LOGISTICS COSTS IN BRAZIL

In the last 10 years, Brazil has not been able to take advantage of the opportunities arising from the good economic moment to reduce the percentage of logistics costs in relation to its Gross Domestic Product (GDP). The growth of the Brazilian economy at an average rate of 3,9% per year between 2004 and 2013 and the increase in demand for transport at a higher rate (4,7% per year) aggravated the lack of transport infrastructure and made the country's structural problems became more latent, putting even more pressure on the logistical cost (Figure 1). From 2013 to the present day, the worsening of the economic scenario should further compromise the logistical cost x GDP ratio and we continue without significant advances in infrastructure.

The result of this scenario has been queues of ships and trucks and criticism of the offer of modes more intended for moving large volumes and long distances, such as rail and waterway. Thus, contrary to its needs, Brazil has been registering a growth in the participation of the road modal in the transport matrix and the increase in freight prices due to the growth of demand in relation to supply.

Figure 1 - Variation of Brazil's GDP (BRL Billion) and Transport Demand between 2004 and 2013
Source: ILOS, IBGE

To get an idea of ​​the opportunity missed by Brazil, just look at the United States. Since the early 80s, with the exception of the period of the international financial crisis, the US economy has experienced significant growth. Although spending on logistics increased during this period, its ratio to the US GDP decreased substantially, from 15,5% (1980) to 8,2% (2013), largely due to the excellent transport infrastructure in the United States and by the balance between the different modes (Figure 2).

Figure 2 - Evolution of logistics costs in the United States
Source: Annual State of Logistics Report, Wilson/CSCMP; Analysis: ILOS

A simple calculation helps to show the distance between Brazil and the United States in terms of freight transport infrastructure. If the Brazilian transport matrix were the same as that of the United States and the same costs of each modal in Brazil were applied, the country would save R$ 113 billion, or 37% of the costs with cargo transport in Brazil.

The main reason for this discrepancy is that Brazil, almost 35 years later, still has an infrastructure for cargo transport similar to the one it had in the 80s. Even when compared to the other BRIC countries (Russia, India and China), Brazil continues to being the poorest in terms of infrastructure (Figure 3).

Figure 3 – Cargo transport infrastructure around the world
Source: World FactBook, World Bank – 2014 

This lack of transport infrastructure has a significant impact on Brazil in rankings such as logistics performance, released by the World Bank every two years since 2007. In the 2014 edition, Brazil ranked 61st, ahead only of Russia among the BRICS. When constructing the ranking, the World Bank analyzes six items (Consistency/Reliability, Cargo Tracking, Service Competence, Transport Availability, Customs Procedure and Infrastructure), with Brazil having ranked 49th in the Infrastructure item, again ahead only from Russia (Figure 4).

Figure 4 – World Bank Logistics Performance Index Ranking – 2007 to 2014
Source: World Bank

The comparison between the transport matrices of Brazil and the United States clearly shows that the big difference between Brazil and other countries is not in the actual cost of each mode, but rather in the proportion of modes in cargo transport. While Brazil performs 2/3 of its cargo transportation through highways, the United States moves less than 1/3 of its production by trucks (Figure 5).

Figure 5 - Matrix of cargo transport from Brazil and the United States and the respective costs by modal

Average Dollar Value 2012: R$1,95 (Ipeadata); Source: BTS; AAR; AOPL; US Army Corps of Engineering; 24th CSCMP's Annual State of Logistics Report; Analysis: ILOS

Naturally, this imbalance in the matrix is ​​reflected in the country's logistical costs. Between 2010 and 2012, Brazil's spending on road transport rose from R$202,6 billion to R$275,6 billion. This substantial difference is due to the 14% growth in demand for road transport in these two years, due to the lack of options for other modes, and the 20% increase in freight prices in the period, leading to a total increase of 36% in the cost of road transport in the country (Figure 6).

Figure 6 – Comparison of the cost of road freight transport and the volume transported between 2010 and 2012
Source: ILOS

The analysis of logistics costs in Brazil over the last ten years makes this impact of road transport clear. Until 2010, the country's logistics cost in relation to GDP had been suffering successive drops, interrupted in 2012 by the lack of infrastructure, leading to a 6-year setback in terms of logistics costs. Thus, while Brazil once again had logistics costs of 11,5% of GDP (Figure 7), in 2012, the United States spent only 8,3% of GDP in the same year.

Figure 7 - Representation of logistics costs in Brazil in relation to GDP
Source: ILOS

The imbalance in the freight transport matrix impacts not only the economy of Brazil as a whole, but also leads to an increase in the expenses of companies with logistics. In our survey of the largest companies in Brazil in terms of public revenue in the Panorama ILOS “Logistics Costs in Brazil”, we observed that, in 2012, they began to spend 8,7% of their net revenue on logistics, against 8,5% registered in 2010.

This number is relatively high, especially when compared to the United States, where companies allocate 7,4% of their net income to pay for logistics activities. Naturally, costs vary according to the sector of the economy, being more significant precisely in segments that move large volumes over long distances and end up directly affected by the imbalance in the Brazilian matrix (Figure 8).

Figure 8 – Logistics costs of companies in Brazil in relation to net revenue in 2012, by sector
Source: ILOS

TRENDS AND PERSPECTIVES FOR THE NEXT YEARS

The prospects are not very encouraging in terms of expenses with logistics in Brazil in the near future. With regard to the transport offer, the infrastructure limitation promises to continue for a good period, which will keep the use of all modes high, and may even slightly increase the participation of the road modal in the transport matrix. . Added to this lack of options is a possible limitation in the supply of road transport due to the lack of drivers, which should put upward pressure on freight prices.

On the side of transport demand, the expectation for 2014 and 2015 is for a very timid increase when compared to that observed until 2013, something around 2% pa, which is justifiable or even considered high for a scenario of economic stagnation projected to Brazil for that period. The expectation is even a retraction for the industrial load, which can already be verified in the numbers of the first semester of 2014 of the concessioned highways and in information of the railway sector. However, this drop should be offset by the increase in agricultural grain production projected to around 2,6% according to Conab data from July 2014.

Finally, the lag in the price of diesel in Brazil in relation to the international price was balanced by the recent drop in the price of oil in the international market, bringing about an unlikely scenario of an increase in fuel prices. On the other hand, the recent increase in inflation and the salary increase for drivers at the beginning of next year may bring some pressure in favor of increasing costs.

Given this scenario, the expectation is that the increase in logistics costs in Brazil will only follow inflation until the end of 2015 given the cooling of the economy. In any case, it is essential that the Government conduct more and better investments in transport infrastructure to improve the availability of modes and allow companies to achieve greater efficiency, avoiding cost pressure in a possible new expansionist cycle, even if this happens in a distant future. Only with more suitable modes for each distance range and the volume of cargo handled, it is possible to leverage Brazil's competitiveness and, consequently, our economy. After all, logistics must always be a facilitator for the country and not an obstacle to its development.

BIBLIOGRAPHY
– Panorama ILOS “Logistics Costs in Brazil – 2013”
– “Connecting to Compete – Trade Logistics in the Global Economy – 2014” – World Bank
– 24th CSCMP's Annual State of Logistics Report

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