Brazil's bustling maritime industry threatened by cut in state subsidy

For the past decade Brazil has pushed hard for self-sufficiency in deep-sea shipping. But the effort may be running aground. Government subsidies for the industry have been reduced.

The cutback in financial resources began last December when Planning Minister Antonio Delfim Netto announced drastic reductions in subsidies to state enterprises. The planning minister told Sunamam, the state-run National Superintendency of the Merchant Marine, to slash its high debt load of $300 million.

Sunamam carries out national shipping policy for the Brazilian Transport Ministry and the country's now very substantial 7.5 million deadweight tons (dwt.) of state and privately owned cargo ships, tankers, and bulk carriers.

The forced cutback in subsidies affects other huge Brazilian state enterprises whose individual fleets make up most of the country's total state-owned tonnage.

This includes Fronape (Frota Nacional de Petroleiros), the 65-ship tanker and liquefied natural gas carrier fleet for the state-owned oil and gas agency, Petrobras. With its six supertankers of 250,000 dwt. each, Fronape has the largest government-owned tanker fleet of any third-world country.

Then there is the bulk carrier fleet of CVRD (Companhia Valle Rio Doce), Brazil's largest iron ore producer. Also feeling the cutback is the aggressively run, private dry cargo shipping line: Netumar (Companhia de Navegacao Maritima). This company's ships now service all major United States and Canadian east coast ports.

To understand the formula for financial restraint in the strategic Brazilian transport industry is to understand a carrot-and-stick philosophy of the mid- 1960s which funded a major shipping fleet under the Brazilian flag.

In 1967, when Sunamam was set up from an earlier state shipping agency, a 20 percent surtax was placed on all cargoes going in or out of Brazil harbors.

Half this tax went into the Fund for the Merchant Fleet. The other half went into the running account of Brazilian or resident foreign shipyards applying to Sunamam for credit.

To try to wipe out Sunamam's debt, all levies on foreign imports were increased to 30 percent last January with the hope of bringing in an estimated $ 400 million in new revenue.

In addition, Planning Minister Netto terminated the shipbuilding industry's formula for financing a new vessel. The formula traditionally meant the shipping company made a down payment of 15 percent of a new vessel's value, with the remainder to be paid off with money from the Fund for the Merchant Fleet at 8 percent interest - this in a country with 90 percent inflation.

Subsidies on locally built ships will now be greatly reduced. Domestic shipyards which had grown substantially under the old formula, including local subsidiaries of Japan's Ishikawajima industrial conglomerate as well as the Dutch Verolme Shipyards, must deal directly with potential shipowners for their financial arrangements and no longer through Sunamam.

The Brazilian shipyard industry had blossomed under the old arrangements. Brazil had not only built its own large merchant fleet from domestic resources, but had become a net exporter of medium-size dry cargo ships to such major shipbuilding economies as West Germany and Britain.

In doing so, it had fulfilled a major part of the industrial strategy for Brazilian commercial expansion abroad, as worked out by senior military and civilian planners of the Rio-based Superior War College. Many of their planning papers have become public policy since the early 1970s. This was done by applying a mix of geopolitical thinking about the country's future role in the world to include self-sufficiency in deep-sea shipping.

This was especially true of the tanker and LNG carrier fleet for Petrobras. A country that still imports 60 percent of all its vital oil requirements can never rely on foreign-owned tankers, even at a time when these are a glut on the world shipping market, it is held.

Before the Netto cost-cutting in the state enterprises, in mid-1979 the government approved a $200 million Eurodollar loan to Sunamam from Canada's Toronto Dominion Bank to meet working capital requirements, but not for debt retirement.

This curious rationale of taking away needed financial resources on the one hand, but permitting foreign borrowings on the other, is entirely understandable from the standpoint of a military government. The government knows it must cut costs, but believes it must meet a strategic need for Brazilian-owned ships to meet the crises of peace and a possible future war.

Retired Brazilian admirals, like the ones who have served as directors of Lloyd Brasileiro, the country's largest state shipping line, founded in 1888, remember the huge losses it endured during World War II when 20 of its ships were torpedoed by German U-boats operating in the South Atlantic.

Moreover, Brazil's record-size tonnage represents coastal and river shipping lines as well as the deep-sea operators, to make the country the second-largest shipping nation in the Western Hemisphere.

Maritime and naval interests are closely interrelated in Brazil. The rear admiral in charge of the country's spick-and-span naval college at the mouth of Rio de Janeiro's gorgeous harbor competes with the state merchant fleets for his naval officer candidates.