Cabotage in Brazil: Importance, Benefits and Growth

1. INTRODUCTION

Cabotage refers to the movement of national cargo along the coast, between Brazilian ports. It is an important modal for supplying regions and transporting products, serving, for example, solid and liquid bulk cargo: wood that supplies pulp industries, bauxite for aluminum producing companies, raw material for chemical industries, among others. It is also an important modal for transporting oil and derivatives, for relieving platforms or moving fuel between regions. It also caters for the transport of general cargo and containers, transporting, for example, products manufactured in the Manaus Free Trade Zone to serve markets across the country. There are still project loads, when products with their own specificities are transported by sea. There are countless examples and applications that explain the importance that cabotage has for the country.

The vocation of cabotage is clear: to serve the transport of products with origins and destinations close to the coast, over long distances. Despite having 80% of the population at a distance of up to 200 km from the coast and having practically 8 thousand km of coastline, Brazil has only 11% of its transport matrix allocated in the modal. If we consider that of these 11%, more than half refers to the movement of oil and derivatives, we realize that there is still an underutilization of cabotage for the transport of goods and supplying the country.

On the other hand, Brazil is highly dependent on road transport: according to an analysis carried out by ILOS, our transport matrix indicates that, in 2018, 61% of the cargo handled used Brazilian highways. It is a disproportionate percentage when compared with other important countries: Japan (which transports 44% of its cargo in cabotage), uses the highway for 50% of its movement; for the EU, this index is 49%; in the United States, road transport accounts for 43% of its domestic movement; finally, China uses the road to move 33% of its internal cargo. This benchmarking makes it clear that developed countries use their roads strategically and in line with their vocation. Meanwhile, in our country, it is not uncommon to see the transport of products by truck between the states of São Paulo and Pernambuco, when it would be more reasonable to take the cargo via cabotage from the Port of Santos to the Port of Suape, for example.

This imbalance in the transport matrix causes numerous problems for various stakeholders, as shown in the table below. To overcome them, the existence of a state policy is necessary, which permeates the changes in government, in order to put cabotage in focus and create means to encourage the growth and expansion of the modal.

This article will deal with the potential that cabotage has to remove cargo from the highways, the benefits that such a movement can generate and what are the main obstacles that prevent investments and the acceleration of the growth of cabotage in our country.

2. GROWTH POTENTIAL AND BENEFITS OF CABOTAGE

After the 2018 elections, Jair Bolsonaro, together with his economic team, led by his Finance Minister Paulo Guedes, declared the government's intentions and growth projections for the years of his government. In an article published by the newspaper O Globo in November/2018, Bolsonaro's transition team stated that the expectation of growth would be 5% per year starting in 2020. For 2019, according to the Focus bulletin, economic growth expected would be 2,5% per year. This would mean an average growth of 4,5% over the 4 years of government, resulting in an addition of 320 billion TKUs (tons x useful kilometers) on Brazilian highways at the end of the presidential cycle. To avoid the collapse of the road system and all its consequences, the government has the fundamental mission of allowing investments in transport infrastructure to be carried out.

Currently, Brazil finds itself with little power to carry out investments due to the successive crises it faced in previous years. The spending ceiling, for example, limits the federal government's investment capacity, which creates the need to find alternatives to make the estimated growth viable. Cabotage is a viable alternative, as it does not require, for example, investments in roads (seas). The use of ports by cabotage represents a very small volume when compared to the volume of foreign trade, that is, it would not be up to cabotage to carry out port investments. Also, according to data from the 2018 CNT Transport and Logistics Plan, it would take BRL 10 to maintain cabotage for every 1.000 TKUs transported, while railroads would need BRL 65 and highways, BRL 147 (Figure 1). These factors confirm that encouraging cabotage to allow for the expected growth is an efficient alternative.

Figure 1 - Maintenance required for each Modal (R$/1.000 TKUs)

Analysis: ILOS/CNT

Even accompanied by successive crises and without an adequate development policy, cabotage has grown in recent years, especially container cabotage, which grew, between 2010 and 2018, by an average of 12,7% per year. Even so, this two-digit increase is still insufficient to capture all the potential cargo that currently travels in inappropriate modes.

