We analyze the cost of trucking for transporting agricultural products in bulk, with a special focus on the stocks that are carried from those areas that are most distant to the ports of Rosario. To put these numbers in context, we make a comparative analysis between the domestic values of truck freight rates in relation to ocean freight rates. In addition, Argentina’s domestic trucking rate is compared with the United States and Brazil.
As usual, we analyze figures for truck freight in grains transport, paying attention to goods carried from the most remote areas of Argentina (far northwest and northeast) to the ports of the Rosario Hub. In order to put these numbers in context, we also carried out a comparative analysis between the values of domestic truck freight rates and international ocean freight costs, as well as comparing domestic truck freight rates in Argentina with those of our main competitors, the United States of America and Brazil.
1) How relevant is the trucking freight rate for grain marketing in Argentina?
We can infer from available data that total expenditure from the grains and oilseed industry in truck freights reached approximately USD 4 billion (USD 3,939 million) in 2016, or about 1% of our total GDP. It should be considered that these are mere estimates made under certain assumptions that might not fully represent reality.
We consider a total crop of 126 million tons for the 2016/17 marketing year, of which about 105 million are transported by truck, 11 million tons are carried by rail, and about 200,000 tons travel by barges.
According to our estimates, about 8.7 million tons are carried by truck from Argentina’s North region to the central area of the country, particularly to the Rosario Hub. We consider an estimated average freight cost of USD 65 per ton for such routes. The rest of the goods travel an average 320 kilometers to the port areas of Rosario, Bahía Blanca and Quequén among others represent at an estimated cost of USD 35 per ton.
This way, we conclude that the cereal and oilseed value chain could be paying a total USD 4 billion for truck freights in 2016, equivalent to 1% of Argentina’s Gross Domestic Product for the same year. GDP in current dollars is estimated to have reached USD 545 billion in 2016, as reported by the Argentina’s Ministry of Finance.
Below we compare truck freight rates in Argentina with international ocean freight rates, as well as truck freight rates from our main competitors, Brazil and the United States of America.
2) In previous reports, we stated that it was more expensive to carry grains through 1,000 kilometers from the Argentina´s north region to the port terminals of the Rosario’s hub than to send them from Rosario’s port terminals to Chinese ports, more than 20,000 km away. Is this still true?
For the third consecutive year, the answer is positive. This is reflected in Table 2. Carrying goods, for example, from Joaquín V. González in Salta to the ports of Rosario (traveling a distance of 1,150 km) by truck, costs an average USD 65 per ton. Meanwhile, the ocean freight rate from the terminals of the Rosario’s Hub to the Asian ports (for example, Shanghai in China) costs an average USD 39 per ton, thus placing international freight shipping below domestic truck freight rates.
This not only occurs for distances as significant as those existing between Salta and Rosario. It even happens for the north of the province of Santa Fe, from where the truck freight rate rises to USD 41 per ton, once again above the cost of the shipping freight rate.
We should remark, however, that although truck freight rates expressed in dollars for grains still stand at significant levels in our country, they have fallen when compared to last year. Whereas in June 2016 truck freight rates for grains dispatched to Rosario varied between USD 70 per for a location in the province of Salta and USD 45 per ton for a location at north of Santa Fe, prices have fell into the USD 65 to USD 41 per ton range.
3) How expensive is transport in Argentina when compared to other countries?
First, we compare the cost of domestic freight per ton per kilometer for a total distance of 320 kilometers. The countries taken into account were Argentina, Brazil and the United States. After this, we compare the situation of a grain-loaded truck that travels 1,150 km, taking into account Argentina and Brazil freight rates. In this scenario, there is no information available for the United States (in long distances this country uses less expensive transportation alternatives, such as trains or barges).
We start detailing the first scenario, which can be observed in the following tables. The rate is expressed in dollars per ton per kilometer for the relatively short distance of 320 kilometers (i.e. from General Deheza, Córdoba to a port terminal in Rosario, Santa Fe). The Argentine truck freight costs USD 0.110 per ton per km. In Brazil, meanwhile, the equivalent cost is a half, around USD 0.061 per ton per km, very close to US cost for an equivalent distance reaching USD 0.065 per ton per km. In other words, the Argentine trucking freight is 70% more expensive than the American is and 76% more expensive than the Brazilian one.
It is important to note that while last year rates measured in these terms were more expensive in Brazil than in the United States, the strong variations of the Real/Argentine Peso rate of exchange in the last twelve months have significantly affected its competitiveness.
Looking further, for a longer freight distance of 1,150 kilometers, local rates become even more expensive. While in Argentina this trip costs USD 0.056 per ton/km, in Brazil it falls to USD 0.034 per ton/km, a 40% difference.
4) Argentina’s truck transport current situation
As we usually refer in our notes, it is necessary to bear in mind the difficulties that the trucking transport in Argentina faces. In this sense, we can turn to studies carried out by FADEEAC (Argentine Federation of Business Entities of Freight Transport), which commissioned an analysis on the Tax Impact on Costs and Fees in Freight Transport to IAPUCO (Faculty/Academic Argentine Institute). In this study, three cost models were analyzed. Subsequently, they applied a methodology consisting of obtaining a simple average cost for all the distances and concluded that the final freight rate is composed - on average - as follows:
A) Taxes, other charges on freight and toll transport have a 37.4% share of the final freight rate.
B) Wages have a 15.8% share of total freight cost.
C) Fuel has a weight of 15.2% over the total final tariff.
D) Operating and structural costs represent 18.7% of freight cost.
E) Capital asset (vehicle) depreciation has a weight of 7% of the total cost of freight.
F) The carrier’s rent is 6% of the total.
The Rosario Board of Trade always emphasizes that the great distances of the northern regions justify the development of the railway system. However, we must not overlook the necessary inter-modality that Argentina must achieve between truck, rail and barge transport; in order to achieve an integrated, efficient and sustainable transportation system that minimizes of logistics costs. Road transport is the main key to the economic development of the Argentine Republic and plays a relevant role in the national economy.