Impact of Vertically Integrated Road Transport on Brazilian Sugar Export Logistics: A Mathematical Programming Application

Brazil currently exports 73% of the sugar produced at harvest. Approximately 75% of those exports are transported to the port of Santos and 18% to the port of Paranaguá for oversea shipment. Transportation to the two ports is mainly through the use of outsourced road transport vehicles. This study analyzes the impact of vertically integrating road transportation operations on the cost to transport raw sugar to the ports. Specifically, the study consists of an evaluation of the economic costs and benefits arising from sugar shippers using their own fleet of vehicles to transport their product to Santos and Paranaguá. Many papers have reduced logistics costs using strategies that involve a change in transport mode, most often to the railways. Although a change in modality may reduce logistics costs, vertically integrating the transport fleet into the producing company may also effectively lower costs. This article aims to (i) assess economic impacts on sugar export logistics in Brazil’s South-Central region if agro-industry shippers (mills) vertically integrated their road transport and (ii) identify the optimal regional allocation of vertically integrated logistics operations. The analysis was conducted using a linear programming model designed to identify minimum, multimodal sugar export logistics costs taking into account private and outsourced shipping fleets. The model was programmed and processed with the GAMS modeling system using a CPLEX solver. The results indicate: (i) the competitive economic transportation radius using a mill’s private trucking fleet is 420 km or less, (ii) the best strategy to minimize road transportation export logistics costs in Brazil’s South-Central region was obtained by using a private fleet 46.30% of the time, which, if all road shipping services had been outsourced, would reduce road transport costs 5.01%, and (iii) there are a number of sugar-producing meso-regions in which the use of vertically integrated transportation operations reduced logistics costs by over 10%, even if all road transportation services were vertically integrated. The results are expected to be used to promote sugar transportation through the optimized use of private shipping fleets and stimulate further discussion of the advantages and disadvantages of vertically integrated product transport operations.