Infrastructure
After several months of rumors and expectation from the market, a relevant move towards the development of transportation of goods by sea in Brazil took place. On August 13, 2020, the bill containing the proposal for the BR do Mar (Sea Road) project was finally submitted by the Brazilian Federal Government to Congress for debates and further voting.
The Bill No. 4,199/2020, which will be processed in the House of Representatives under an emergency regime, seeks to address a historical distortion in Brazilian logistical matrix. While the country has almost 8,000 kilometers of sailable coast and 80 percent of its population living within a 200 kilometers distance from the shore, the use of cabotage for transportation of goods represents only 10 percent in the total transport matrix. Around 65 percent of all the Brazilian goods transportation is made by trucks.
Today, Brazilian cabotage is mostly concentrated in the transport of bulk cargo, which accounted for around 91 percent of the total transported in 2018, with emphasis on liquid bulk, representing 73 percent of this total (mostly focused on the logistics of Petrobras’ oil).
The Minister of Infrastructure, Tarcísio Gomes de Freitas, stated that this is the boldest project for promotion of Brazilian cabotage in history, and its draft is indeed encouraging. It touches four key aspects that hinder the development of cabotage:
- Fleet: Brazilian fleet is currently very limited, and in addition the country has a long-standing tradition of protection to local shipbuilding industry. Foreign flag vessels can only be admitted to operating cabotage in Brazil in very limited circumstances, which would become more flexible under the new bill. Brazilian shipping companies will no longer need to own a Brazilian made vessel in order to operate or charter a foreign vessel. The target is ambitious: to increase the fleet by 40 percent in the next three years.
- Ports: Brazilian public ports have been losing significance compared to private ports since the enactment of the new Ports Act back in 2013. The excessive red tape for approval of new bidding rounds and the lack of flexibility of rules for exploitation of public areas are the main reasons for that. The new bill seeks to address those two points, by allowing the dismissal of the bid to make concessions of public areas in certain situations and to allow exploitation on temporary basis.
- Shipbuilding industry: Following the Lava Jato scandal, the Brazilian shipbuilding industry faced a massive blow that led to the bankruptcy of several companies. One of the proposals of the BR do Mar project to rebuild the local industry is to provide shipowners with incentives to use Brazilian shipyards for repair and maintenance of its fleet. The proposal includes allowing foreign companies to access funding from the Merchant Marine Fund (Fundo da Marinha Mercante), a billionaire fund managed by the Federal Government, in order to finance repair and maintenance of Brazilian shipyards (instead of sending the vessels to Asia, which is the most common).
- Costs: Bunker, regulatory and labor costs are among the most burdensome to companies operating cabotage in Brazil. At this stage, the bill does not provide details on how to tackle those costs, being only a commitment by authorities to adopt best efforts in this direction. Tax benefits to the production and acquisition of bunker that were expected to be in the BR do Mar program were not disciplined (they depend mostly on negotiations with State governors).
The bill still needs to make its way through the Brazilian Congress, but domestic and foreign investors are paying close attention to the matter. The growth of cabotage is seen as crucial to the development of a cleaner, safest and more efficient logistical matrix in the country.
TozziniFreire’s Infrastructure practice is looking carefully into how the bill will evolve and is ready to discuss any points of your interest concerning the initiative.