But your Mato Grosso farmers are well over 1000 kms away from ports. And most grains are transported by trucks in mostly unpaved road
    the BR 163.
    Does anyone of you know the transportation costs from Mato Grosso ONLY to ports ? US$ 130.- per TON…for fully loaded trucks PLUS large trailer !!!!! But only $ 60.- from Parana !
    On top of that your Mato Grosso farmers needs to put 2 TIMES as much fertilizers per hectare than in Parana. Which again makes a $ 60.- per ton in production costs difference.
    End results ? at US$ 450.- per ton soaybeans FOB, your Parana farmers make a profit of $ 290.- per hectare BUT a loss of $ 48.- per hectare in Mato Grosso !!!! Or said otherwise a profit of $ 97.- per ton in Parana and a loss of $ 16.- per ton in Mato Grosso.

    And then the foreign buyer will bear the costs from your ports, since most grains are sold FOB not CIF !!!!!
    But these costs are much higher than most local productions, when NEW productions will come on stream !!!!!

    But the funniest thing of all is this :

    Including an EXPORT TAX of 35 % which Brazil doesnt have , Argentina farmers profit is $ 372.- per hectare against your most profitable state (Parana) OF $ 290.- !!!!!

    Stupid question to all Brazilian junkies :

    laugh…..laugh….laugh….laugh….laugh…..laugh !!!!!!!!!!!!!!!

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


You May Also Like

From Sacred to Samba

Investors have been pulling their money out of the Brazilian market at a frantic ...

Brazil Investigates Ring Behind Death of American Nun

The landowner, Vitalmiro Bastos de Moura, arrested on Sunday, March 27, may not be ...

All Sectors Up: For Brazil Minister, Crisis Only in the Rearview Mirror

The minister of Development, Industry and Foreign Trade of Brazil, Miguel Jorge, said today ...

Argentina Will Probe Charges That Its Military Smuggled Weapons to Brazil

The Argentinean government will help Brazil in the clarification of accusations concerning the supposed ...

Consulates Abroad Join Brazil’s Widespread Striking Movement

Brazil’s Foreign Ministry denied in a statement that diplomats have joined the strike affecting ...

Brazil Shrimp Exports to US Tumble 54%

After rising steadily for the six consecutive years, Brazilian exports of shrimp to the ...

Brazil Uses Sports to Promote Changes in the Country

Brazil’s Minister of Sports, Agnelo Queiroz, declared that "The government is using public policy ...

Brazil’s Lula Rejects Call to Abandon Neoliberal Policies

Brazilian president Luiz Inácio Lula da Silva welcomed last week’s entry of Venezuela into ...

Grilled for 9 Hours in Congress, Brazil’s Finance Czar Denies Any Wrongdoing

During nine hours of testimony before the Brazilian Senate’s Commission on Economic Affairs, Wednesday, ...

Brazil Has Reason to Smile, Says Lula

Brazilian President Luiz Inácio Lula da Silva devoted today’s edition of his biweekly radio ...