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Incentive Program for Cabotage Navigation and Foreign Vessels

Cabotage is the transport of goods or passengers between two places in the same country. It originally applied to shipping along coastal routes, port to port, but now applies to aviation, railways, and road transport as well.

Cabotage rights are the right of a company from one country to trade in another country.

Published in the Union Official Diary of this Friday, August 30, the approval of a the resolution of the Investment Partnership Council of the the Presidency of the Brazilian Republic with the directives for police making regarding an Incentive / Stimulation Program to cabotage transportation to be named “BR do MAR”.

Foreign vessel means a vessel registered in accordance with the laws of another state or jurisdiction. Also referred to as “out-of-country.”

The Program Council considered that cabotage waterway transport was comparatively more efficient, safer and had lower environmental costs and impacts than road or rail. It has a greater participation of the waterway modal, especially cabotage transport, in the country’s logistic matrix is the most effective and expeditious measure to balance the excessive expenditures of the Union, States, Federal District and Municipalities in road and rail infrastructure projects;

The Council also considered the need to allocate areas located within public ports for temporary use and viability of investments to meet cargoes in type, route or market not yet existing or not consolidated in Brazilian cabotage, seen as essential for the reconfiguration of the logistics matrix of the country; the feasibility of the cabotage stimulation policy encompasses measures that optimise the use of Union revenues from the collection of the Additional Freight for the Renewal of the Merchant Navy, including to ensure investments in coastal navigation safety by the Brazilian Navy;

Actions and other measures to encourage cabotage, in particular those allowing greater participation of foreign vessels in Brazilian cabotage, will be considered of relevant public interest and strategically prioritised for all legal purposes; the powers assigned to the Special Secretariat of the Investment Partnership Program to strengthen national policies for the integration of different modes of transport of persons and goods, in accordance with national, regional and urban development, national defence, environmental, and environmental policies. security, formulated by the various spheres of government.

The Ministry of Infrastructure already foresees, for 2025, that the cabotage will have a 29% participation in the Brazilian transport matrix, through 205 waterway interventions, at a cost of R$ 15,8 billion.

Coastal Navigation Incentive Program in Brazil

Coastal navigation is a navigational method concerning the vessel’s movement in relation to the approximate shore, the visible objects in the sea and the sea depths. Coastal navigation demands great experience.

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 in 2022, and to increase by 40% the capacity of the maritime fleet dedicated to costal navigation 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 and an attempt to end distortions in the charging of ICMS on bunker.

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 will be temporarily free from the requirement to have own fleet to obtain registration as a Brazilian shipping company.

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.

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. 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 collateralised and more comfortable with landing credit.

An additional goal of the Program is to match the price of fuel used in international and domestic 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.