An unprecedented study analyzes the impact the measures taken by Temer to contain a truck drivers’ strike in 2018 had on the revenue of the sector
In an unprecedented study, researchers Cristiano Oliveira and Rafael Pereira analyzed the impact the measures taken by Temer’s government to contain the movement in 2018 had on the revenue of truck drivers and owners.
Through regulating agencies and state-owned companies, there was a series of actions to cater to the claim agenda of the movement. Among them, the price freeze of diesel, and a R$ 0.46 reduction. Traffic infraction fines received amnesty, an exemption of the charging of tolls for air suspended axle was implemented, freight prices were fixed and a requirement to pay for the return freight was enforced. According to the study, these last measures, which were implemented initially by a Provisional Measure, MP 832, later replaced by law 13,703/2018, are the ones who have the biggest potential of impacting the economy.
Despite resolution 5,820/2018 of the National Land Transportation Agency (ANTT) having increased the minimum freight price to a threshold on average 30 percent superior to what had been practiced in the market previously, results of the study indicate that, while owners of transportation companies were benefited, autonomous truck drivers were harmed by the measures. The income of the former increased in up to 28 percent, while it is estimated that the income of autonomous truck drivers, on the other hand, dropped by 20 percent.
Among the possible explanations pointed out by researchers is the biggest bargaining power of transportation companies with producers. Therefore, they are more capable of imposing the use of minimum freight price control. In parallel to that, autonomous drivers are not able to receive these fixed prices, since they “negotiate in an atomized way”, and thus have less negotiation capability.
Even though drivers might even be able to receive according to the prices fixed by this freight control, they don’t have a more elastic demand that the transportation company. This means that they are more affected by the drop in the demanded quantity, something which happened as a consequence of the abrupt price increase. Lastly, drivers probably are paid more for each freight, but transport fewer freights, reducing their total revenue.
Interviewed by Gazeta do Povo, Cristiano Oliveira, one of the authors of the study and a doctor in Economy and professor at the Federal University of Rio Grande, was emphatic: “This whole movement is covering up a great lockout (employer strike, a practice which is forbidden in Brazil) with the sole intent of obtaining rent-seeking. Autonomous drivers are unknowingly harming themselves with the freight price fix above the market equilibrium.”
Just like the famous line in TV series “Carga Pesada”, one might say that the entire 2018 truck drivers’ movement “was a trap, Bino”.
Bolsonaro’s interference made Petrobras stocks drop
After President of the Republic Jair Bolsonaro prevented the increase of diesel prices predicted for Friday (12), Petrobras stocks dropped by more than 9 percent, and the company lost R$ 32.4 billion in market value. He ordered the president of the state-owned company, Roberto Castello Branco, to revoke the readjustment, hours after the measure was announced.
The political interference which led to the retreat had as its justification the need to avoid a new truck drivers’ strike, whose consequences would tend to be much negative to the country’s growth agenda. The 2018 strike, which began on May 21 and lasted until May 31, halted the production and distribution of goods and the providing of services. According to data from IBGE, there was an 11.2 percent reduction in industrial production in a single month. It was a period characterized by a shortage of basic products, like fuel.
Rent-seeking is the name given to the attempt made by private (interest) groups to persuade authorities to grant them legal privileges. If successful, such benefits may result in transferring a significant income of the population for these groups.
In this sense, truck drivers have shown an enormous rent-seeking power, which is commonly translated as “search for income”. However, one defining trait of this type of movement is its continuity: even though diesel prices were eventually not raised, Wallace Landim, who identifies himself as a truck driver leader, said the group is preparing new demands for the government.
Besides, the decision taken by Bolsonaro’s government made it clear that the company is exposed to political influences, establishing the fear among investors that interventions in prices might become the rule, and not the exception.
