INSIGHT: Brazil’s chemicals logistics worries on the rise as no end in sight for customs workers strike

SAO PAULO (ICIS)–Brazilian chemicals players are increasingly concerned about shooting costs in logistics as an already two-month long strike by customs workers is set to continue.

– Strikes started in mid-2024 bear no fruit – unions double down
– Government may need to act more forcefully to ease flows of special materials
– Implementation of new simplified import system could derail if strike prolongs

Several rounds of talks between the union representing tax auditors and the government have so far failed to bear fruit.

Some chemicals players are already facing trouble with perishable goods or materials which need quick delivery – pharmaceuticals, food products, and the like – and are openly demanding a tougher approach from the government.

The trade group Brazilian Association of Distributors of Chemical and Petrochemical Products (Associquim) said to ICIS the long-running dispute will need to differentiate between those perishable goods and the rest, arguing it will fall on the government to be more forceful about the delivery of such goods.

For the moment, chemicals players on the plastics transformer side, represented by trade group Abiplast, or production players represented by Abiquim, have not reported significant trouble in their trade.

However, Abiquim warned that a prolonged strike could negatively hit the current implementation phase of a new import system which was due to simplify the process and save logistics costs for companies.

For the moment, no side is backing down. President Luiz Inacio Lula da Silva’s cabinet is aiming to tighten the state’s belt as investors’ worries about the fiscal deficit sent Brazilians assets sharply down by the end of 2024, a situation which is now normalizing.

The current strike is just the last industrial action in a long list which started in mid-2024 with smaller strikes. As well as salary demands, the trade union is also asking for better working conditions, including the maintenance and upgrades at the many ageing customs points across Brazil’s wide geography.

GOVERNMENT INTERVENTION
In an interview with ICIS on Friday, the president of Associquim said the strike is already hitting some of the trade group’s member companies.

Rubens Medrano said the situation is becoming as critical as likely to require government-mandated work shifts for clearance special goods such as those going into the food or pharmaceutical sectors.

“We have chemical products that have to have a special place for storage, for instance, and if too much accumulates in those special storage places, then it will filter down to the end-user, and create a safety problem. It would be good if the government used the inspectors’ criteria to release these materials, as they do with essential products,” said Medrano.

“Because, after all, these products have an expiration date and require special handling and storage. Our request to the cabinet is that this takes priority, immediately. We understand the strike, they have the right to demand their rights, but we also ask that these particularities are taking into consideration and release critical chemicals.”

This cabinet intervention is likely to be needed as the effects of another, larger action by workers filters down to all users.

As talks have so far failed to deliver an agreement, the union doubled down on 12 February when it started a two-week “zero clearance period” in which practically no physical inspection is carried out.

In fact, earlier in February logistics company Unishipping said the “zero clearance period” may end up causing the need for judicial intervention in all the cases where special materials are involved.

“Brazil’s Superior Courts have ruled that industrial action cannot entirely paralyze essential public services (as perishable cargoes). Judicial intervention may be necessary to ensure the continuity of critical operations on a case-by-case basis,” said Unishipping in a letter to its customers seen by ICIS.

In his usually optimistic and conciliatory tone, Medrano said judicial intervention should “be the last resort” to resolve the cases of special materials, adding in his plea for “an understanding among the inspectors” about the key costs associated with delays in deliveries of special materials.

For non-special products, delays have been reported but nothing that for the moment has jeopardized production in end manufacturing customers.

What is clearly by now, said Medrano, is that it is causing an increased costs for anyone in the import or export market.

“Th strike is disrupting the entire logistics about imports, since imports are planned in the long term. But this is not only a logistics problem as we must reorganize them, but also a cost problem: goods stuck in ports means higher costs for the importer,” concluded Medrano.

Medrano’s plea echoed those of other manufacturing players, not least transport players who after two months of continued industrial actions are the ones most feeling the pinch.

Earlier this week, the trade group Union of Cargo Transport Companies of Sao Paulo State (SETCESP), Brazil’s most industrious, said the strike was causing “significant” disruption.

Sao Paulo state is home to the Port of Santos, Latin America’s largest, a key exit and entry point for some chemicals and a wide range of industrial goods, as well as of the fertilizers that are paramount to feed Brazil’s powerful agricultural sector.

NEW IMPORT SYSTEM IMPLEMENTATION, CHALLENGED
The major industrial action among customs workers was called at a time when their jobs are more vital than ever as Brazil implements a new import system which was expected to greatly cut delivery times and save costs for companies.

The so-called New Import Process on the Single Foreign Trade Portal was approved by President Luiz Inacio Lula da Silva’s cabinet in 2023, with implementation in three phases, with the third and most critical due to take place in the second half of 2025.

While July is still a long way away, the smaller strikes in mid-2024 and the current all-out stoppage by workers have made some players fear the work conflict may not be resolved by then, when customs workers will be more needed than ever if the New Import Process is to be implemented in form and time.

In an analysis published in November by the trade group representing the petrochemicals-intensive machinery and equipment sector, Abimaq, the savings for companies under the new system, when fully implemented, was estimated at Brazilian reais (R) 40 billion ($6.8 billion) annually.

The savings would come from nearly halving delivery times under the new and more electronic-based system, with the current average of nine days potentially falling to five days.

In a written response to ICIS this week, Abiquim said its member companies have so far been spared from a direct hit to their logistics but showed worries that any strike extension going forward could greatly change the picture.

“At the moment, we still don’t have data on the number of records of time-consuming import operations, or volumes in tonnes, that could support a more quantitative assessment,” said a spokesperson for the trade group.

“What we currently have is more a qualitative concern that the strike extension could impact the implementation of the New Import Process on the Single Foreign Trade Portal, since associated companies are already preparing to process the records in the new model.”

Abiplast, the trade group representing plastic transformers, a highly import-dependant sector, said its member companies have so far only reported anecdotal evidence of disruption in non-core business operations, such as the delivery of samples for trade fairs and the like.

“However, we may be facing more trouble soon [if the strike extends further]. For now, we have had trouble sending samples for trade fairs or samples for future sales, for example, so that the products can be tested abroad – most of those sending samples have reported a lot of problems to do so,” said Roriz in note sent to ICIS.

Finally, a source at Brazil’s chemicals distributor Activas said the company has not experienced any significant trouble when importing product.

Front page picture: The Port of Santos in Sao Paulo state
Picture source: Santos Port Authority 

Insight by Jonathan Lopez