Fertilizer deals ex-seaports are increasingly taking place on 'delivered at terminal' (dat) terms in Brazil, rather than fob warehouse or cfr seaport.
This development provides advantages to buyers by reducing their exposure to variable costs associated with unloading and storage, while sellers with product in warehouse can ensure a steady flow of product.
"Our customers are making more inquiries about dat sales in order to increase the predictability of costs and reduce the risks of the operation, above all for time-sensitive charges," says a representative of a global raw materials supplier.
Demurrage fees, charged when ships take longer than the scheduled time to unload their cargo, are a key cost for Brazilian importers. Brazilian fertilizer ports are typically congested before the planting of the summer crop, between July and September, which tends to extend waiting times for berthing. Demurrage costs at the key port of Paranagua was assessed at $9/t last week by Argus but has been as high as $22/t in the last three years.
Storage in port warehouses is also usually charged in part for the time the structures are used, and buyers have found it difficult to foresee how long it will take to get their purchases out amid high freight rates between ports and the interior of the country. "The instability in the road freight market has encouraged buyers to look for DAT cargoes, whose costs are more predictable," says the manager of a shipping agency.
The availability of fertilizers for prompt delivery in dat sales is also one of the attractive factors for buyers, even though volumes are extremely limited compared to cfr purchases. "Whoever put back purchases for use in the 2018-19 harvest is looking for dat cargoes because of the urgency in delivery," says an executive at a fertilizer distributor.
"[But] dat and fob differ in liability for payment of import costs," says an executive at a fertilizer distributor in the Central-South of Brazil. "In dat sales, import costs are borne by the seller, but the Freight Surcharge for the Renewal of the Merchant Fleet (AFRMM) is paid by the buyer. In fob deals from domestic warehouses, it is the seller who bears all costs."
Foreign producers and traders also like dat sales, especially when they seek a steady outflow of product, and to maintain their presence in the Brazilian market. "Anyone bringing in partially-sold ships or who needs to manage inventories finds an answer in dat sales, even without any deals done," says the chief executive of a blender in Matopiba.
The ports of Paranagua and Antonina are the main hubs for dat deals in Brazil, because large importers have warehouses in these terminals. "It's common practice in Paranagua, especially for the supply of potash because there are a lot of warehouses there. But it is not common in the northern ports," says the chief executive.
This trend is expected to build in the coming seasons, given the benefits seen by both buyers and sellers. "We expect demand for dat cargoes to increase in 2019, as interest in this type of trade has established itself this season," says an international supplier of raw materials.
