Over the next three to four months, already rising transportation costs are expected to get even higher in Brazil due to three main factors: new legislation impacting the working hours of truck drivers, a sharp increase in diesel prices, and rising export volumes for major commodities, Rabobank says.
"Transport companies have been faced with major implementation costs, compounded by a rise in the price of diesel of more than 10% in the space of three months," Rabobank analyst Andy Duff says.
Despite construction projects to improve the infrastructure, the rising fuel costs coupled with new legislation that requires truck drivers to take more breaks may hinder any gains the construction might have offered.
"As the dominant method for transporting major commodities to the ports, the cost of road freight tends to dictate the freight rates for all modes of transport," Duff says. The new legislation has created a challenge for transport companies in maintaining the flow without having to acquire many more vehicles and find many more drivers.
Compounding the challenge, Brazil's exports of soybeans, corn and potentially sugar are all expected to rise in 2013, based on higher production forecasts. Good margins for corn and soybeans have led farmers to boost production, while sugar is expected to rise based on a recovery in cane yields, Rabobank says.
To get the expected larger crops to market, Rabobank says soybean trading companies will have to absorb the extra transport costs this year, but next year the expectation of higher costs is likely to be passed back to farmgate prices via the prices that trading companies offer for contract soybean purchases from farmers.
In the cane and sugar industry, the increase in freight costs will be absorbed by millers.
Rabobank says while grain farmers may see negatives to the situation, pig and poultry farms will also see a lower raw material price in grain growing regions.
For more on Brazil's logistics issues, visit James Thompson's blog South American Crop Watch.