Approximately 60% of corn and soybeans in Brazil is transported by truck from origin to destination. As a result, truck freight rates play a major role in the price the farmer ultimately receives, especially for farmers over 1000 miles from port. The Minimum Freight Rate Table (MFRT) allows carriers to charge from 50 to 300% more per trip. The rate is based on the round trip, versus the carrier being responsible for a backhaul instead of a deadhead (no freight return trip). Lower value products have a much larger percentage increase in total product cost at port. Transportation is already a major issue when shipping soybeans over 1000 miles to port.
For the rest of the world, the return to the farmer determines how many new acres are added, which impacts soybean prices everywhere. For example, if a higher soybean price is required to encourage the Brazilians to plant more acreage that is over 1000 miles from port, the U.S. farmer stands to make more money with a higher MFRT. Obviously, with the Brazilian corn and soybean crop size continually increasing, the importance of the MFRT is also increasing.
For historical perspective, in May 2018, Brazilian truckers held a strike that severely hurt Brazilian manufacturing supply chains. To end the strike, the MFRT was agreed as a base for truck rates. Predictively, the pushback was/is extremely intense, but in early February, the Attorney General informed the Brazilian Supreme Court that the Brazilian government supported the constitutionality of the higher minimum freight rate established in 2018. 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, Brazilian Supreme Court Judge Luiz Fux made a provisional determination that the law establishing the minimum rate was valid and he authorized the National Land Transportation Agency (ANTT) to issue fines for anyone not adhering to the minimum rates.
When the MFRT was first established, it was confusing. The original mandatory MFRT included five different categories of cargo with different minimums. With the categories expanded to ten and now accounting for variables such as type of cargo, the size of the truck, and the distance traveled, the MFRT is more in line with how trucking freight rates are quoted.
One of the most contentious items in determining the minimum freight rate was the fact that it must provide a “livable just wage” for the truck driver. Every six months, the National Land Transportation Agency (ANTT) analyses the MFRT and makes adjustments based on driver profit, types of cargos, number of axles, and distance traveled. Driver profit involves all the expenses of operating a truck. ANTT conducted a series of public hearings that ended on December 8 and they will issue a new minimum freight rate on January 20 that will be valid for six months.
The truck drivers want a higher MFRT but believe the new system is more equitable. The new belief in the MFRT means that Brazilian shippers might avoid the almost annual truck strike. On the flip side, at some point the weaker currency will result in higher expenses that will require the truck drivers needing more money to maintain a “livable just wage,” which will drive speculators to assume more inflation and devalue the currency. Once that cycle starts, the built-in minimum wage concept becomes self-defeating.
