Wake Up and Smell the Coffee - Global Trade Magazine
  February 21st, 2017 | Written by

Wake Up and Smell the Coffee

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  • US buying from Brazil despite a strengthening real.
  • Brazilian exporters are lowering the value of key commodities.
  • Increased purchasing power of Brazil’s consumers is seen in inbound container flows from the US.

Measured in tonnage, Brazil moved up a spot last year to become the second biggest exporter of goods transported by container vessel into the United States. Annual container flows from Brazil to the US increased by 4.3 percent to 6.3 million tons, leapfrogging Germany in the process. However, Brazil still accounts for a little over one-tenth of the tonnage exported from China to the US.

It is critical to examine the volume of US container imports rather than value as Brazil slips to the 14th spot when measuring its outbound trade in US dollars. The value of Brazil exports to the US decreased by 4.8 percent in 2016 to a little under $10 billion as shipments of more high-value, lower-volume goods plummeted. For example, Brazilian coffee exports, which account for 11 percent of the bilateral trade by value but only six percent of the tonnage, fell by 20 percent last year to $1.1 billion.

Monthly container flows between the two regions have shown year-on-year growth in 23 of the past 24 months despite the fact the Brazilian real is one of the few currencies around the world to strengthen against the US dollar. Even with the country in recession foreign investors are still attracted to Brazil by its sheer size and high interest rates of six to seven percent. That contributed to the average monthly spot exchange between the two currencies, pushing the real up by around five percent on the dollar in 2016. While demand for Brazilian goods might have withstood a stronger real, Brazilian exporters have still suffered a cost by having to cheapen their goods.

The increased purchasing power of Brazil’s consumers from the stronger real is starting to be seen in the inbound container flows from the US. The depth of the monthly demand deficits trended shallower through 2016 before returning to positive territory for the first time in 18 months in November, the latest data we had available at the time of writing. With ongoing macro-economic difficulties still to overcome, it is clearly too soon to call a recovery in the container market from US to ECSA but the trend does suggest that the market has bottomed out and that repeated double-digit declines will be a thing of the past in 2017.

This relatively small trade has provided consistent volumes to the few operators that serve it. The northbound leg appears to have robust underlying demand that should enable further growth in 2017, while the southbound leg will have fewer headwinds to contend with.