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September 5, 2018

Freight Rate Controversy in Brazil becomes even more Complicated

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

Brazilian farmers had hoped for a quick decision by the Brazilian Supreme Court concerning the constitutionally of the new mandatory freight rates in Brazil, but it appears that a decision will not be made any time soon. It now appears likely that a decision will not come until November. In the meantime, the higher freight rates are the "law of the land."

To make it even more complicated, those freight rates may now go even higher!

According to the law, the national Land Transportation Agency (ANTT) has the authority to issue new minimum freight rates any time that the price of diesel fuel increases by more than 10%. Last Friday, August 31st, Petrobras announced a 13% increase in diesel fuel prices at the refineries from R$ 2.0316 per liter to R$2.2964 per liter. This was the first increase in diesel prices since June when they were frozen at R$ 2.0316 per liter as part of the agreement to end the truck driver strike.

ANTT has announced that it will publish new freight rates as soon as possible and that anyone not adhering to the minimum rate would be subject to fines. Even though ANTT is poised to issue new freight rates, that is not the end of the story.

Last Monday, there was a hearing in front of Brazilian Supreme Court Judge Luiz Fux concerning the constitutionally of the minimum freight rate legislation, which was passed by the Brazilian Congress and signed into law by the Brazilian President a few weeks ago. This was the third such hearing on this issue and the newspaper O Estado de S. Paulo is reporting that judicial sources indicated that a decision by the judge will not come until after the presidential elections are decided in October/November.

Judge Fux indicated that he will convene a panel of supreme court judges to review the information and come to a decision on the constitutionally of the new freight rates as quickly as possible, although he did not indicate when that decision might be forthcoming.

In the four-hour hearing were representatives of the Syndicate of Independent Cargo Transporters (Sindtac) on one side and on the other side were representatives from the National Confederation of Industries (CNI), the National Confederation of Transporters (CNT), the Agriculture and Livestock Confederation of Brazil (CNA), and the Brazilian Association of Highway Transporters (ATR Brasil), which brought the original lawsuit.

The representatives from the industrial and agricultural sectors argued that the new law impeded the free flow of commerce in the marketplace and it forced them to pay for services they did not purchase such as paying for the back-haul of the trucks. They contend that the law will increase transportation costs by at least 12% or R$ 53 billion annually. Representatives from the agricultural sector contend that the increase in their transportation costs will be 20-40% and in some cases 100% due to the long distances between producers and export facilities.

They also emphasized that the higher cost will be felt the most by Brazilian at the lowest end of the economic spectrum in the form of higher food costs and increased costs in general.

For their part, the representative of the independent trucker organization augured that the higher freight rates were needed in order for the drivers to cover their costs. They argued that going hungry should be unconstitutional, that it should be unconstitutional for one group to take advantage of another group, and that not having human dignity should be unconstitutional.

The plaintiffs asked for a quick decision so future freight contracts could be negotiated and not to wait for a new Brazilian president or a new government. In fact, they said don't wait for another week! It does not look like they will get their wish.