New Brazilian Cabotage Act aims to boost competition in the Brazilian shipping market

Traditionally, the Brazilian marine regulatory framework has been very protective to the local market, with several restrictions applicable to foreign vessels navigating in Brazilian waters.

This scenario is likely to change with the enactment of Law nº. 14.301/ 2022, also known as the New Brazilian Cabotage Act, which is locally called “BR do Mar”.

Up until the enactment of the New Brazilian Cabotage Act,  the rules in force only allowed cabotage navigation to be performed by Brazilian Shipping Companies (called “EBNs’’ locally), duly registered as such with the National Waterway Transportation Agency (“ANTAQ’’), using Brazilian flagged vessels as a norm.

The chartering of foreign flagged vessels was only allowed in certain circumstances and, generally, upon authorization by ANTAQ.

Amongst the circumstances which enabled the chartering of foreign flagged vessels by EBNs were the shortage of Brazilian-flagged vessels qualified for the intended transportation and the chartering of vessels to replace vessels under construction in Brazil, up to a certain limit of tonnage.

The New Rule

The New Brazilian Cabotage Act establishes a new program to boost the development of the Brazilian cabotage industry.

Article 1 of the Act states that the program has the purpose of encouraging competition, improving quality and reviewing the link between cabotage policies and local shipbuilding policies, amongst others.

Some of the changes introduced by the new Act are the following:

• The new rules enable EBNs to charter foreign vessels from their foreign subsidiaries or from a foreign subsidiary of another EBN, for the expansion of the group’s fleet operating in Brazil.
• EBNs may now charter foreign vessels under bareboat charterparties, with suspension of the foreign flag, without the need to have a construction contract in force or having to own a Brazilian vessel.
• EBNs may now charter a foreign vessel under a time charterparty if they have a similar vessel being built in a Brazilian shipyard or in a foreign shipyard. They may also charter foreign vessels under time charterparties if the vessels are intended for special cabotage services.
• The Act establishes a tax incentive to foreign vessels chartered into Brazil, with the automatic submission of the vessels to a customs regime called “temporary admission”, which results in the suspension of some taxes, such as Import Tax.

Opportunities

The above new rules are expected to increase competition and efficiency in the Brazilian shipping market, which may attract more players and foreign investments to the country.

For further guidance on the New Brazilian Cabotage Act, please do not hesitate to contact the Authors below.