Industry

Minimum Freight Rates Increasing 11% to 15%

One of the most provocative items in determining the minimum freight rate (MFRT) was the fact that it must provide a “livable just wage” for the truck driver. Every six months, the National Land Transportation Agency (ANTT) analyzes the MFRT and adjusts freight rates based on driver profit, types of cargos, number of axles, and distance traveled. Driver profit involves all the expenses of operating a truck, including backhauls for trucks that are prohibited from transporting different products such as tankers transporting fuel.

The Brazilian National Land Transportation Agency (ANTT) new minimum freight rates are 11 to 15% higher depending on the types of cargo being transported. The rates will be in effect for the next six months. Wallace Landim, the president of the Brazilian Association of Motor Vehicle Operators (Abrava) does not believe the increase covers the added costs of operating a truck and is already lobbying for an additional 15% to 18% increase in freight rates in July.  

Although the truck drivers want a higher MFRT, the belief that the new system is more equitable might avoid the nearly annual truck strike. On the flip side, the weaker currency does increase the cost of imports, which will result in higher expenses that will require the truck drivers needing more money to maintain a “livable just wage.” If speculators expect a 15% increase every six months in truck rates, this assumption will drive speculators to assume more inflation and devalue the currency. Once that cycle starts, the built-in minimum wage concept becomes self-defeating.

The truckers also want the tax on Circulation of Goods and Services (ICMS) lowered.  ICMS is the main state tax and is due on operations involving circulation of goods (including manufacturing, marketing, and imports) and on interstate and inter-municipal transport and communications services. ICMS is non-cumulative, and thus tax due may be offset by credits arising from the purchase of raw materials, intermediary products, and packaging materials. which allows the taxpayer to record input tax credits from the ICMS paid on the purchase of raw materials, intermediary products, packaging materials. Tax credits for goods destined to become fixed assets may be accepted, subject to certain restrictions. Intrastate rates normally vary from 7% to 25%. Rates applied to interstate commerce are 7% or 12%, depending on the destination. Export goods are exempted from ICMS.

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 a farmer who is over 1,000 miles from port. Last year, the decline in the value of the currency was greater than the increase in freight costs, which led to lower truck freight costs on a dollar basis but increases costs on a real basis.  The U.S. Department of Agriculture (USDA) reported that truck cost from Mato Grosso is approximately $88 per metric ton or $2.40 per bushel of soybeans in November 2019.)  A 15% increase in MFRT equals a $0.36 per bushel increase in transporting Brazilian soybeans to market. As stated previously, the truck drivers are already expecting a 15% MFRT increase in July.

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 1,000 miles from port, the U.S. farmer stands to make more money with a higher MFRT. With the Brazilian corn and soybean crop size continually increasing, the importance of the MFRT is also increasing.

Alan Barrett
Alan Barrett

Director of Consulting

Doane Advisory Services

Alan Barrett is Doane’s project consultant and accomplished commodity economist with more than 25 years of experience in futures and cash markets with a focus on cotton, commodity projects, non-traditional agricultural products, transportation and supply chain studies. Alan spent six years as a commodity futures broker. His expertise encompasses feasibility studies of oilseed crushing plants (soybean canola, and cottonseed), grain elevators, export elevators, shuttle elevators, grain container operations, flourmills and other processing facilities. Alan also has conducted transportation supply chain studies for grains, oilseeds, fertilizer, coal, natural gas, crude oil, and petroleum products. Alan has considerable experience in non-traditional agricultural products such as coal, coke, natural gas, chemicals, hydraulic fracturing fluid, hydraulic fracturing proppants, glycerin, fertilizer, micronutrients, salt, limestone, cement, iron ore, pig iron, and steel, especially feed ingredients. Mr. Barrett has a BS and MS in Agricultural Economics from the University of Tennessee.