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April 11, 2019

Brazilian Government Supports the New Higher Freight Rates

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

In early February, the Attorney General informed the Brazilian Supreme Court that the Brazilian Government supported the constitutionally of the higher minimum freight rates established last year. The document supporting the rates was signed on February 5th, but it was only released on April 8th. The Attorney General stated that the freight rate was in proportion to the cost associated with the freight and that it preserved human dignity and the value of work.

In February, the Supreme Court Judge, Luiz Fux, made a provisional determination that the law establishing the minimum rates was valid and he authorized the National Land Transportation Agency (ANTT) to issue fines for anyone not adhering to the minimum rates. No date has been set by the Supreme Court for a final ruling on the law's constitutionally.

The transportation and the agricultural sectors argued that the law was unconstitutional because the government was interfering with the free market, which is guaranteed by the Brazilian constitution. For their part, the independent truckers argued that the market was distorted and that without the higher minimum rates they could not cover their costs and still make a sustainable wage.

Economists argued that prior to the establishment of the higher minimum rates, the freight rates were lower than what the truckers wanted because there were too many trucks on the highway chasing too few loads and that it was just a case of supply and demand.

Bottom line - it appears that the higher freight rates in Brazil are here to stay and it would take new legislation to change the rates. What Judge Fux did in early February authorizing fines for anyone not paying the minimum rates, now makes sense. He had already decided that the law establishing the new rates was valid when he indicated that it was Ok to enforce the law.