With the price freeze and the subsequent loss of revenue, diesel will now cost daily R$ 14 million to Petrobras, considering the 2018 average sales volume. It means saying that, the more the company sells this fuel, the more loss it will have. As Sérgio Araújo, president of the Brazilian Association of Fuel Importers, says: “The practice of predatory prices kills the competitive market, reinforces the monopoly, and harms society.”
Worst than Petrolão
During the Dilma administration, the company subsidized fuel prices to cover up the inflationary escalade undergone in the macroeconomic scenario, accustoming customers to cheaper gas and diesel. After 2016, however, with the Recovery Plan of Pedro Parente – who was president of Petrobras until his resignation after the truck drivers’ movement – it was stipulated that prices would be dictated by the oil barrel price in the international market, in dollars.
Parente’s strategy worked as a shield against the political interference the state-owned company had been suffering or years, encouraging stockholders to once again trust the company and invest in it. This happened because the containment of prices by the Workers’ Party administration made the company accumulate so many losses that Petrolão – the corruption scheme discovered by Operation Car Wash – became a mere supporting actor in the drama that portrays Petrobras’ tragedy.
Publicly, the corporation itself admitted in their balance sheet that the loss caused by corruption was R$ 6.4 billion. Some experts, however, estimate that the damages may reach R$ 42 billion. In any case, the hole motivated by fuel price control exceeded R$ 55 billion until 2014. Therefore, as bad as corruption was, the containment of prices made by the state-owned company was even more destructive for the mixed-capital company.
Despite that, according to a survey made by Datafolha at the time of the truck drivers’ strike, 68 percent of Brazilians claimed they opposed the price policy implemented during the Parente days. They maintain that there should be fuel price control, even though it causes losses to the company. This amount of popular support, even amidst the economic and social crisis caused by the movement, made all presidential candidates criticize the free-price policy: with an eye on the Planalto Palace, all was worth to obtain political capital. Jair Bolsonaro himself endorsed the stoppage.
However, according to Petrobras’ trimester report, more than 70 percent of the company’s debt was contracted in dollars, making the oil company’s accounts susceptible to currency fluctuations. Besides, Brazil imports light crude oil for refinement and exports heavy crude oil, since only 6 percent of our oil production is appropriate for gasoline extraction. In four years, from 2014 to 2017, the company accumulated more than R$ 70 billion in losses.
Regardless of what the government does, this reality will prevail – and the losses caused by new interferences in the state-owned company will inevitably be paid by Brazilian taxpayers.
In his defense, Bolsonaro confesses he doesn’t understand economics. In this context, one questions why he did not consult his “oracle”, Economy minister Paulo Guedes, before taking the decision, since that was his campaign promise to prevent his own lack of economic knowledge to harm the country.
How to deal with truck drivers?
Thomas Conti, a doctor in Economics and professor at Insper, is a researcher of the influence of interest groups in governmental measures, and criticized Bolsonaro’s measure.
“Ultimately truck drivers are going on strike because the political pressure over the government can change Petrobras’ price positioning. If our institutions made it clear that the rule is not to have any interference from the government in the decisions taken by the state-owned company directing board, this resort to pressure would not exist, or be extremely reduced.”
He defends that the company should institutionalize a non-interference policy, which would make more difficult for a movement like the one which happened in May last year to be successful. “One of the alternatives would be a boycott against Petrobras, but the company’s bargaining power is much bigger than the government’s, since it does not depend on the public opinion, and they know truck drivers depend entirely on their product,” he adds.
Conti says that the president was only thinking in the short-term when he temporarily prevented an increase in diesel prices, but his measure creates perverse incentives: “The discourse so far was that of putting an end to the government’s political interference in Petrobras, which would give bargaining power to the government in face of the pressure exerted by truck drivers. He destroyed that,” he criticizes. The shield against governmental interference in prices would be, as a consequence, a short-term measure, easier to be implemented.
