Brazil truckers’ strike chaos hits shipping industry

Brazil truckers’ strike chaos hits shipping industry: Confusion at ports at time when exporters should be enjoying a boom
27 Aug 2018 https://www.ft.com/content/2399e1b8-a960-11e8-94bd-cba20d67390c

Chaos in Brazil`s logistics sectors that started with a truckers’ strike this year has spread to the shipping industry just as Latin America’s biggest economy should be enjoying an export boom, shippers said.

Exporters keen to capitalise on Brazil’s weakening currency and bumper harvests are booking shipping, but then having difficulty finding the trucks to deliver their goods to port on time because of an ongoing dispute with drivers over freight prices, according to Maersk Line, the world’s largest container shipping company.

Competition for limited shipping space combined with the uncertainty over truck freight prices is leading exporters to over-book shipping by as much as 200 per cent from 5 per cent normally, Maersk said, creating confusion at ports.

“What we see right now is the situation is completely out of control, and getting worse,” said Antonio Dominguez, Maersk Line managing director for east coast South America.

The 10-day Brazilian truckers’ strike is proving one of the most calamitous economic events to strike the centreright government of President Michel Temer, hurting second-quarter gross domestic product and undermining investor confidence.

Multinationals ranging from Unilever to Carrefour were hit by the strike. But economists say the worst effect of the shutdown was subsidies ceded by the government to truckers.

These included a lower diesel price and a guaranteed minimum freight price that has raised transport costs for soy and corn exporters more than 800km from port by as much as 28 per cent, according to Rabobank. To make matters worse, the price is being charged on return trips, even if a truck is empty.

“The tabela [minimum price] is creating a big pricing distortion,” said one executive from a freight company, who said the return charge in particular was “overkill”.

The minimum freight price was immediately challenged in the courts, leading to confusion over its enforcement and uncertainty in the market, forcing exporters and drivers into lengthy negotiations over every cargo.

Maersk said the problem of over-booking had its roots in 2016, when Brazil’s economy suffered the second year of its worst recession in history, leading shipping companies to cut back on the number of vessels serving the market.

The economy began to rebound in 2017 and 2018 led by agricultural exports. But the overbooking problem only emerged this year after the truckers’ strike as exporters, desperate to secure limited space, began wildly over-booking despite being unable to predict with certainty when or what quantity of goods they would be able to deliver to port.

Maersk said the result was that 5 per cent of cargoes were being left behind each month because of the confusion, the equivalent one vessel going empty each month.

Container exports, which account for 80 per cent of Brazilian trade, fell 6 per cent in the second quarter of this year against the same period a year earlier, down from 6 per cent growth in the first quarter.

The problems come as Brazil should be enjoying an export boom, with US President Donald Trump’s trade war with China favouring Latin American soya bean producers, in particular.

“The currency continues to depreciate, so now it`s actually crossed the R$4 to the dollar mark, that’s extremely good for exports,” Maersk’s Mr Dominguez said. “But then every day is a challenge to be able to arrange a contract with a trucker out of the places where you have those commodities.”