March 3, 2015

Trucker Strike in Brazil Improved, not Completely Resolved

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

The big news last week in Brazil of course was the trucker strike that impeded the movement of grain and cargos all across the country. The strike is now waning with most drivers returning to work and the number of blockades have diminished, but it is not yet over. Last Friday there were 57 blockades and that dropped to 38 on Sunday and as of Monday morning, there were just 12 partial blockades in two states - Santa Catarina (10) and Mato Grosso (2). The number of blockades picked up during the day on Monday, but it is nothing like it was late last week. As of Monday afternoon, there were 23 roadblocks in Parana, Santa Catarina, and Rio Grande do Sul.

The truckers made their point loud and clear, but the pressure to end the strike grew tremendously at the end of last week as every sector of the Brazilian economy was feeling the impact of the work stoppage (see later article). Local, state, and the federal officials also started to take a much harder line toward the protestors at the end of last week in order to get the highways reopened. The government also made some concessions (see next article) and agreed to open discussions on the list of complaints of the truckers.

This has probably been the biggest labor movement in Brazil in maybe 15 years and the strike has had more "legs" than anyone anticipated. I think the reason why this labor action was more unified and successful was because it had a concrete focus that everyone could relate to - higher fuel prices and higher taxes on fuel at a time when freight rates were falling. All of these economic factors came together in a "perfect storm" so to speak and it caught everyone by surprise. Problems in the transportation sector had been simmering under the surface for a long time and they finally came to the surface and blew the lid off!

If you remember, there were a lot of demonstrations in Brazil last year before the World Cup, but those demonstrations were more about a general dissatisfaction with government spending. People were demonstrating against excessive spending on sports stadiums and not enough spending on education, health care, social services, etc. The demonstrators were also upset about corruption and the ineptitude of government officials. It is good to be upset about all those things, but you can demonstrate all you want, those issues are not going to be resolved by protesting in the streets.

The difference this time was that the truckers had a focus - lower fuel prices and higher freight rates. The transportation sector in Brazil has a lot of problems and below I have listed some of the main concerns of the truckers. I will be the first to admit that I don't completely understand all the issues and I am sure there are more than what I have listed, but below is sort of a primer on the subject.

  • The recent increases in the price of diesel fuel. The prices for fuel in Brazil is essentially controlled by the government and the government held down the price of imported diesel in 2014 in order to help control domestic inflation because it was a presidential election year. After Dilma was reelected, the decision was made to let the price of diesel increase back to what the market determines.
  • Increasing amount of tolls that must be paid. Many major highways in Brazil are being turned into toll roads and the tolls are increasing. The cost of the tolls in Brazil are determined by how many axils there are on the vehicle. Truckers complained that when they are empty, they suspend one axil or more, but they still must pay the toll even though the axil is suspended. As part of the negotiations last week, the government said they would no longer charge a toll for the suspended axil.
  • High taxes. The tax rate on everything in Brazil is very high including fuel and truckers complained that the high taxes are part of the reason they cannot make a profit. The ICMS tax (a circulation tax) on diesel fuel was increased from 12% to 17% earlier this year, which infuriated truckers because it came at the same time the freight rates were declining.
  • Declining freight rates. Freight rates in Brazil are determined by supply and demand, the government does not set the freight rates. By some estimates, the freight rates to haul grain from Mato Grosso to the ports in southeastern Brazil declined as much as 17% this year. The reason for the decline is apparently due to the increased number of trucks on the highways. The number of trucks increased for two reasons: first, the government offered low interest loans to purchase trucks and the program was very successful resulting in a lot of new trucks on the road. Secondly, the two major ports in Brazil, Santos and Paranagua, instituted a new scheduling system for trucks thus eliminating the long lines of trucks waiting to unload. As a result, there are more trucks available to haul grain instead of waiting in line to unload. More trucks equals to more competition and lower rates. The government does not set the freight rates, but there are ongoing discussion in Mato Grosso between the grain companies and the transportation companies to see if a minimum freight rate to haul grain is workable.
  • Truck payments. Over the last several years, the government offered low interest loans from Brazil's development bank for the purchase of trucks. The interest rates on the government loans was 5.5% compared 16% from a commercial bank. As part of the negotiations last week, the government offered to suspend these truck payments for six to twelve months as a way to compensate for higher fuel prices.
  • Poor condition of the highways. The poor condition of many of Brazil's highways is an ongoing concern for truckers. The poor condition of the highways and the lack of 4-lane roads increases the travel times and increases the wear and tear on the tucks. This is an ongoing problem that is slowly being addressed by converting the highways into toll roads in order to generate the revenue needed for highway improvements.
  • Need for increased security on the highways. Truckers have long complained about the lack of security on the highways as well as the lack of emergency and medical personnel, especially in the more remote areas. This is also being addressed long term by turning the highways into toll roads. Each of the new toll plazas are supposed to have emergency equipment and medical personnel. (Note: I think this is a great idea. Our vehicle broke down last year on a toll road in the state of the state of Sao Paulo and we had a tow truck there within 15 minutes and he towed the vehicle to a garage free of charge. We even tried to give him a tip and he would not take it!)
  • Revisions to the "Truck Driver Law". The truck driver law instituted last year reduced the number of hours a driver could work between mandatory rest periods. This law was not well thought out because there are not enough rest areas on Brazilian highways for truckers to park their rigs. As a result, they were forced to park their trucks in very unsafe locations just to adhere to the law's required rest periods. This law has since been modified to make it easier for drivers to adhere to the rules, which was welcomed news for the drivers.
  • Work rules changes for drivers. There are also other items the drivers want addressed such as higher pay for senior drivers, more opportunities for overtime pay, log book reforms, etc.

Even though the strike may be ebbing, tensions are still running very high. In the state of Rio Grande do Sul, a truck driver was killed on Saturday by a truck trying to evade the blockade.

The strike is ebbing, but there are many problems in Brazil besides dissatisfied truck drivers including: a faltering economy that will probably go into recession, a devaluated currency, rising unemployment, rising interest rates, rising inflation, a gigantic corruption scandal at Petrobras, overspending and corruption surrounding the building of sports stadiums for the World Cup, and now Brazil will host the Olympics in a little more than a year. Not a good time to be a politician in Brazil.