Brazil: costs and logistics stand as major problems for exporters

Rising fuel prices and the disruption of global transportation chains have pushed the cost of international freight to the top of the problems faced by Brazilian exporters, according to one of the latest surveys by the National Confederation of Industry (CNI). In addition to logistics costs, exporters are impacted by the high volatility of the dollar, the rise of trade barriers, and the so-called “Brazil cost.”

“The purpose of the research was to get a glimpse of the points of complaint of Brazilian exporters as a whole,” said the Trade Policy manager at CNI, Constanza Negri Biasutti. “We believe it could become Brazil’s main guide for formulating policy strategies from now on.”

The survey, entitled “Challenges to the Competitiveness of Brazilian Exports,” gathered answers from almost 600 exporters who pinpointed 42 different obstacles.

Logistics had already been identified as a critical point in the previous most recent edition of the survey, dated 2018, but the problem has worsened a lot with the pandemic, said the executive president of the Brazilian Association of Machinery and Equipment Industry (Abimaq), José Velloso.

Despite the end of the most acute phase of the pandemic, maritime routes are still disorganized and prone to the lack of containers, said the director of Markets at the Brazilian Association of Animal Protein (ABPA), Luis Rua.

Before the pandemic, 80% of the ships that arrived at Brazilian ports did so in the estimated time, he said. Today, only 30% manage to do so. Such a scenario impacts land logistics and documentation flow, culminating in increased costs. In addition, shipment delays may also result in the collection of overstay fees.

The costs of international freight and the lack of containers were also said to be an obstacle by the Abihpec exporters association, a group that represents businesses in the cosmetics and personal hygiene sector. The CNI study focused on the results reported by this industry, which converged with the national picture.

The Ministry of Economy reported that the costs of international shipping coped by exporters rose from US$1,500 in May 2020 to a peak of US$11,100 in September 2021. In the first week of this month, the costs were at US$ 3.7 thousand. The values refer to the transport of a 40-foot container in the international benchmark Freights Baltic Index (FBX).

The peak period can be explained by increased demand after restrictive measures on cargo movement, high fuel prices, and reduced transportation available. On the other hand, the recent drops are related to lower fuel prices and lower global demand for goods.

Four out of the survey’s top five issues cited by Brazilian exporters are related to logistics costs. The second most frequently mentioned issue is the high port fees.

The latter has to do with the collection of scanning fees levied on cargo at ports, informed Negri. Since 2016, the CNI has denounced the illegality and abusive nature of this fee at the National Waterway Transportation Agency (Antaq). According to the entity, scanning fees should be exclusive of the Federal Revenue Service. There is, however, double taxation.

The cost of domestic transport is the third most pointed problem in the survey. Velloso believes that infrastructure concessions, which gained momentum after Michel Temer’s government, are heading in the right direction. However, it will still take time before domestic transport problems cease to be a factor in the loss of competitiveness of Brazilian products.

“These obstacles being recognized as the gravest in Brazil shed light on the need for the country to tackle this logistics and foreign trade agenda,” said Negri.

Making improvements on these ends would support mitigating other problems identified in the survey, such as the time wasted on customs clearance, which was shortened with the implementation of the Single Foreign Trade Portal. In 2018, 39.56% recognized customs procedures and bureaucracy as the main barriers to foreign trade. Now, only 21.9% said so.

The main exporter of products from the manufacturing industry, the machinery and equipment sector, is mainly affected by the so-called “Brazil cost,” stated Velloso. For example, imported inputs are about 20% to 30% more expensive in Brazil than in other countries due to customs clearance, Import Tax, and exchange costs.

Numerous complex tax rules interpreted differently by government officials are also at the receiving end of complaints from exporters. According to Velloso, Brazilian products are exported with approximately 7% of their value corresponding to taxes that were not eliminated along the production chain but could have been.

For the executive, the three most important measures that the next administration should take are 1) approving a tax reform, more specifically, the proposed amendment to the Constitution 110, currently pending approval by the Federal Senate, and 2) the restoration of insurance instruments and export credit.

According to the Economy Ministry, steps have been taken to mitigate the effects of rising commodity prices and transportation costs. According to the article, nearly 90% of the products’ import tax rates have been reduced by 20%. In addition, the AFRMM rate levied on imported goods by sea was decreased from 25% to 8%. Another initiative was removing wharfage costs from the basis used in calculating import taxes.

Increasingly present in the national production chain, the import of services was included in the drawback tax benefit regime. Thus, the collection of taxes will be suspended for the production of items destined for the foreign market.

The Ministry also mentioned that the Single Foreign Trade Portal helped reduce the average time spent by a company to import from 17 to nine days. Currently, this mechanism can be used in about 30% of external purchases.

The Portal also reduced the export clearance time from 13 to less than five days.

Source: Valor Econômico

To read the full original article, please go to: https://valor.globo.com/brasil/noticia/2022/10/17/logistica-e-custos-sao-maiores-problemas-para-exportadores.ghtml

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