Why isn’t there more seaborne cargo transportation in Brazil?

. Jul 22, 2019
waterborne transportation

On Thursday (July 18), the government published a new minimum freight pricing table—to the consternation of truck drivers. Since the table came out, truckers have begun rallying for a new strike—originally scheduled for today. Then Infrastructure Minister, Tarcísio de Freitas, intervened, promising to suspend the table until a consensus was reached, and agreeing to meet with union leaders on Wednesday.

This isn’t the first time the Bolsonaro administration has pandered to truckers. Back in April, the president ordered Petrobras to suspend a hike in diesel prices, out of fear of how the truckers might respond. While one may argue that the administration is at least partly motivated by Mr. Bolsonaro’s will to please his electoral base, there are other reasons to fear renewed strike action.

</span></p> <p><span style="font-weight: 400;">Last year, </span><a href=""><span style="font-weight: 400;">truckers stopped working for 11 days</span></a><span style="font-weight: 400;">, creating fuel and food shortages in many parts of the country. Millions of animals died of starvation, as their rations couldn&#8217;t be transported. Billions of liters of milk were spoiled and thrown out next to roadways. At many airports, all planes were grounded due to a lack of fuel. The strike–along with uncertainties raised by the presidential election–was in part responsible for the paltry 1.1 percent GDP growth in 2018.</span></p> <p><script src="" type="text/javascript" charset="utf-8"></script></p> <p><span style="font-weight: 400;">Experts say another strike now would be </span><a href=""><span style="font-weight: 400;">even more devastating</span></a><span style="font-weight: 400;">, in a scenario of a stagnating economy, lacking money for investment. Brazil is once again held hostage by truckers (who have indeed </span><a href=""><span style="font-weight: 400;">lost revenue in the past year</span></a><span style="font-weight: 400;">) due to its sheer lack of options.</span></p> <p><span style="font-weight: 400;">What is striking is how much Brazil relies on road freight, given its huge potential for waterborne transport. Brazil&#8217;s 9,000 kilometer-long coastline represents a means of transporting goods with almost no restriction on speed and weight, which could generate savings of 80 percent per ton, when compared with road transport.</span></p> <p><span style="font-weight: 400;">But bureaucracy has led to an effective monopoly in sea transportation, hampering the sector&#8217;s development. The result is that only 10 percent of Brazil&#8217;s cargo is shipped along the coast.</span></p> <h2>Why sea- and waterborne transportation has not developed</h2> <p><span style="font-weight: 400;">Brazil&#8217;s Federal Accounts Court (TCU, a sort of audit tribunal that monitors public spending) has analyzed the sector, and drawn some conclusions:</span></p> <ul> <li style="font-weight: 400;"><span style="font-weight: 400;">Brazil lacks public policies for cabotage transportation—that is, transport of goods by sea between two points within the same country—which would be the responsibility of the federal government.</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Companies charge different rates for cabotage and long-course navigation (which picks up and delivers cargo overseas), although the law says fares should follow the same parameters. The biggest difference is in the most crucial variable: fuel.</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">The market for cabotage transportation is highly concentrated and has virtually no competition. ANTAQ, Brazil&#8217;s National Water Transportation Agency, was supposed to regulate the sector and fight monopolies, but TCU auditors say it hasn&#8217;t done its job.</span></li> <li style="font-weight: 400;"><span style="font-weight: 400;">Red tape—especially from revenue authorities—has made companies opt not to use multiple transport modes, which is detrimental to the sector.</span></li> </ul> <div class="flourish-embed" data-src="visualisation/527223"></div> <p><script src=""></script></p> <h2>Despite woes, waterborne transportation is growing</h2> <p><span style="font-weight: 400;">Despite these difficulties, the volume of cargo transported via cabotage has seen double-digit growth rates since the beginning of the decade, from 127 million tons per year in 2010 to 163 million in 2018. </span></p> <p><span style="font-weight: 400;">One obvious reason is cost. Despite a lack of competition in the sector, the price per ton transported via vessels is nearly half of what it costs to send via trucks. The TCU report shows that it costs BRL 596 per ton to send cargo from the northern city of Belém to São Paulo. In a ship, the cost drops to BRL 325—even when counting in the Santos-São Paulo stretch, which must be borne by truck.</span></p> <p><span style="font-weight: 400;">According to Ilos, an institute that conducts research on transportation, Brazil&#8217;s logistics costs represent 12 percent of GDP—against only 7.7 in the U.S., a country with similar continental proportions. Transportation alone represents almost 60 percent of all logistics costs—mainly due to </span><a href=""><span style="font-weight: 400;">Brazil&#8217;s over-dependence on trucks</span></a><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">A few production chains, though, rely heavily on waterborne transportation. Such is the case of aluminum—from the raw bauxite extracted to the finished soda cans, shipments are largely made via the coast.</span></p> <div class="flourish-embed" data-src="visualisation/527239"></div> <p><script src=""></script></p> <h2>Lack of isonomy</h2> <p><span style="font-weight: 400;">A major deterrent to business is the fact that Brazilian vessels are subject to much harsher rules than international ones, which deal with transnational cargo. For instance, Brazilian ships pay heavy taxes on fuels (around 18-20 percent), while foreign vessels are exempt from it. The same goes for labor relations—while a foreign crew can work 12 months a year, in Brazil the limit is 6 months. What many companies try to do is establish offshore subsidiaries to go around the legislation. </span></p> <p><span style="font-weight: 400;">Today, there are reportedly only </span><i><span style="font-weight: 400;">seventeen</span></i><span style="font-weight: 400;"> cabotage vessels in Brazil. Local shipyards are not equipped to deliver all orders—even if they benefit from market reserves. It is cheaper and faster to order a ship from China than to buy domestic. </span></p> <p><span style="font-weight: 400;">Minister Tarcísio de Freitas has declared he will prioritize the development of cabotage transportation to unclog Brazil&#8217;s infrastructure. But TCU auditors fear that the government will focus only on creating subsidies to allow companies to lower costs. Unless more competitors come into play, the landscape will hardly change.

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