Through an analysis of the origin-destination matrix released by EPL in 2016 and considering the distance of 1.500 km between origin and destination as the minimum distance to make cabotage transport viable, it was possible to identify the volume of cargo that currently travels on Brazilian highways and could migrate to cabotage. In this way, it was identified that there is a maximum potential of 123 billion potential TKUs for cabotage, which represents 44,2 million tons. If we consider that, currently, cabotage transports 4,6 million tons (not considering feeder, in which case there is a combination of national cabotage and foreign trade), it is reasonable to conclude that in Brazil, for each full container transported in cabotage, there are 9,7 potential containers on the highways. Considering other factors that influence shippers' decision-making in selecting the transport mode (total transport time, urgency, need for fractionation, perishability of cargo, financial cost of stock in transit, among others), it is estimated that 50% of this cargo could be removed from the highways, that is, for each container full in cabotage, there are 4,8 containers actually captured by the Brazilian Shipping Companies (EBNs).

Table 1 – Potential volume of cabotage.

Source: ILOS/EPL/ABAC

The migration of this potential volume would generate a series of benefits for the country. Reducing the number of truck trips on highways would result in a reduction of 10 accidents per year, or 29 fewer accidents per day in the country, considering federal, state and municipal highways. Considering the costs of shipping companies with freight, the potential annual savings would reach R$ 1,7 billion. There would also be a large reduction in greenhouse gas emissions, as cabotage emits, proportionally, four times less than road transport. Finally, there would be an important benefit in terms of National Sovereignty, given that, according to current legislation, cabotage is only carried out by Empresa Brasileira de Navegação, which guarantees a bond and commitment of the Brazilian merchant navy and its vessels with the interests national.

Table 2 – Benefits of capturing the potential volume of cabotage.

Source: ILOS/EPL/IPEA/ABAC

3. ACTIONS NECESSARY TO FOSTER CABOTAGE

For EBNs to have the capacity to increase supply and improve their services, it is necessary for Brazil to create the right conditions for carrying out investments, without falling into the trap of opening up the market, which would prevent the necessary scale to make the profitable business and would not allow the regularity of the service, in addition to being an uncommon practice in other countries in the world. For example, the restriction of cabotage to companies regularized in the country is an existing practice in countries such as the United States, Japan, China, Canada, Australia and Germany. To give you an idea, cabotage is seen as strategic in the United States to such an extent that it can only be carried out with ships flying the American flag, built in the country and operated with American crew. The US merchant marine plays an important national security role.

In this sense, one of the main actions that shipowners seek is a stable regulatory environment, which allows large investments, characteristic of the business, to be carried out, without incurring unnecessary non-systemic risks.

In addition, another point that can drive away investments is related to the competitive reality of the country. Brazil currently has a series of peculiarities that reduce the competitiveness of EBNs in cabotage, bringing high costs and driving away investments. These costs can be divided into three large blocks: fuel, pilotage and crew. As for fuels, the question refers to non-compliance with the Regulatory Framework, defined by Law 9.432/1997, which in its Art. 12 describes that cabotage fuel prices should be the same as those charged for international long-haul vessels. Due to a misunderstanding regarding the collection of ICMS, cabotage ends up paying a 20% higher amount in ship supplies than foreign trade.

Pilotage in Brazil has monopolistic characteristics, since it is a mandatory service and there is no competition. In addition, it has no economic regulation, a fact that is almost non-existent in other major countries in the world. This combination of factors generates high charges for carrying out maneuvers in ports, which is critical for cabotage, since some container cabotage services, for example, call at several ports in a short period. The crew is also a factor that draws attention to the issue of costs, due to the high charges charged.

Finally, a third point is related to the ability to invest in fleet training. Currently, cabotage relies on the Merchant Marine Fund (FMM), which has capital to encourage investments by companies, but has rules and restrictions that make its full use difficult. Linking the construction of vessels in Brazilian shipyards, for example, is an issue that is widely discussed among those involved.

Figure 2 - Necessary actions to promote cabotage

Source: ILOS

The participation of the federal government is necessary for the speedy resolution of the obstacles, in order to allow the investments by the shipping companies to be carried out as soon as possible.

4. CONCLUSION

As shown, Brazil will need to take measures to leverage its infrastructure and allow the growth targeted by the new government not to create a collapse in the country's logistics. Cabotage has a repressed potential for absorbing cargo from road transport, which can bring benefits to companies, the government and the population in general. It is essential, however, that the government establish a state policy, aimed at promoting the modal, in order to create a favorable business environment and allow the expansion of supply and services.

SUGGESTED BIBLIOGRAPHY

• IPEA. Traffic Accidents on Brazilian Federal Highways Characterization, Trends and Costs for Society. Brasilia: IPEA, 2015
• CNT. CNT transport and logistics plan 2018. Brasília: CNT, 2018.
• EPL. Interregional freight transport in Brazil. Brasília: EPL, 2016.