May 31, 2018

Brazilian Organizations Criticize Increased Freight Rates

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

As part of the agreement to end the 9-day truck driver strike in Brazil, the government agreed to establish a floor for the minimal freight rates in Brazil and to establish a schedule of freight rates. A number of Brazilian organizations have come out in opposition to the proposal which they feel is unconstitutional. They view it as arbitrary price controls established by the government.

Two groups opposed to this measure are the Brazilian Association of Vegetable Oil Processing Industries (Abiove) and the National Association of Grain Exporters (Anec). Both of these organizations feel the establishment of a minimum freight rate and a schedule of freight rates violates the idea of a free market and the concept of supply and demand.

Members of both of these organizations are highly dependent on truck transport to move their products to market. They maintain that low freight rates are the result of an excess supply of trucks in the market. The higher freight rates will result in higher consumer prices and lower prices paid to farmers when they sell their products. They feel truck drivers would be better served by reducing the tax burden on the trucking industry instead of increasing freight rates.

Establishing a minimum rate for truck freight would also result in increased rates changed by railroads and barging companies to move grain. If truckers can charge pre-determined higher rates, so too could the other modes of transportation, thus distorting the market.

Other organizations have also joined in on the criticism including: the Council of Coffee Exporters of Brazil (Cecafe), the National Confederation of Industry (CNI), and the Brazilian Rural Society (SRB). The general consensus of these organizations is that artificial price controls have never been successful in Brazil and they are no substitution to free negotiations in the marketplace.

They all agree that arbitrary price controls are the least effective means of solving the problem of low margins for truck drivers. They feel reducing the tax burden on the trucking industry, eliminating some of the toll charges on Brazil's highways, and allowing free negotiations on freight rates is a much more efficient way to go.