Brazilian Government Enacts New Cabotage Act

March 15, 2024

On 10 January 2022, the Brazilian President sanctioned the “Cabotage Act”, with the aim of diversifying Brazil’s transportation services through increased incentives, locally known as BR do Mar. The purpose of the Act is to develop the quality of, and encourage competition within, transportation services, expand the fleet for navigation, stimulate the development of the national naval industry, and encourage investments arising from operations in port facilities.

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.

The Cabotage Act has brought necessary and long-awaited innovations, with a focus on transforming the local market into a dynamic and attractive destination for investors, especially foreign ones. Brazilian Navigation Companies (“EBN”) are no longer required to possess their own fleet and will be allowed to bareboat charter foreign vessels. Chartering is subject to the terms and conditions set out in the Cabotage Act.

Another positive, novel rule is that EBNsare permitted to charter foreign vessels without the need for proof of tonnage, as in the previous legislation EBNs were limited to charter foreign vessels up to Regulation 41´s rules of the Brazilian Waterway Transport Agency (“ANTAQ”). According to the Act, from 2024, it will be possible to charter two foreign vessels, increasingly annually to up to a maximum of four vessels by 2026. From2027 onwards, this type of chartering will be limitless.

Aligned with the rules, the Cabotage Act enables the time and voyage chartering of vessels by EBNs, without authorization, provided they are to be used in cabotage navigation in the place of another vessel undergoing renovation in a national or foreign shipyard.

Vessels will be required to undergo periodic inspections by the Brazilian Maritime Authority, to determine their conformity.

The labour aspects of the new Cabotage Act have also been subject to scrutiny. The updated regulation-maintained requirement of at least two-thirds of Brazilian crewmembers, including the vessel´s master, chief engineer and engine technician.

Finally, EBNs applying to the program must prove compliance with federal taxes and agree to periodically present information on the expansion of their activities, improvements in the quality of their service, their level of local employment, sustainability, and transparency regarding the values of freight.

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

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.

• 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 charter parties, 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 charter party 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 charter parties 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.

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