Brazil's logistical challenges

by Susan Reidy
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Steady increases in planted area and yields are pushing Brazil’s soybean production to record highs, but the challenge remains moving those oilseeds to export markets due to the nation’s insufficient and deteriorating infrastructure.

Grains from the heavy production areas in the center of the nation need to be moved to the outlying ports around the country’s exterior. Many of the roads that are part of key logistical corridors aren’t completely paved. Deep ruts run the length of these portions, some big enough to swallow the tires of grain trucks. During harvest, this leads to long lines of trucks that sometimes don’t move for days.

Problems aren’t just relegated to roadways. The entire logistic chain of waterways, barges and ports are in desperate need of repair and updating, according to a March report from the U.S. Department of Agriculture’s Foreign Agriculture Service. Some logistic improvement projects have been in the works for decades, delayed by corruption, political challenges and slowed economic growth.

“Lack of investment in strategic infrastructure planning continues to significantly impact the profitability of producers and traders,” the report stated. “Increased transportation costs have been passed back to the producer and will dampen potential growth in coming years.”

The nation’s busiest ports are Paranagua and Santos to the south, handling 80% of the soybeans destined for export. They are reached via a combination of roads (paved and unpaved), rail and inland waterways. A new corridor is under development to move grains from the center portion of the country to ports to the north, including Santana and Vila do Conde.

It’s expected the new corridor will save some time, and up to a $1 per bushel for both soybeans and corn, said Marcos Rubin, senior partner analyst with Agroconsult Brazil, during the Global Grain North America Conference in Chicago, Illinois, U.S., in May.

That’s good news as the country is expected to see an 8% increase in soybean production in 2014-15, reaching a record 97 million tonnes. Exports for the crop are forecast at 50 million tonnes, according to the FAS report.

Moving Brazil's Grain

Producers and exporters are experiencing a significant loss compared to the U.S. due to transportation costs (an estimated loss of $70 per tonne from the Center-West region); port inefficiencies (an estimated loss of $18 per tonne) and ship demurrage costs (an estimated loss of $10 per tonne), according to the FAS report.

“Most players in the supply chain have factored infrastructural inefficiencies into their models,” it said.

Every soybean in Brazil will be in a truck at some point after harvest. Trucks are used to ship soybeans to intermediate points such as local elevators, dry ports or river ports that are sometimes a thousand miles away.

About 50% of soybeans are exclusively trucked to ports for export. New trucking laws in 2013 that limit driving time increased rates between 25% and 50% compared to the previous year, the report said. This has further congested roads as drivers opt for the same driving schedule.

“Lines of trucks waiting to unload at inland terminals and ports have compounded the challenge and increased costs,” the FAS report said. “The national truck fleet is estimated to have grown 10% over the last year to meet the increase in demand, artificially inflated by the new trucking law.”

The port at Paranaguá has set up stop-gap measures to reduce the line of trucks leading up to the ports. A new scheduling system also was introduced that gives priority to traders who already have 18,000 tonnes ready to load.

“Such economies of scale should facilitate greater efficiency in grain loading,” the report said.

Railways account for 37% of soybeans transported for export. An Open Rail policy to allow multiple rail operators access to railways is expected to take effect in 2015, the report said. However, little excess capacity exists. Significant improvements are needed such as double tracks, lengthening of passing lanes, and better rail speed.

The railway between Rondonopolis, in southeast Mato Grosso, and the port of Santos, Sao Paulo, is expected to reach its maximum annual grain handling capacity of 15 million tonnes (7 million tonnes of soybeans and 8 million tonnes of corn) this year unless improvements are made, the FAS report said.

Waterways, which account for 13% of soybeans destined for export, are by far the most cost efficient means of transporting bulk commodities. However, waterway projects under way in Brazil are very limited.

The Brazilian government is continuing to underfund the cost of maintenance and repair of federal transportation projects. The most cost-effective railroad and waterway systems of significant scale are still expected to take 10 to 15 years to complete, according to the FAS report.

New Projects

Progress is being made in shifting a portion of soybean exports from southern ports to the northern ports of Brazil, the report said. About 17% of the national production is destined for export from the northern ports. Projects to improve the logistics from these ports are expected to increase exports from those areas by 2 million tonnes per year in coming years.

New corridor. A whole new corridor for moving soybeans from Mato Grosso state, the leading soybean producing area in Brazil, started operations this year. Barges are loaded at the port of Miritituba/Itaituba, and the soybeans are then reloaded onto larger vessels at ports in northern Pará (Vila do Conde port) or in the state of Amapá (Santana port). Port volume is estimated at 1.7 million tonnes in 2014, increasing to 3 million tonnes in 2015 and 4.5 million tonnes in 2016.

