Return freight price between regions of Brazil – the effect of the Law of Supply and Demand

As Maria Fernanda Hijjar mentioned in the post As of 06/02/2018, the most talked about subject by companies' logistics executives at the beginning of the year is Transport: difficulty in contracting and the increase in freight prices.

Continuing the subject, I take the opportunity to talk about the variation in freight rates between regions of the country. This variation is due to the effect of the Law of Supply and Demand studied in Economics: where there is a lot of transport supply, the price drops and where there is a lot of demand for transport, the price rises.

This trend is clearly observed when we compare the freight price from the Southeast and South regions to the other regions and the reverse flow. Regions with a high concentration of industrial zones, in order to transport production, demand more vehicles than the rest of the country. As the supply is limited, the price goes up in these regions.

On the other hand, the vehicles that transport these regions to places with very low demand for transport will have little load to return to the place of origin. As a way of remunerating the return trip, the carrier charges amounts that are sometimes even lower than the cost of the trip. This type of shipping is called “return shipping”.

To illustrate this behavior, the graph below shows the comparison of the average freight value for dry cargo in R$/thousand RTK between regions, for trips over 300 km, in a large complete vehicle (trailer type and bi-train), without fractionation.

The information is from real freight negotiated, extracted from the online tool of the ILOS Freight Panel, developed to compare the freight negotiated by large shippers in the country.

Price of Road Freight on Routes by Region (R$/thousand TKU) and % price reduction on return routes*

Source: Analysis of data from the ILOS Freight Panel (Feb 2018)

 *Considers transport of dry cargo (does not include bulk) in large trucks (trailer type and bi-train), for trips over 300 km, in a complete vehicle without splitting.

It is noted that the freight from the Southeast region to the other regions decreases by up to 29%. The South region, also with high transport demand, has return freight with up to 17% reduction compared to the one-way freight to the Northeast region.

The information is from real freight negotiated, extracted from the online tool of the ILOS Freight Panel, developed to compare the freight negotiated by large shippers in the country.

Price of Road Freight on Routes to/from São Paulo (R$/thousand TKU) and % price reduction on return routes*

Source: Analysis of data from the ILOS Freight Panel (Feb 2018)

*Considers transport of dry cargo (does not include bulk) in large trucks (trailer type and bi-train), for trips over 300 km, in a complete vehicle without splitting.

For the state of São Paulo, the largest producer, the reductions are even more significant, reaching 44% in return from the Midwest. The average reduction in return freight for the state of São Paulo is 37%.

If your company hires road transport, you can compare your rates negotiated with other companies in detail, by type of cargo, state, region, type of vehicle, fractionation degree, mileage range and even specific routes. Is your company still not on the Freight Panel? Click here  for more information or contact our team.

References:

ILOS Freight Panel

Challenges of contracting carriers in 2018

Road Freight Prices in Brazil – Regional Differences