Brazil is a country predominately dominated by road transport, which accounts for 60% of the Brazilian freight volume, partly due to a lack of investments in other modes of transportation. For example, Brazil has only 30,000 km of railroads which is eight times less than the US. Transporting goods via the waterways, known as cabotage, transports just 11% of freight volumes.
Robert Grantham, partner at Solve Shipping Intelligence Specialists, said: “That’s what the government is trying to change, to spread it out more. Not only cabotage but also inland waterways, inland navigation, and railroads. There’s a strong programme now to develop new railroads through concessions to the private sector and renewal of older concessions attached to new investments and all that so we can see these metrics better diluted.”
However, railroads are not the only focus and the cabotage sector has been highlighted as one that presents enormous potential growth. This potential was recognised by Dino Antunes, director of the Ministry of Navigation and Waterways, and by National Secretary of Ports and Waterways Transportation Diogo Piloni in mid-2019 when they announced a plan called ‘BR Do Mar’.
The proposed BR Do Mar law was first unveiled at the end of August, aiming to stimulate expansion of the cabotage market and enable existing players to grow quickly as well as to attract new entrants to the sector.
Its main proposal of change in legislation is to increase the possibilities for Brazilian Navigation Companies (EBNs) to charter vessels, without the obligation to have their own vessels. As Brazilian law stands now, cabotage in Brazil can only be done by the EBNs of which there are three: Log-In Logística, Aliança (owned by Maersk and Hamburg Süd) and Mercosul Line (owned by CMA CGM).
These EBNs can operate their own or chartered vessels and can only bareboat charter ships that correspond to 50% of its own fleet, thus only the companies that have vessels under their own property can bareboat charter. The operation of a ship under a Brazilian flag (owned vessel or bareboat chartered) can cost 70% more than a time chartered foreign vessel.
As such, cabotage is often seen as a more expensive option especially when compared to deep sea navigation. However, it should be noted that the freight price and costs involved are completely different.
A Brazilian cabotage ship will stop at ports every second day or so, paying the associated port fees each time, and will have to pay a local tax for the bunker around 20-25% on top. Whereas a deep-sea ship can avoid these taxes and only have to pay its port fees once in Brazil and once at its destination.
Realistically cabotage’s greatest competitor and a more fitting comparison is the truckers. Capt. Luis Resano, executive director of the Brazilian Association of Cabotage Shipowners (ABAC), explained to CM: “If you compare the benefit for using cabotage against the use of truckers we are cheaper, we are environmentally friendly and secure. That’s a very important point here in Brazil as, unfortunately, we have a lot of robbers along the roads, and we don’t have these problems in cabotage.”
“It’s certainly cheaper to transfer cargo on a ship than on a truck,” Grantham agreed. “Especially the long-haul trucking in Brazil which is absolutely crazy. Brazil is a huge continental country and you see trucks travelling maybe 3-4,000 km which is totally nonsense.”
Additionally, cabotage is an example of “sustainable logistics” as it produces less harmful gases, reducing the emission of CO2 and NOx into the atmosphere. According to Marcio Arany, commercial director at Log-In, this kind of shipping consumes eight times less fuel to transport the same amount of cargo than other kinds.
Last year, Log-In achieved significant results with historical records on all its fronts despite the challenges presented by COVID-19 and the ongoing supply chain disruption. The total volume of containers transported by Log-In increased by 3.5% from 357,800 teu in 2019 to 370,300 teu in 2020. One of the company’s main highlights of the year was the acquisition of the Log-In Endurance vessel, a period in which Log-In started to operate with 100% of its own fleet.
Yet there is still room for the sector to grow as a whole, hence BR Do Mar which Log-In supports. Arany told CM: “We have been closely following the progress of discussions around BR Do Mar and we have good expectations for our market, as it aims to promote the development and greater competitiveness for cabotage in Brazil.
“We are in full compliance with ABAC, which sees the bill in a beneficial way by establishing clear rules for the operation of navigation in order to expand its participation in the Brazilian transport matrix. We also believe that there must be a legal stability capable of allowing the sector to grow, stimulating competition with equality, ultimately serving users in a continuous, regular and competitive manner.”
