Cost Insurance and Freight (CIF) expensesHello Ciao,
As requested, here are the CIF figures in local currency:
2020 R$ 4,316,000 R$17.71 per tonne sold
2019 R$ 1,101,000 R$ 9.19 per tonne sold
So just to be clear CIF is the understanding that the seller (Verde) is responsible to the buyer for the Verde products in transit (covering freight, insurance and any other related delivery coss) until delivered into the buyers hands at the buyer's destination. This in contrast to FOB (Free on Board) where the buyer is responsible for the Verde products purchased once they are loaded at Verde's production plant or warehouse, and all related delivery/shipping costs and insurance.
The current Verde website indicates that product purchased online for delivery to a buyer's location in the local states (MG, GO, MA, MGS Paran and SP) is under the CIF terms and is free of charge.
The 2020 MD&A discloses the following:
"The Group has increased significantly the volume sold as CIF from 2% of total sales in 2019 to 13% in 2020."
Based on tonnes sold, this would mean 31,681 tonnes were delivered under CIF terms in 2020 and 2,396 tonnes in 2019. This produces a CIF delivered cost per tonne of:
2020 R$136.23
2019 R$495.51
These figures clearly don't make sense against a gross selling price at around R$145 per tonne and a gross margin of between R$88 and R$71. You would not agree to the sale on these terms as you would be losing money from making the sale.
I have always assumed that Verde's salesforce has focused on the local farming areas within Minas Gerais as their prime marketing targets, and delivery was free. I also recall CV taliking about a number of large customers who come to the Sao Gotardo plant with their own bulk trailers to pick up the product they have bought.
If I ignore the 2% growing to 13% CIF explanation, and simply assume all product is delivered without charge to the customer, then the R$9.19 per tonne would be the applicable metric. Looking back at the information that Janota59 (aka Verde Yoda) provided on local minimum shipping tarrifs, bulk material runs from R$2 to R$3 per Km for a full load in a 2 to 5 axle truck. Then there appears to be a loading and unloading fee of R$200 to R$300 (2 to 5 axle truck).
The math on a 5 axle rig going 200 km with a 38 tonne load would be 200km x R$3 + R$300 or R$900 in total, divided by 38 tonnes is R$23.68 per tonne, which is in the ball park for the 2020 average which spreads the cost across all tonnes sold.
Given the Product delivery freight expense category has risen from 9.19% of the selling price in 2019 to 17.7% in 2020 (on a per tonne basis) and the profit before tax is now at 12.3% of the selling price, I would suggest this is an area that would benefit from having a focused manager tasked with ensuring its optimal operation (best service at the lowest cost per tonne). Given the basis of freight tariffs in Brazil, ensuring full loads and efficient delivery routes will go a long way to minimizing a cost that could very quickly get out of hand. Not exciting work, but very necessary and quite rewarding to the appropriately mineded and compensated individual.
Also an area that deserves some detailed questions for the April 7 Q&A, in additions to the one on the list I have previously posted.
Cheers.
S.