Logistical Challenges: Market Adjustments for Years

Logistical Challenges: Market Adjustments for Years

In 2022, the performance of Third-Party Logistics (3PLs), also known as Operadores Logísticos (OLs) in Brazil, was significantly affected by both domestic and international external factors. Lockdowns in China, the chaotic distribution of containers worldwide ("Container Crisis"), and the Russia-Ukraine invasion created imbalances in the global Supply Chain. 2023 came with additions to the ongoing new world.

While OLs associated with the Brazilian Association of Logistics Operators (ABOL) had reported positive indices of movement and revenue since 2021, profitability did not follow in the same proportion. The primary culprit, according to the association, was the soaring cost of diesel and other operational inputs.

Merely 30% of OLs managed to pass on the entire cost increment to their clients. Amid fluctuating diesel prices, especially up to August, renegotiating contracts with shippers became one of the sector's most significant challenges.

Operational costs soared as diesel prices peaked at an alarming 14.26%. The Federal Government applied over ten price adjustments during the first half of the year, in accordance with the PPI policy. When international crude oil prices rise, domestic fuel prices similarly increase. It's noteworthy that diesel accounts for, on average, 40% of all OL operational costs.

"The sector broke gross revenue records, but we didn't achieve record profitability because key factors such as fuel were never as costly and volatile in recent history. Only from August did we see a slight price reduction, partly due to government policies, such as state tax reductions and federal tax credits. However, these measures are temporary and circumstantial, with no guarantee they will continue into the next year, as they impact public revenue," stated Marcella Cunha, ABOL's Executive Director.

Internally, the year was marked by road closures and vital port access interruptions caused by truck driver strikes, impacting the supply of crucial products and resources. On average, OLs took 4.2 days to recover for each day of a strike, with 38% of them facing unrecoverable financial losses.

According to ABOL, the sector demonstrated resilience and played a vital "one-stop-shop" role in solving logistics challenges arising from clients in various sectors, ranging from basic industries and agribusiness to retail and e-commerce.

"We remain optimistic that the national economy will recover, and we will continue to be a significant driver of Brazil's development, generating two million jobs, both direct and indirect. From an expansion strategy perspective, OLs face a clear challenge regarding the types of niches and shippers they may wish to concentrate on, as the pandemic introduced new players and demands to the segment," Marcella pointed out. Companies that started offering logistics services for e-commerce, for the first time due to the pressure of COVID-19, must reflect on whether this type of business truly yields sustainable returns in the medium and long term.

In addition to evaluating their involvement in e-commerce, OLs will have to continue to navigate fuel price hikes until at least March. According to the Institute of Logistics and Supply Chain (ILOs), the rise in diesel prices will remain a hurdle for the sector in the first quarter of 2023, as Brazil still maintains a 10% price lag compared to other nations. In 2022, this contributed to logistics costs reaching 13.7% of the Gross Domestic Product (GDP), as indicated by the "Panorama do Transporte de Cargas no Brasil" (Cargo Transport in Brazil Overview) report by ILOs.

Amid the quest for equilibrium between target markets and fuel-related contingencies, OLs will have another 365 days to continue advocating for the creation of sector-specific regulatory framework. Following significant progress in the House of Representatives' Project Bill 3757/2020, ABOL is closer to securing industry regulation, which can streamline bureaucratic processes and attract investments.

In conclusion, the field of Logistics Operators encountered significant challenges in 2022, and 2023 but showcased resilience and adaptability. As the new year unfolds, OLs will maintain their pivotal role in the economy, generating jobs and contributing to Brazil's development. However, they must remain vigilant and flexible to address emerging challenges, including volatile fuel prices and the evolution of the e-commerce market.

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