Addressing the need for cost reduction, taking into account that the obligation to use the Brazilian flag increases cost, while also ensuring the maintenance of freight predictability, BR Do Mar allows a company to charter vessels from its wholly owned foreign subsidiary for a period of time. The operation will be carried out by the EBN via a subsidiary established in a country that respects the Maritime Labour Convention (MLC).
With the special operations and long-term contracts, new shipowners will be able to start operations in Brazil with time-chartered vessels without the obligation to have their own vessel. There will also be an option that allows companies to bareboat charter a foreign vessel (under a Brazilian flag) without the need to have a vessel of their own, reducing the company’s capital necessity to enter the market and thus allowing a greater number of companies in the country. This flexibility will take place in stages until 2033.
However, Resano and the ABAC sees this as unfair treatment. “For the Brazilian companies who are established nowadays they are obliged to have a ship. One containership with capacity for 3,000 teu is around US$30m and if you compare that with a new company that does not invest anything, it is completely unbalanced.
“We cannot support this and in our view for medium and long-term, Brazilian companies will no longer buy a ship they will only use bare boat freight and then we would lose our fleet because you will only operate with only freight fleet.”
Additionally, companies who time charter under this law will be required to employ at least two thirds of the crew as Brazilians – a number Resano says is just too high. Strict labour laws mean that shipowners have to hire at least two Brazilian seafarers per position (because your work regime is one period on board for other at home, around 60 days rotation) and those seafarers are often hired under years-long contracts. Insisting on two thirds of Brazilian seafarers means cost reduction is “impossible” according to Resano, who suggested a maximum of one third Brazilian seafarers would allow a reduction in cost.
Grantham also noted that there is a fear of a lack of Brazilian seamen, particularly a shortage of officers. Brazil has two centres for officer preparation ran by the Brazilian navy which offers the equivalent of a university degree free of cost with lodging. He explained: “What happens is a lot of people go into this not really expecting to have a career at sea, they leave the training centre, and they end up working in something related to the sea, but not at sea.
They go into the shipping agencies, into some logistics company or work for the terminals, ports and so on. So, this reduces the offer of actual officers and many are attracted by the offshore oil industry.”
Of course, the project’s biggest challenge is those who oppose it entirely. Truckers are among the most outspoken of this group, fearing losing out on long-haul trips. “This is a cargo specific for cabotage, but there are many truckers doing this transport,” Resano said. “It takes five days, there is no spaces to stop with good installations, we have many problems in our infrastructure. This is the cargo that is good for cabotage but this cargo, usually, is not at the port. Cabotage needs the trucker to operate at first mile and last mile for door-to-door operation.”
Though not all of the trucking industry is against the law, as Grantham notes “the more sensible people are in favour because you cannot take the ship to the factory’s door”. Brazil’s Ministry of Infrastructure has stated simply that there is no cabotage without the truck driver. A ship with 3,000 containers means that 3,000 containers have to reach the port and then need to be unloaded.
Minister of Infrastructure Tarcisio Gomes de Freitas said: “When transport grows as a whole, it’s good for everyone, especially for the truck driver. It’s good to remember that the ship doesn’t go to a farm, a ship doesn’t stop at the industry, it doesn’t stop at the supermarket. The only transport that does is the truck.”
There is still time to find a balance between the two sides. The basic text of BR Do Mar was approved by the Brazilian Chamber of Deputies at the end of 2020; however, the parliamentarians of the chamber were unable to complete the vote on the bill. It has not yet been voted on by the senate and, given that the senate has donated a good portion of its time to its investigation into the federal governments lack of action in the pandemic, it is unlikely that there will be much movement for BR Do Mar soon.
Still, there is hope for the future of cabotage as Grantham noted: “Cabotage has been growing at least 10% a year, well above the GDP growth. Cabotage is going well but, of course, it could be more – there is much more cargo that could be transported by sea.” BR Do Mar is certainly one path to help foster this growth.
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