Bunge is already operational at this port, and Cargill is waiting on environmental permits to build a terminal there, Rubin said. Cargill would transport grains to the port of Santarem. This port is expected to increase export capacity by the end of 2015, according to the FAS report. Soybean exports will increase from the current level of 1.3 million tonnes to 2 million tonnes. The improvements will allow export capacity flows to double from 1,500 tph to 3,000 tph.

Additionally, Hidroviasdo Brasil plans to open a terminal in Miritituba and a 4.4-million-tonne-capacity terminal in Vila do Conde by 2016, Rubin said. Cianportis is investing at the Port of Santana and intends to build a terminal in Miritituba.

The port of Miritituba/Itaituba is on BR-163, a major north-south artery highway. There are some 300 kilometers of road left to pave along the road that stretches from the capital of Mato Grosso, Cuiabá, to Miritituba/Itaituba. Rubin said his company estimates that the road will be completely paved by 2015.

The cost of moving soybeans from Sorriso to the southern ports of Santos or Paranaguá is about $12.20 per bushel FOB, Rubin said. If land costs aren’t taken into consideration, the cost is $10.40 per bushel. By the time the soybeans arrive in China, the cost is about $13.40 per bushel.

Moving soybeans on BR-163 to Miritituba and then onto the ports in Santarem or Santana, reduces domestic freight costs by 26% and results in an FOB cost of $11.50 per bushel or $9.70 per bushel if land costs are eliminated. The cost when the soybeans arrive in China is about $12.50 per bushel, nearly $1 less than through the southern ports, Rubin said.

“That’s the whole supply chain reduction; a part goes to the farmer, a part goes to the logistic companies, a part of it goes to trade,” he said. “It’s not clear how it’s going to be split in the supply chain channel.”

One dollar per bushel isn’t much of a difference for soybeans, Rubin said, but it can make a significant difference for corn. “We think in the future, corn as a second crop in Mato Grosso might get much more competitive. One dollar per bushel will make a huge difference on the international market,” Rubin said. “When will that happen? Maybe not next year, but that’s something we need to keep in mind for the coming years. We will compete heavily with the U.S., Ukraine and Argentina for the international corn market.”

Rail improvements. The North-South Railway portion operated by Vale Logistics company is completed and extends from Porto Nacional, Tocantins to the port of Itaqui in Sao Luis. Once the BR-158 roadway through the northeast portion of Mato Grosso is complete, soybeans can be trucked to the North-South Railway grain terminal in Colinas do Tocantins, en route to the port of Itaquí, according to the FAS report.

A stretch of the railway between Uruacu and Anápolis is still under construction, as is paving of BR-080, which will connect to that portion of the railway, Rubin said. The North-South Railway is in the process of being widened to two tracks, to allow for lines to be exclusively dedicated to each direction. Sidings will continue to be used in the interim until the project is completed. This railway is reported to have the world’s longest trains, with 330 railcars powered by four locomotives, according to the FAS report.

Completion of the North-South Railway and BR-080 will connect Mato Grosso state to the Itaquí port, which has seen lots of investment in terminal capacity, Rubin said.

The port recently completed a private tender auction and awarded concessions to four groups to build the Grains Terminal of Maranhão (TEGRAM), according to the FAS report. TEGRAM along with the private port, Ponta de Madeira, will operate the port, which is expected to have a long-term exporting capacity of 15 million tonnes.

TEGRAM itself will have a planned export capacity of 10 million tonnes. Construction is being done in phases, with completion scheduled for 2018. The consortium is building four warehouses, each with a capacity of 120,000 tonnes. Each will have its own distinct system for receiving truck loads, but will share a single system for receiving train loads, the report said. The port will be able to load ships at a rate of 2,500 tph.

One concern is who will pay for the short stretch of tracks to connect the rail line to Itaquí. The government is expected to foot the bill, with construction complete by 2015. Vale, which will operate the private rail line, will cap how much rail it devotes to grain (currently 2.5 million tonnes per year).

There are also plans to pave BR-158 from Alo Brasil to Villa Rica. The road connects to the river port of Maraba. Bedrock in the Araguaia and Tocantins River system need to be removed, Rubin said. A system of locks around the hydroelectric dam of Tucurui is completed, and the river navigation system is under development, according to the FAS report. Once the rocks are removed, the system would connect to the Vila do Conde port, which can receive Panamax vessels.