Truck Drivers strike stops Brazil – Understand causes and effects
Fabio Ferraresi – Campinas – SP, Brazil
Starting in May 21st and lasting for 10 days, the strike has as main cause the right but clumsy initiative of Brazilian government to reduce intervention in oil prices through Petrobras, the state oil company, and allow price adjustments with international commodity prices.
After a period of years with regulated prices of Oil and gasoline, Petrobras started adjusting prices in a daily basis while the transportation/freight industry was not prepared to deal with the variation in one end.
The transportation industry in Brazil is about 50% owned by individual Truck Drivers with no bargain power and lack of sophisticated administration skills. Other 50% is owned and managed by big transportation companies, with assets and structure to adapt to changes in oil price policy, but worn due to recent years recession and margins reduction due to truck idleness, total cost of ownership increase and freight price fight with individual truck owners trying to survive, literally. It was led by the individual ones through social network mobilization and supported by the big transportation players, suffering the same pain.
The variation in oil price in Brasil is amplified with the currency devaluation and as it reached a tipping point when the freight contracts and freight price threatened transportation players to run in loss, they just stopped the Trucks with the pledge of 4 items: reduction in price oil, end of daily adjustments, reduction of tolls price for trucks running with no load and approval of a minimum freight price policy in discussion at the congress.
As the days of strike were passing by, population started running out of gasoline and ethanol for cars, affecting immediately the taxi drivers and transportation by application (as Uber and Cabify), fresh groceries were sold out at the markets, panic started affecting people. Doctors could not commute, surgeries, medical procedures and routine consulting had to be postponed. Cars and Truck OEM, receiving just in time, were the first to stop production. Then the Consumer-Packaged Goods Industry, and some others that depend heavily on inbound and outbound constant material flow. Population were at the borderline of panic but solidary to Truck Drives and going to streets to claim for change.
The public pressure made government to attend all truck drivers revindications. Diesel is about 13% less expensive than it was and frozen by 60 days. After this period it will be adjusted in a monthly basis, providing transportation players to adapt to new prices. Tolls price has been immediately reduced for trucks running with no load. Minimum price of freight has been established by Presidential arbitration, but it is depending on the deployments adjustments as it affects other important industries, as grains commodity market.
Petrobras stocks fall drastically and started to climb back in charts as Government announced all burden of the frozen price will be on government accounting, causing cuts in other economy incentives and subsidies, as tax recovery incentive for exporters (Reintegra), for instance. It is expected the impact of US$ 3 Billion in government accounts and hundreds of billions at the GDP because of the strike period.
PSR Analysis: What about the effects on power products industry?
In the short term, Cars sales and Truck sales stopped the ramp up trend. As gasoline prices were not reduced, there may be a trend of pushing sales of Diesel rather than Gasoline SUVs in this segment.
Diesel Power Generation will be slightly cheaper than it would be if the Diesel price were not reduced, but not cheaper than recent months due to Oil price increase.
Construction and Agricultural Machines are not affected directly.
The Truck OEM didn’t change perception on 2018 growth for better or worse with the strike. When we talked with major players they are not positive with the outcome, still complaining on the short-term fall and more concerned with Argentina recession, jeopardizing exports forecast, than optimist with Transportation industry recent win.
On the other hand, we talked with transportation industry players and they are strengthened and optimist with the demonstration of power and the gain of respect with the Government and Population. This situation and the business predictability improvement are favorable for investment in fleet renewal and expansion. Sales of used Truck are favorable with the optimism of individual truck owners.
PRS perspective is that the combination of TCO slight reduction (Diesel is the major component) and freight price slight increase with the minimum price policy adoption will affect positively the Truck market in the medium term. Other variables must be observed as Argentina economy performance and elections in Brazil.
About the Author: Fabio Ferraresi is based in Brazil working for Brazilian and Global Companies, senior consultant in South America Markets and Power Products, Business Development Director or Power Systems Research, partner owner of Engenho Consulting Group with passion on technology and market forecasting.