If, on one hand, the federal government increased service prices by implementing freight price control, on the other, it is now trying to expand the supply of trucks. Another measure to deal with truck drivers was the announcement made by the president’s chief of staff, Onyx Lorenzoni, of a line of credit of up to R$ 30 thousand for each autonomous truck driver who has up to two trucks. This will cost R$ 500 million to BNDES. It is the same measure previously adopted by Lula’s government, and, later, Dilma Rousseff’s, which caused an excess of supply in the sector, causing freight prices to drop.
The expansion of the fleet was artificially accelerated by an incentive policy by BNDES between 2009 and 2016. A study by consultant Ricardo Gallo, who worked for two decades at BankBoston, estimates that the number of trucks in Brazil grew at an annual 5 percent rate between 2009 and 2016, increasing the fleet to around 2 million trucks. During the same period, the Brazilian economy grew on average 1.1 percent per year. According to data by NTC & Logística consultant, an entity which congregates transporting companies, there is an excess of 300 thousand trucks in the national fleet. With the economic recession, there are too many trucks, and not enough cargo. By providing credit to the truck drivers, the government is doubling down on the bet, which tends to worsen the problem.
Among long-term measures to reduce the bargaining power of truck drivers, are investments in other ways of transporting the production, such as railways. Brazilian railways, however, have been neglected since the 1920s. After that, there has been a sequence of mistaken political decisions which resulted in an enormous dependence on highway transportation to carry production and cargo – increasing the power of the truck drivers’ lobby.
This contrasts with the United States, another country with continental dimensions, which has a railway network nearly nine times larger – 226 thousand kilometers, against 28 thousand kilometers in Brazil.
The heyday of railway transportation was interrupted during the government of Getúlio Vargas, who set highway transportation as a priority. During the 1940s, the railway network already faced several problems, which ranged from low-power locomotives to anti-economic rail layouts.
During the 1950s, 90 percent of the Brazilian public debt came from the country’s railways. Therefore, several deficient rail lines were shut down after the promise of state investment in new projects that never happened, and the government’s actions were centralized until the market was opened in 1990. This reform generated an increase in productivity in railways, with a 30 percent increase in transported cargos, despite the country still having the same amount of rail lines.
The measure, however, did not merely cease the existing rail lines, but also its geographical exclusivity. In other words: no competition incentives were created to cause the expansion and renovation of the existing network. The ideal thing would be to have a good structure in all transportation modes (railway, waterway, and highway), because they complement each other. Investment in other modes of transportation, however, would only reduce the power of influence of the truck drivers in the long run.
Monopoly facilitates political interference
The literature about the subject unanimously points out that the only effective way of reducing the power of interest groups is competition. On that thought, and motivated by the crisis provoked by the truck drivers, the Brazilian Antitrust Authority (CADE) has presented measures to improve competition in the fuel distribution market, with suggestions that involve regulatory issues, tax structure, and other institution alterations of a more general scope.
Even though the legal monopoly of refinement ceased to belong to Petrobras since the 1990s, in practice is still has the monopoly, and currently is responsible for 98 percent of the refinement. One of the common arguments presented in the public debate to oppose the privatization of Petrobras is that keeping it in the hands of the state is “a question of national security”. However, nothing could be less secure that restricting practically all refinement in the hands of a single company.
If truck drivers have demonstrated a lot of political power, no other group has more power than the oil workers’ union, which is capable of bringing the country to a halt in just a few days of strike.
General-director of the National Oil Agency Décio Oddone believes that this monopoly should be ended. He defends the sale of Petrobras refineries to reduce such concentration, creating competition, something which currently does not exist.
In order to do that, investors must feel safe, and measures such as interfering with prices, as well as a lack of transparency, go in the opposite direction of what should be done, according to Oddoni.
The privatization of Petrobras could be an alternative, but it is not defended by Bolsonaro’s government. According to a survey made by Datafolha in 2018, 55 percent of Brazilians oppose the sale of the company.
In the meantime, the government is vulnerable to the demands of the truck drivers, whose ransoms may cost increasingly more.