Market Talks: The effects of changes in port costs in Brazil

Port costs are now calculated based on the vessel's deadweight, that is, the total weight of the ship's cargo. Previously, the cost considered handling cargo in each Brazilian port.

That change raises questions about the formula and whether the responsibility for payment lies with the importer, shipping agent or shipowner.

Join Renata Cardarelli, Deputy Editor for the Argus Brazil Grains and Fertilizer publication, and Fernando Valle, Commercial and New Projects Manager at shipping agency Unimar, as they talk about the new calculation and explain the main doubts generated by the changes.

Click link >> Impacts after Brazilian Port Infrastructure Tax changes focused on the fertilizers

Transcript:

Port Utilization Tax ( P.U.T. ) – What changed after a nerw regulation?

RC: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. My name is Renata Cardarelli, deputy editor for the Argus Brazil Grains and Fertilizer publication. In today's episode, I talk to Fernando Valle, commercial and new projects at the shipping agency Unimar, about new port costs and regulations in Brazilian ports. Welcome, Fernando.

FV: Hello, Renata, thank you. It is a pleasure to be here.

RC: Brazil’s National Waterway Transport Agency (ANTAQ) suggested a change to the method to calculate port costs. Can you explain it? How long has the new resolution been in effect? What were the main changes?

Well... first of all, we need to remember that this charge has always existed. This is the main point to start any discussion or conversation. Here in Santos for example, as it is considered the biggest port in South America, things becoming a little confused. I remember that the Port of Santos was managed (in regulations and charges) by Resolution 176/79 ( the old Federal Port Law regulation ), and that it was already in need of readjustment (both technical and administrative). Also, draw the attention that nowadays, despite having Federal legislation, all the Ports in the country work under their own administration and the most diverse interpretations of Law 8.630 (Law of Port regulation), which makes the subject very complex. In February 2022, ANTAQ suggested a change in the payment methodology. This change came into force definitively in July 2022 (after some discussions by Port entities). Basically what changed was the payment methodology. Where before it was charged for discharge or loading (quantity) of cargo, today it is charged according to the ship's cargo deadweight. And here's a reminder of what makes up the deadweight... Deadweight is the ship's total cargo weight. This weight includes the cargo, stores ( bonded and engine ) and, the total of fuel and all the ballast water capacity that the ship has. Always remembering that this change affects all port segments (solid bulk, liquids, Break bulk and containers). And in addition to the change in methodology, this change brought another question to the Port community, since that it now characterizes the headowner or his representative (in this case, the agencies) as responsible for payment.

How have market participants’ doubts been managed and who, effectively, has been responsible for paying tariffs?

As previous informed, the tariff that was previously paid by the Receivers/Shippers, is now considered by the Shipowner/Agency. For the time being, we have been receiving feedback (and even conducting in that way) for each case to be handled separately with clients. And for sure this bill will appear in a certain time. It must be paid! As soon as the receiver refuses to pay it, the agency informs the Charterer, who informs the Shipowner who, consequently, ends up including this final value in the freight amount (which in some cases reaches R$ 2.00 per t)

With the change in resolution, the number of calls in Brazilian ports by the same vessel can increase operation costs. Do vessels that discharge fertilizers in Brazilian ports usually make more than one call?

Unimar's intelligence website points out that from January to April 2023, we had 312 ships on the Brazilian Coast, performing 505 calls (with this numbers, we have the conclusion that about 43% of the ships made 2 or more calls). Reminding that the Ports that received most calls were: Santos, Paranaguá and Rio Grande. The numbers for 2023 point to a reduction of almost 12% in the number of ships compared to 2022, and a decrease of less than 1% in the number of calls. As a reference, in 2022 we had 353 ships, with 502 calls It means that both the charterer and the shipowner are trying to optimize as much space as possible on board (since the volume of imported cargo has not decreased).

The change to the tax calculation increased costs for what kind of vessels? Can you give us an example of charges before the resolution changed and with the new regulation?

In fact, this change increased costs for vessels that bring less cargo or grades to be operated and perform more than 1 call in Brazilian ports, as she’ll discharge the partial cargo in ports, but will pay for the entire deadweight of the ship in all ports of call. A simple example of this: A 50KMT deadweight ship with: 15KMT of fertz to Santos + 15Kmt of fertz to Paranagua + 10Kmt of fertz to Rio Grande, will pay the equivalent of 50Kmt of deadweight in the 3 Ports.... And note by the volum operated in each Port. And it belongs to discharge or loading. I remember that ships that operate with Top-off (a very common case of shipments normally starting in Argentina and due to draft restriction, complete the load in Brazil) also had a very large increase in Port costs. Just to have idea of real numbers.... A 50k deadweight ship that discharge 10,000MT cargo in Santos, previously paid R$ 41,600.00 ( arnd Usd 8,300 ). This same quantity to be discharged nowadays pays R$ 127,700.00 ( arnd Usd 25,500 ).

I see, Fernando. So the change in regulation increases costs of vessels that perform more than one call in Brazilian ports and that carry less than 50,000t. What is the average deadweight of vessels that operate in Brazil?

The deadweight average of ships that operated between 2014 and 2023 in Brazil is 47,000MT. The same ship’s deadweight average that operated between 2022 and 2023 is 53,000MT, considering that the majority ships are Handysize and Supramax. in numbers, Handysize ships have their Deadweight up to 50K T and Supramax are ships with up to 60k T of deadweight Also remind that between 2022 and 2023 there was an increase in Post-Panamax and Panamax ships

That’s interesting, Fernando. Post-Panamax and Panamax vessels have a deadweight of up to 95,000t and 80,000t, respectively. What are the main factors that reflect in Brazilian ports receiving more Post-Panamax and Panamax vessels?

Our BI System pointed out to an increase in demand on the regular Asian route. As a matter of facts from all the Post-Panamax ships that called in Brazil from January to April, 82% has their origin in Southeast Asia. Another economic factors also influenced this new route, such as: the increase in sea freight, the pandemic situation that definitely outlined the market, and the rise in fuel prices (especially green fuels). This is all offset by the freight for return voyage (which is really much better) of grain to Asia.

CD: Thanks a lot, Fernando. This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!