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December 10, 2018

Fines Suspended for not paying Minimum Freight Rates in Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazilian farmers got a dose of holiday cheer last Friday when the Brazilian Supreme Court Justice Luiz Fux suspended the collection of fines for companies that did not pay the mandatory minimum freight rate. As soon as the new mandatory minimum freight rates were announced as part of the agreement between the government and independent truckers in order to end the nationwide truck driver strike last May, numerous court challenges were filed challenging the constitutionally of the mandatory rates.

The Supreme Court held numerous hearing on the constitutionally of the rates, but the full court has not yet ruled on the issue. In his announcement, Justice Fux left the mandatory minimum rates in place, but he suspended the National Land Transportation Agency's (ANTT) authority to issue fines for violators. Without the threat of fines, there is no incentive for companies to pay the mandatory minimum rates.

The Brazilian Association of Truck Drivers (Abcam) released a statement that they were "perplexed" about the judge's decision and they would not rule out the possibility of another nationwide strike. Abcam officials stated that they are considering their options, but they are in a much weakened position today compared to last May.

The main emphasis of their strike in May was to lower fuel prices, which the government agreed to. Since then, international oil prices have declined approximately 30% and diesel prices in Brazil have declined as well. So, calling for a new strike due to the fuel prices isn't going to work. At the time of the strike last May, the truckers demand for higher freight rates went "under the radar" and ended up being somewhat of a surprise because everyone was focused on the soaring fuel prices.

The current truck driver's position is also weakened due to the change in administrations. Outgoing President Temer was in a very weak position last May and he basically gave the drivers everything they wanted. President-elect Bolsonaro will take office on January 1st as a "law and order" president making him less likely to yield to any demands from the truck drivers. Additionally, the agricultural community were some of his biggest supporters and they have been the ones most impacted by the higher freight rates.

A spokesperson for Bolsonaro indicated that they will address this issue within the first month of taking office. He indicated that they will work with all the stakeholders to develop a new and fairer method of determining future freight rates.