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May 6, 2019

Brazil Pursues Rigorous Enforcement of Minimum Freight Rates

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

There has been a renewed interest in the minimum freight rates in Brazil after the independent truck drivers in Brazil threatened a new nationwide strike several weeks ago. The drivers complained that the freight rates were not keeping pace with increases in diesel prices and that the government did not have a rigorous enforcement mechanism in place to insure everyone paid the minimum rates.

The National Land Transportation Agency (ANTT) is responsible for setting the freight rates and enforcing them. Two weeks ago, ANTT announced a 4% increase in the freight rates in order to compensate the drivers for a more than 10% increase in diesel prices since the start of the year. They also announced a renewed effort to insure the minimum rates were being enforced.

ANTT followed through on that commitment by announcing last week that between April 3rd and April 25th, they conducted 1,312 enforcement checks and that they issued 1,7741 infractions at 31 locations throughout Brazil due to companies not paying the minimum rate. The fines associated with each infraction can vary from R$ 550 to R$ 10,500 (approximately $145 to $2,750) depending on the distance traveled, the type of truck, and other factors.

They also announced last week that drivers would no longer be fined for accepting cargos that were below the minimum freight rate. Under the original guidelines, there was a disincentive for drivers to report infractions because they too could be fined for accepting cargos below the minimum rates. Under the new guidelines issued by ANTT, no driver can now be fined for accepting cargo less than the minimum rate.

Needless to say, the people who pay the freight are very upset about the new higher rates. The National Association of Cereal Exporters in Brazil (Anec) continues to feel that the mandatory minimum freight rates are inefficient and unconstitutional and that they pose a threat to Brazil's commodity exports. Anec contends that international grain prices are set months in advance and the government's interference in the marketplace for freight makes it nearly impossible to execute forward contracts. Anec members indicate they have lost billions of dollars with the higher freight rates and the continued upward adjustment in the cost of freight makes the situation even worse.

Ultimately, it will be Brazilian farmers who end up paying the higher freight rates. If exporters feel they are uncompetitive in the world market, they will be forced to lower the prices being offered to Brazilian farmers.