The federal government has announced its desire to open the cabotage navigation market, ending protection for national navigation companies with the aim of reducing costs and increasing competition with road transport. According to a government report called “Cabotage Navigation in Brazil”, of the 37 companies authorized to operate in Brazil, only four hold 70% of the total cargo capacity, disregarding the vessels of Petrobras group.
The report, prepared by the Special Secretariat for Strategic Affairs (Seae) of the Presidency of the Republic, recommends that the protection of national companies against foreign competition in Brazilian cabotage navigation be revised and the phasing out of the Merchant Navy Renewal Freight Additional (AFRMM), whose role in fostering domestic industry has “questionable” justification and effectiveness.
Economy Minister Paulo Guedes said he intends to open the cabotage market, which with investments in railways would make the country less dependent on roads. In Brazil, this modality accounts for 11% of national cargo transportation, a percentage similar to that of other continental nations with extensive coastline and wide availability of waterways, such as the United States (11.4%). However, 52% of the movement is oil and oil products, of which almost 70% is handled by Petrobras..
In general, the Brazilian market restricts the participation of foreign vessels in the provision of the service. The exceptions are: unavailability of Brazilian flag vessels of equivalent type and size, replacement of vessels being built in a Brazilian shipyard, or duly justified public interest.
“The opening of the cabotage navigation market, proposed by the Federal Government, has positive and negative points to consider. On the positive side, we highlight the potential and significant reduction in high costs with road transport, increased competition and the consequent boost to exports and cargo transportation in the country. On the other hand, the economic and mainly political discussions that revolve around the issue still cause uncertainty to the approval of the proposal, generating, for the moment, only expectations”, says Raphael Zaroni, partner of Zaroni Advogados.
The Ministries of Economy and Infrastructure disagree on how the cabotage market should open to foreign companies that today face barriers to operate in Brazil. The closed environment is viewed with enormous caveat by the Ministry of Economy, which considers the package released so far by Infrastructure to be not bold enough.