Stock steals the show in Brazil's logistics costs in 2023

Article by Mauricio Lima and Alexandre Lobo

In October/24, the 30th edition of the International Supply Chain Forum took place, and there we had the opportunity to, once again, present the recent panorama of logistics costs in Brazil. At the opening of the session, we addressed the scenario for 2023, when logistics spending in the country represented 18,4% of the country's GDP, the highest number ever recorded since the study began in 2004.

Chart 1 – Logistics Costs in Brazil in relation to GDP – Source: ILOS – 2024

As we can see in the graph above, the main culprit in Brazilian logistics costs in 2023 was inventory costs, following a growth trend that had already been seen in the previous year. Between 2021 and 2023, inventory costs went from 3,2% of GDP to 7,0%, while transportation even fell a little, going from 9,5% of GDP to 9,3%.

And what led to this substantial growth in inventory spending? 

When analyzing inventory costs, two factors are taken into account: the interest rate and the volume of fixed inventory. In 2023, the average Brazilian interest rate remained at a very high level, but it was still slightly lower than in 2022. In other words, what changed considerably between 2022 and 2023 was the volume of fixed inventory.

Chart 2 – Selic interest rate x Ratio of Fixed Assets to GDP – Source: ILOS, with data from IBGE and Bacen – 2024

The graph above clearly shows what happened to the fixed asset stock in 2023. It went from around 18% of GDP in 2022 to 25% of GDP in 2023, much higher than that recorded between 2004 and 2021, when it was between 11% and around 16%.

During the event, we had the opportunity to talk to several executives from large Brazilian companies, and the discussion was: was this increase in fixed inventory intentional or accidental? The conclusion is that it was a hybrid. Due to the great uncertainty regarding international transportation between 2022 and 2023, companies were forced to significantly increase their inventory position, both of finished products and raw materials.

Conclusion: 25% of GDP with fixed inventory at a high average Selic rate led to an inventory cost of 7% of GDP, the highest ever in Brazil. This, combined with the country's traditionally high transportation costs, led to a total logistics cost of over 18% of Brazil's GDP, something that was previously hard to imagine.

Regarding transportation costs, well, we have already made a brief introduction that they remained relatively stable in 2023. We will provide more details in a future post. Stay tuned!