The effectiveness of the new law to encourage cabotage navigation is viewed with disbelief by industry participants.
In an attempt to reduce Brazil's dependence on road transportation, lower the costs of cabotage navigation and develop the naval industry, the government approved the Law No. 14,301/2022, which establishes the Cabotage Transport Stimulation Program. The legal diploma became known as BR do Mar.
It flexibilized several points regarding the chartering of foreign vessels by Brazilian Shipping Companies (EBN), which are now able to lease foreign ships through their subsidiaries outside the country. “With this new structure, the market established what became informally called as 'EBN without a ship' significantly altering the previous rules that required an EBN to own a vessel, for example", explain attorneys Bernardo Mendes Vianna and Erika Chaves, partner and associate of Vieira Rezende Advogados.
Despite the good intentions, the new law has been criticized in the cabotage market. There are fears that it will lead to a market concentration rather than increase the competition. As the EBNs will not need to invest in their own fleet, the fear is that there will be a disincentive to the naval industry.
In the interview below, Vianna and Chaves explain the main changes promoted by BR do Mar and why there are uncertainties as to whether the diploma will be able to achieve its goals.
The main objective of Law No. 14,301/2022, since the presentation of Bill No. 4.199/2020 to the National Congress, was to stimulate healthy competitiveness in Brazilian cabotage navigation, aiming at the promotion and expansion of the industry shipbuilding, cost reduction and the resumption of demands for the construction of ships in national shipyards.
Among the main changes introduced by the law that instituted the aforementioned Cabotage Transport Stimulation Program along the Brazilian coast, we highlight the expansion of the possibilities for chartering foreign ships by the contractual modality “by time” (time charter) and “by trip” (voyage charter), as well as innovative flexibility regarding the chartering of foreign ships under the so-called “bareboat charter” modality.
According to the new law, which partially amended article 10 of Law No. 9,432/1997 (which provides for the ordering of waterway transport), the chartering of foreign vessels in the “bareboat” modality, with flag suspension, can be formalized through a contract entered between Brazilian Shipping Companies (EBNs) and its wholly owned foreign subsidiary (whose all shares belong to the Brazilian company) or wholly owned subsidiary of another EBN.
With this new structure, the market established what became informally called as “EBN without a ship, significantly altering the previous rules that, roughly speaking, required an EBN to own a vessel or to have one under construction. In this regard, the new Law provided for the constitution of Brazilian Shipping Investment Companies (known as EBN-i), authorized to charter foreign vessels on a “time basis”, during the construction of their own fleet, to be chartered for EBNs to operate them in Brazil.
Another innovation worth mentioning is the possibility for chartered foreign vessels, once authorized to operate in cabotage, to be automatically submitted to the temporary admission regime, benefiting from the total suspension of several federal taxes.
As determined by the new Law, the chartering of foreign ships by EBNs will only take place through subsidiaries of EBNs abroad. Therefore, the exploration of cabotage navigation continues to be a privilege of companies incorporated in Brazil and in accordance with the technical, legal and economic requirements imposed by the Brazilian legislation.
For a company to be qualified for the Stimulation Program, the new law establishes several requirements, many of which are still pending regulation. The following requirements can be mentioned: being up to date with the payment of taxes, obtaining authorization to be an EBN for cabotage navigation and providing periodic information about its operation in Brazil. Once qualified for the program, EBN will then be able to charter vessels with its foreign subsidiary (or foreign subsidiary of another EBN) to operate in national cabotage, provided that such vessels are owned by them or operated under “bareboat” charter contracts. Article 5, paragraph 1, of Law No. 14,301/2022 provides for the cases in which the chartering of foreign vessels will be authorized.
The law, additionally, dropped the rule that provided a limitation for chartering of foreign ships and the need for circularization (consultation process) before the National Agency for Waterway Transport (Antaq) (article 19), to check the possible non-existence/unavailability of a Brazilian vessel of type and size for the intended navigation.
Despite the opposing voices, there are still many doubts about the attractiveness of the Stimulation Program. Both the cabotage market — especially that of small and medium-sized companies that may find it more difficult to access the incentive — and the Brazilian naval industry have been highly critical of the innovations introduced by the new law. The naval industry, especially in view of the waiver of investment by EBNs in their own fleet, tends to conclude that this issue may result in a real discourage to the shipbuilding in the national territory.
When we look at the operational cost of Brazilian cabotage, we are generally dealing with three basic items: manpower (and its charges), fuel and ship insurance. Regarding manpower, the law did not bring any novelty or new rules of impact. In turn, it is silent with respect to the second item, having missed the opportunity to create rules that could benefit the EBNs. Finally, the new law formally allowed EBNs to hire an insurance and reinsurance policy abroad, a possibility that has always existed through the policies issued by the so-called P&I Clubs (Protection and Indeminity). What can be seen, therefore, is that in relation to the operational cost, the new rules do not seem to have brought great stimuli.
It is also known that the new Law had vetoed an important tax regime to encourage the modernization and expansion of the port structure (called Reporto), established by Law No. 11,033/2004 and which was in force until December 2020. This fact was also seen as a cold shower in market expectations.
This scenario may even be different when we talk about the cabotage market for container ships, in which a slight growth is expected with the possible arrival of ships to meet Brazilian demand, but which, in the view of some experts, will not bring enough impacts to provide significant cost savings.
In fact, during the process of the Bill (BR do Mar), much was discussed about a possible market concentration with the opening for the chartering of ships by foreign subsidiaries. In this regard, it is important to make it clear that the Administrative Council for Economic Defense (Cade) always considers the fall of barriers and the opening of the market, even though it may harm the national market. Nevertheless, specialists in the economic defense sector foresee a concentration, either by the agreements that may be operated between the EBNs and foreign subsidiaries, or by the possible and already announced mergers between the shipowners. It remains to be seen whether such predictions will materialize.
In order to talk about legal certainty, we will still depend on future regulation, that will come through a Legislative Decree and normative acts by Antaq.
Said regulation appears to be of paramount importance for the analysis regarding the legal certainty conferred by this law, considering that, among other aspects, it will allow interested parties to know the rules that will govern their qualifications and permanence in the BR do Mar Stimulation Program, which was not established or detailed in the law.
