Brazil’s freight pricing crisis, explained

When independent Brazilian truckers staged a 10-day strike late in May, the whole country went on a shutdown mode. As two-thirds of cargo transportation in Brazil is made through roadways, several regions experienced fuel and food shortages, hospitals postponed surgeries, millions of animals died of hunger as their feed never reached its destination. When the truckers decided to go back to work, after the government met their demands, it seemed that things would return to normal.

But, as happens more often than not in Brazil these days, the crisis refuses to be resolved.

The government promised to publish a reference table of minimum freight prices, in response to truckers’ complaints that their expenses were rising, but their pay had stagnated. On May 30, the administration kept its word and published the price table, which infuriated agricultural producers (including Minister of Agriculture and soybean tycoon Blairo Maggi), who saw their expenses go up. On June 7, the government backpedaled and published a second table, in an attempt to appease farmers.

This second freight price table was in force for only four hours, as the government took it down after truckers threatened another strike. Now, the matter is in the hands of the Supreme Court.

Cade, Brazil’s antitrust watchdog, issued a hard opinion on the freight pricing table on Monday. It said that controlling prices would “effectively create cartels” in the transportation business, “standardizing the prices of agents who should be competing in the market against each other,” thus discouraging competitors to invest in more efficient services. Read the full report.

What does the freight pricing table establish?

The reference table sets minimum prices per kilometer for freights, depending on the distance and type of cargo. It also grants the truckers’ wish to force clients to pay for the truck’s return from the destination – when it is empty and not transporting anything.

Agricultural lobbies took special offense with the latter topic, stating that it would bump prices by up to 150 percent. Even José Fonseca Lopes, president of an association representing truckers, believes that this point makes the freight pricing table impossible to be enforced. “It’s like a taxi driver. When he takes someone on a ride, he risks returning with an empty cab.”

Impacts of the freight pricing table

According to Scot Consultoria, a consultancy firm specialized in agri-business, the controlled prices have already had an impact on goods that should have been exported. In May, corn shipments had a significant reduction: Brazil is shipping just half of its daily average in April – and 80 percent less than it did in May 2017.

Worried about the long-lasting deadlock around freight pricing, many exporters have held themselves down to avoid unexpected expenses. Soybean exports, according to data from the Foreign Trade Secretariat, amounted to only 2.46 million tons over the first week of June – against 9.19 million tons one year ago.

Is the freight pricing table legal in the first place?

The Brazilian Constitution allows the government to control prices only in specific situations. Normally, in sectors in which private entities operate through public concessions – such as telecommunications, railroad operation, or electricity production and distribution. Some legal experts, however, have claimed that the government’s decision to publish a minimum for freight prices has no legal backing.

So far, over 40 lawsuits have been filed against the measure, which led the Supreme Court to take the matter into its own hands. Justice Luiz Fux has suspended all legal cases until he has reached a verdict about whether or not the reference table is constitutional – which would shape how each lawsuit is to be ruled.

Fux has set up a meeting for June 20 with the Solicitor General, the Minister of Transportations, the Prosecutor General, the National Road Transportation Association, and representatives of trucker associations and agricultural producers.

So far, technically, the first table published on May 30 is in force – but legal uncertainties have led many companies to completely disregard the document.