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January 23, 2020

Brazilian Supreme Court to decide Fate of Freight Rates on Feb 19th

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

The Brazilian National Land Transportation Agency (ANTT) last week increased the minimum freight rates in Brazil by 11% to 15% depending on the type of cargos. The new rates took effect on January 20th.

Mandatory minimum freight rates were established in 2018 after a nationwide strike by independent truck drivers that blocked highways and quickly led to shortages of fuel, food, medicines, etc. in all of Brazil. The minimum rates are adjusted every six months based on a number of criteria including fuel prices, inflation, and the cost of operations for independent drivers.

Purchasers of freight immediately filed lawsuits as soon as the law took effect claiming it was unconstitutional. The Brazilian Supreme Court has held several hearing concerning the matter and they are slated to finally give their decision concerning the constitutionally of the law on February 19th. This is a very contentious issue in Brazil and prior deadlines for a decision were put off.

The president of the Brazilian Association of Vegetable Oil Industries (Abiove) stated that there was no justification for the recent increase in rates as far as fuel prices or tolls are concerned and it appears the rates were increased only because the drivers demanded the increases. In fact, associations representing the truck drivers are now demanding an additional increase of 15% to 18% the next time the rates are adjusted in July.

The Brazilian National Confederation of Industries (CNI), contends that the mandatory minimum violates the principal of free markets stipulated in the constitution and that it increases prices for consumers, increases inflation, and distorts the principal of free markets. They contend that it forces companies to pay for something they do not want to purchase such as paying for the back haul of a truck including the driver's salary and his expenses for lodging and food.

Abiove, CNI, and other purchasers of freight want the law declared unconstitutional overturned, but short of that, they are exploring ways to address this issue through future legislation.