Wed Nov 26, 2014 06:33 AM CST
Brazil's Transport Handicap 11/26 06:32 High-Speed Export Routes Still Under Construction Reliance on trucks and inadequate ocean ports haunts Brazil's export reputation. Farmers in its biggest soybean state have waited more than a decade for a paved northern route to the Amazon. By Marcia Zarley Taylor DTN Executive Editor HADDONFIELD, N.J. (DTN) -- The U.S. transportation system may be creaky, but it works far better than the so-called "roads of death" Brazilian truckers must use to haul soybeans to export markets. Despite decades of political promises, Latin American transport systems continue to lag. Take the Brazilian boom town of Sorriso, Mato Grosso, which stood on the northernmost edge of the state's soybean frontier 15 years ago. It is as remote from the Atlantic port terminals as North Dakota is from Pacific Northwest ports, but back then, visiting U.S. farmers compared Sorriso to Decatur, Ill. Dozens of grain buyers lined Main Street. Bunge was building Latin America's largest soybean processing plant there complete with a rail siding, although no railroad existed in the entire state at the time. Whole beans had to be hauled 1,250 miles by truck to southern ports on the Atlantic, sometimes an eight- or nine-day trip. This meant Sorriso's local cash soybean prices remained some of the lowest in the world. Fast forward to 2014. Very little has changed Sorriso's transportation handicap. Despite promises of paving highway BR 163 to new northern ports on the Amazon, completion is more than a decade behind schedule. A toll road can't get off the ground since truckers lack backhauls when they return south. Transporting soybeans by truck still accounts for 70% of Brazil's freight expense to get to the final export destination. That means it cost about $175 per metric ton to ship Sorriso's soybeans to Shanghai, China, between 2009 and 2013, versus $78 per metric ton for beans from Davenport, Iowa. The same trip from Mitchell, S.D., cost $85 per metric ton on average. "The big problem is Brazil's road system is not sufficient to move beans from Mato Grosso to ports in the south, or to Amazon ports and barge systems headed north," said Bill Devens, managing director of HighQuest Consulting, a firm that recently finished a global study of export competitiveness for the U.S. Soybean Export Council and the Soy Transportation Coalition. Compounding the issue is that truck lines at Brazilian ports sometimes run 30 miles long. Public berths in the ports of Santos and Paranagua lack cover for soybeans and corn that are being loaded onto ships. That means when it rains, loading stops and waiting vessels are subject to demurrage charges. With South America's ocean port facilities subject to huge delays, "nobody knows whether beans exported from Brazil will arrive on time and predictability of delivery is very low," Devens said. Based on HighQuest surveys for calendar years 2009 through 2013, soybean shipments from Brazil averaged 15-day delays from their expected arrival date, Asian buyers reported. Argentina averaged delays of seven days and the U.S. averaged three-day delays. Even with widespread 2014 railroad backlogs in the U.S., Devens doubts that scenario has changed much. Punctuality is important for buyers who practice just-in-time delivery and keep inventories low. Soybean processors rely on predictable deliveries because it allows them to match purchases and sales. If a shipment is delayed, they may need to purchase soybeans at higher prices in the open market to replace the shortfall. This can lead to substantial financial losses for the processor and can also lead to reputational risk for the processor from its clients, Devens said. CRACKS IN U.S. TRANSPORT Despite current U.S. advantages, a world-class river system and railroads remain critical to keeping U.S. farm exports competitive long term. Over the past two years, the Pacific Northwest route has experienced a 15% decrease in train speeds, which has led to slower turn times for shuttle trains and capacity reduction for grains moving to the PNW, the HighQuest report said. That means turn times on shuttle trains have declined from three per month to two, meaning less soybeans and corn are available for export. Beginning with severe weather in early 2014, shippers in the Dakotas, Montana and western Canada have complained that scheduled trains are running months late. Some of those freight snarls have backed up traffic on the Mississippi, sending bids for barges soaring. Devens said the U.S. freight system is beginning to show cracks, both in timely service and in the decaying facilities along the Mississippi. "There's been more and more concern about the timeliness and predictability of freight for grains along the rail lines and river system, especially due to increased volumes of shale gas and its impact on the rail system and infrastructure and volume concerns along the river system," he said. Shippers in the Upper Midwest blame crude oil deliveries for clogging the system. By their count, North Dakota's daily 1.2 million barrel production equates to 1,714 tanker cars or 15-unit trains per day to transport it. However, back-to-back record grain crops and a rebound in all shipping categories are also straining the system, John Miller, BNSF group president for agriculture, said at a Farm Foundation seminar last week. It's no coincidence that all rail business is up, with 372,000 extra cars for containers just in the first six months of the year. Grain shipments required an extra 119,000 cars during this same period, versus another 24,000 for crude oil and 41,000 for sand. Even with demand booming for rail service, the BNSF reported record agricultural volume moving through the PNW during October and record shipments from the Dakotas, Minnesota and Montana. Small shippers remain the furthest behind -- those with fewer than 25-car lots, or even single-car deliveries -- observed DTN Analyst Mary Kennedy, who monitors transport issues on a weekly basis. "Railroads are double tracking and putting together more shuttles, so they can move grain in volume. The problem is that there are a lot of grains that don't move in 100-car units," Kennedy said. Private railroads will eventually invest to fix the backlogs, most ag industry leaders believe. Of greater concern to the soybean industry is congestion on the Midwest's river system. Once the Panama Canal expansion opens, the Soybean Transportation Coalition expects volume of grain and oilseeds transiting the Mississippi to increase 30%. However, much of the nation's barge infrastructure dates to the 1930s, leaving the system vulnerable to sudden failures. Despite the increased stress on the rail and river systems, Devens said the majority of Asian clients surveyed view the U.S. as a more reliable supplier than Argentina and Brazil. "This predictability of delivery still provides an advantage to the U.S. It is likely not going to change for the foreseeable future," Devens said. To read the full HighQuest report, go to hQuest%28September2014%29.pdf To listen to the Farm Foundation's Nov. 19 transportation webinar go to Read DTN's weekly transportation reports on the Market Matters blog. Marcia Taylor can be reached at Follow Marcia Taylor on Twitter @MarciaZTaylor (AG/CZ) Copyright 2014 DTN/The Progressive Farmer. All rights reserved.