Coastal Navigation incentive Program

A Coastal Navigation incentive program that the Ministry of Infrastructure intends to launch in August expects to expand the transport of goods along the Brazilian coast.

An interim measure is expected to bring about major changes in the industry’s regulatory framework, which has had an average annual growth of 12.8% over the past decade. Despite the Chinese economic pace, the government estimates that there is still plenty of room for expansion. The goals of the new program include doubling the volume of containers transported per year from the current 1.35 million to 2.7 million TEUs (20 foot equivalent unit) in 2022, and to increase by 40% the capacity of the maritime fleet dedicated to costal navigaiton in the next three years.

The plan, which has been called “BR do Mar” by the ministry’s technicians, foresees simultaneous and multi-front initiatives to stimulate the sector: more flexibility in the incorporation/import of new vessel by Brazilian shipping companies, easier use of port terminals aimed at handling cargo, a change in the guarantee system for access to the Merchant Marine Fund (FMM) and an attempt to end distortions in the charging of ICMS (state tax) on bunker.

“We are able to triple the growth rates of domestic shipping,” said Diogo Piloni, the national secretary of Ports and Waterways.

One of the Program’s greatest advances is the encouragement of the establishment of “special operations” – new routes that companies can offer on a trial basis linking one port to another.

To test a domestic route, one wil be temporarily free from the requirement to have own fleet (at least one ship imported or built in Brazil) to obtain registration as a Brazilian shipping company (EBN).

For a maximum period of four years, EBN may charter vessels without this obligation. The idea is to allow a test that paves the way for the establishment of longer lasting routes. Today one of the biggest obstacles to the development of coastal navigation is the lack of regularity of operations. “We are reversing the logic,” explains the director of the Department of Navigation and Waterways of the Ministry of Infrastructure, Dino Antunes Batista. “Today companies need to invest to enter the market. With our new Program they can enter the market and then decide how much to invest.

“When infrastructure is not available at the source or destination port, with a terminal capable of handling cargo carried on these experimental lines, companies can explore terminals through a simplified procedure – also for up to four years. This process promises to be less bureaucratic than a port terminal lease.

Shipping companies will gain an incentive to expand supply – not just special operations – with foreign vessels. They will earn exemption from federal taxes, such as Import Tax and PIS / Cofins, by incorporating ships manufactured abroad. These taxes increase equipment costs by 40% to 50%, according to government estimates, and will turn into credits.

The credits must necessarily be used in the Brazilian shipbuilding industry. It can be in the repair or maintenance of imported vessels, not just in the construction of ships. But gains from the exemption will need to be “returned” to national shipyards.

Another obstacle that the government intends to unlock with the MP is the guarantees for access to the billionaire Merchant Marine Fund (FMM). With different rates of financing for shipbuilding, the fund has been underused. The risk of loans rests with the credit transfer institutions – BNDES, Banco do Brasil, Caixa, Banco do Nordeste and Banco da Amazônia.

In the new program, the government will put into practice the “unenforceability of the linked account”. This means that a tax on the amount of freight that is collected by the shipping company and goes to itself, in a specific account for any FMM financing, can no longer be frozen or enforced against. As a result, banks will be collateralized and more comfortable with landing credit.

An additional goal of the Program is to match the price of fuel used in international (now ICMS-free) and domestic (15% to 18% tax) freight rates. The Union cannot legislate on state taxes, but has found a legal solution to allow the government of each state to clear the tax collection. Without this, any exemption would have to be endorsed by ever state on the National Council of Finance Policy (Confaz).