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Brazil considers boxing out shippers
The Miami Herald / January 13, 2002

By Larry Luxner

SÃO PAULO, Brazil -- Legislation that would give Brazil's state-owned postal service a monopoly on express document deliveries has outraged a dozen small-package and courier companies that fear their business will be threatened.

The so-called "postal law," first proposed by President Fernando Henrique Cardoso in 1999, aims to provide universal service and regulate private-sector providers, which opponents say is the first step towards privatizing Empresa Brasileira de Correios e Telegrafos (ECT) within three to five years.

In September, the bill was approved by Brazil's Telecommunications, Science and Technology Committee. It must still be reviewed by the labor, finance and constitutional committees -- and voted on by the Chamber of Deputies and the Brazilian Senate -- before it can become law. That review will likely begin around Feb. 15, when lawmakers reconvene after the Carnival recess.

Ricardo Brandi, regulatory affairs manager for DHL Worldwide Express in Brazil, is spearheading the fight against what he called a "stupid" measure.

"If this is approved, our company will either disappear, or will be reduced dramatically in both revenues and number of employees, because we will not be able to ship documents, which is still the bulk of our business, said Brandi, who estimates DHL's Brazil revenues at $50 million a year.

Besides his position at DHL, Brandi is also vice-president of international relations for the Brazilian Association of International Express Delivery Companies. The association (known by its Portuguese acronym ABRAEC) speaks for nine companies including DHL, Federal Express, United Parcel Service, TNT Worldwide and Argentina's Ocasa.

ABRAEC warns that if the law is approved, it may sue the government, charging that the legislation is unconstitutional.

"This law gives the post office a monopoly over letters and any object that is shipped with a letter," said Brandi. "The problem is that the definition of a letter could comprise an invoice, a contract, a proposal, a bill of lading, or any document shipped abroad."

Marcelo Perrupato, secretary of postal services at Brazil's Ministry of Communications, says his agency is pushing for the law in the interests of "protecting society" from unscrupulous competitors in the postal sector.

"With liberalization and globalization of the world economy, most of the barriers in the postal market will fall," Perrupato said in a phone interview from Brasilia. "In the future, you will have bigger global players, and Brazil understands that to liberalize the market, you have to regulate it first, because liberalization without regulation is a mess."

Under the 1999 draft, ECT would become a quasi-public company called Correios do Brasil S.A. In addition, a federal authority known as the Agência Nacional de Serviços Correios would be created to regulate private carriers. This agency would set up a monopoly that would be reduced after five years and eliminated in 10 years.

"The idea behind this law is to give ECT enough power to become a major player in the international arena, like the Dutch post office, and to eventually buy other post offices," says Brandi. "Every South American post office would be a potential target."

In 2001, ECT enjoyed revenues of around R$4.5 billion (around US$1.9 billion), up from R$3.9 billion the year before. That sort of steady growth is likely to continue for the next five years, say analysts who estimate the Brazilian market at 16 billion pieces of mail annually.

Perrupato denies that DHL, UPS and its rivals will be put out of business in Brazil. He says such companies oppose the law mainly because they want to avoid paying taxes.

"They don't want to be regulated, but we are here to protect our society. If you are in the postal business, you have to follow the regulations," said Perrupato, vowing that ECT will never be privatized because such a move would violate the Brazilian constitution.

That argument doesn't hold water with Mark Smith, executive director of the Brazil-U.S. Business Council in Washington. He pointed out that not too long ago, Brazil's constitution also prohibited selling off state phone monopoly Telebras. But that law was amended, and in July 1998, Telebras was broken up and auctioned off for over $19 billion.

"Our opposition to the bill is based primarily on the fact that it creates a new bureaucratic and tax burden on the express shipment industry," said Smith, whose lobby represents 80 of the largest U.S. investors in Brazil. "What the Brazilian government is really doing is eliminating competition for the postal service, because they want to set ECT up for privatization. Certainly it makes the postal service a much more lucrative affair."

Ana Guevara, vice-president of public affairs for UPS Americas, agrees.

"The idea is that Brazil is looking to privatize the post office," she says. "At the end of the day, that's what their goal is. The post office is trying to prepare for this."

According to Guevara, UPS employs over 5,000 people throughout Latin America -- including 260 people at four operating centers in Brazil, and several hundred employees in South Florida who work for UPS Americas.

"Miami will be affected because Brazil is a very important market. If the law passes the way it's written now, it would have a very significant impact on our operations," Guevara said, noting that UPS flies Boeing 757 and 767 cargo freighters four times a week between Miami and Viracopos -- an airport just outside São Paulo -- and once a week between Miami and Manaus, in northern Brazil's Amazon region.

She added that Brazil's postal law could even put out of work as many as 290,000 local couriers -- known as "moto boys" -- who zip around major cities like Rio and São Paulo, transporting documents and packages from one office to another.

Guilherme Gatti, South American marketing director at FedEx, says his company is working with ABRAEC to defeat the proposed law.

"Once they have a monopoly, Correios will be handling all documents. That's a substantial part of the market, even though FedEx is not focused on letters and small packages," he said. "We would be affected just like everybody else. We are trying to make these people recognize that there are different sorts of demands that Correios cannot satisfy."

Gatti declined to say how much business FedEx does in Brazil, though he did say his company is "much larger than DHL in revenues" even though DHL carries more express letters.

"DHL will be affected much more than us because they have both domestic and international operations here, and FedEx offers only international service," said Gatti. "Also, FedEx focuses on heavy stuff like computer parts, auto parts, aircraft parts, pharmaceuticals and hazardous shipments" that won't be covered by the proposed law.

Currently, FedEx employs around 550 people in Brazil and has two aircraft operating in the country: a DC-10 which flies six times a week between São Paulo and Memphis, and a Boeing 727 flying five times a week between São Paulo, Buenos Aires and Santiago.

Like its rivals, FedEx is lobbying to have the postal law shelved, or at least modified so that companies operate on a level playing field.

Originally, the bill was to establish minimum requirements for personnel, fleet and branch offices to ensure universal service in outlying areas. It also called for dividing Brazil into regions, with postal providers having to apply for licenses in each region from the postal authority. This would limit the number of competitors per region and grant authority contingent on service being provided in specific outlying areas, somewhat similar to the concessions granted to mobile phone operators. Finally, the draft bill was to forbid private competition in e-commerce deliveries.

Because of heavy lobbying by ABRAEC, all of those provisions have been deleted from the final legislation, though the organization is still fighting to exempt express letters and documents from the postal monopoly, and to allow private companies to provide non-standard deliveries, regardless of envelope or package content.

The association is also trying to eliminate a proposed 0.5% tax on gross revenue that would help ECT subsidize universal services.

Claudia Bailly, a spokeswoman for UPS Americas in Miami, said the tax provision as it's currently written is contradictory.

"We already pay a lot of taxes, and this tax is not very clear," she said. "We want it clarified, and we want to make sure they understand that taxes cannot be used to subsidize competing postal services."

ABRAEC's Brandi says the country's minister of communications, João Pimenta da Veiga, is pressuring lawmakers to agree on a fast-track procedure. If this is approved, the postal law would jump from the Labor Committee straight to the floor for a vote by the full Chamber of Deputies.

"Nobody is in favor of this law, not the international express companies, not the post office franchises, not AmCham, not even the postal employees, he said. "I don't think President Cardoso is aware of the problems this law will create, especially for international trade. When you ship something that has to be delivered to Lagos, Nigeria, for example, how will the post office do that? It can't."

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