Navigating Latin America - An Update on Carriage of Goods by Sea
Brazil’s ‘CT-e’ and Delivery of Cargo within Complex Customs Regulations
The region comprising Latin America and the Caribbean is a busy one for the UK P&I Club. Some prominent Members have a large number of tons entered with the Club and have this region as their principal place of business. Moreover, many of the Club’s entered ships frequently call at Latin American and Caribbean ports regardless of where the Member is based, which can undoubtedly be anywhere in the world.
Managing claims in Latin America and the Caribbean can be challenging. The Members and the Club need to deal with the multiple languages spoken in the region (Spanish, Portuguese, English, Dutch and French), the numerous legal systems, although most countries in the region follow the civil law system, and different cultural approaches to business. Besides, the handling of claims related to the most common trades to or from Latin America and the Caribbean usually requires a certain degree of specialised knowledge. Tankers trade, dry bulk trade (brown water and blue water) and controlled-atmosphere containerised trade, not to mention the increasing number of Charter Members in this region, are the Club’s day-to-day business in Latin America and the Caribbean. All of these trades give rise to claims involving complex coverage and legal issues: fines resulting from customs investigations, smuggling of illegal narcotics, cargo claims, dock damage, claims for damage to fixed and floating objects (FFO claims) and sanctions-related situations, among others.
The team manages claims in this region out of the New Jersey office for incidents occurring in Central America, South America and the Caribbean, and out of the San Francisco office for incidents occurring in Mexico. The Club has the required team with the appropriate skills and qualifications to handle claims effectively in this fascinating and complex region.
We have chosen Brazil for this update, which will touch on some of the most common questions we receive from Club Members trading to, from or within Brazil. But please bear in mind that the comments and opinions given in this update cannot be regarded as definitive and Members are encouraged to submit inquiries about specific situations to the Club for analysis.
UK P&I Club in Brazil
The Brazilian shipowning community has played a key role in the successful development of the UK P&I Club for more than 75 years. The first Brazilian member, Companhia Comercio e Navegacao (‘CCN’), appears in the Club records in 1948. In 1983, the UK P&I Club was honoured by the election to its Board of Directors of its first Brazilian director, and the Club has maintained almost continuous representation from leading Brazilian shipping executives since then. Furthermore, the UK P&I Club celebrated its 70-year partnership with Transpetro-Petrobras Transporte S.A. last year.
While Brazil is a world-class shipping hub, trading to and from the region presents unique challenges to the domestic and foreign-flagged ships calling at Brazil’s ports, for both locally based and overseas Members. Consequently, the Club examines current shipping trends in Brazil and provides valuable insight to assist with smooth sailing.
Brazil’s ‘CT-e’: An update on carriage of goods by sea within Brazilian waters
The Club has dealt with and is currently dealing with multiple types of unique challenges regarding trading to, from and within Brazil. So, we have chosen the CT-e bill system for cabotage or carriage of goods within Brazilian waters as the subject for this update, making use of our own expertise gained from handling real-life incidents, the application of P&I coverage principles and comments on Brazilian law information we have received from lawyers in Brazil. Also, most of the information relied upon for this update comes from the Club’s webinar ‘Navigating Latin America: P&I focus on Brazil’, which was held in November 2021 and is accessible through this website link https://www.ukpandi.com/news-and-resources/videos/navigating-latin-america-pi-focus-on-brazil/.
We see with some frequency inquiries from shipowners and charterers on the unique electronic CT-e bill for coastal way trade. This system is mandatory for all maritime carriers operating in the Brazilian cabotage trade. However, many shipowners and charterers who are unfamiliar with the Brazilian system have posed questions on whether this unique Brazilian bill would prejudice their cover.
- Is a Club Member’s P&I cover prejudiced if it issues a CT-e bill of lading?
- Is the CT-e system recognised by the Club?
P&I cover is not prejudiced, because the Brazilian CT-e document is not a document of title. The CT-e acts as an electronic version of a straight non-negotiable bill of lading. The Brazilian CT-e bill system has been in operation since 2013 and is recognised by the International Group of P&I Clubs (IG) as involving non-negotiable documents.
- The CT-e appears not to be included within the IG-approved electronic bill systems. Is this a problem for a Club Member’s P&I cover?
Since the CT-e is not an original document of title, it has not been necessary for the IG to consider approval as such.
- Has the Club seen any misdelivery claims submitted as a result of using the CT-e bill system?
No, we have not seen any liability for misdelivery established against a carrier arising from use of the CT-e system. However, it is perfectly possible for ordinary claims for cargo loss, damage or shortage to be presented under the original bill against the carrier and/or shipowner. A Club Member remains covered for P&I insured liabilities for cargo loss, damage or shortage that may arise under a CT-e.
- The Club’s Rules require the Member to contract in terms no less favourable than the Hague-Visby Rules. Members have expressed their concerns over the effect on P&I cover when shipping cargo under the CT-e, as it is claimed that the Brazilian courts do not recognise the Hague-Visby Rules. Does the fact that the CT-e is compulsorily applicable for Brazil cabotage have anything to do with the cover remaining in place for maritime carriers?
It is true that Brazil has not ratified the international conventions governing a carrier’s liability for cargo loss or damage, such as Hague Rules, Hague-Visby Rules or Hamburg Rules, and generally the domestic courts do not recognise incorporation of these Conventions into a carrier’s contract of carriage. However, a Club Member remains covered by the Club for all insured liabilities for cargo loss, damage or shortage arising under Brazilian law, even where the Hague-Visby Rules are not recognised by the courts. Club cover only requires a Member to expressly include Hague-Visby Rules in its own regular bill or other contract of carriage. If the courts ignore such contractual clauses, then the Member remains covered by the Club. In case of any doubts or concerns, the Member should send its bill (or other contract) terms to the Club, together with its questions about Club cover, and we will happily review these and give advice on P&I cover.
Most jurisdictions in Latin America have intricate customs systems and regulations. Brazil is no exception. A customs-related incident may entail not only administrative investigations for breach of customs regulations but also criminal investigations in most of those jurisdictions. That may also give rise to questions of P&I cover in respect of the unique mandatory way of delivering cargo in Brazil due to complex customs regulations.
- The delivery of cargo without production of the original bill of lading may prejudice cover in most instances as it may give rise to misdelivery claims. However, it appears that the carrier delivers cargo in Brazil without production of the original bill due to complex customs regulations.
A carrier trading to Brazil, especially if unfamiliar with its regulatory system, will commonly expect the surrender of an original negotiable bill in exchange for delivery of the cargo – as is common practice around the world. However, in Brazil, the legal requirement and system of cargo delivery is completely different. Under Brazilian regulatory law, a carrier or ship’s master is obliged to deliver the cargo to the local customs nominated bonded warehouse, without the surrender of an original negotiable bill. The original negotiable bill is collected by an appointed third-party customs agent, together with any applicable customs tax payment, and it is the customs agent who then authorises the release of the cargo from the bonded warehouse.
- How does the Club treat this unique Brazilian system in practice?
P&I cover is not prejudiced by a ship’s master’s compliance with the regulatory requirement to discharge and deliver cargo to the customs bonded warehouse, without surrender of an original negotiable bill in exchange, since the master has no legal rights to demand the surrender of the original bill under Brazilian law.
- In other jurisdictions, where cover would be prejudiced by cargo delivery without surrender of an original bill, the shipowner may demand a letter of indemnity (LOI) from the charterers to follow the charterers’ instructions. Should an owner follow this practice in Brazil?
Whilst owners can ask the charterer for an LOI, in exchange for the delivery of cargo to a customs bonded warehouse without the original bill, an experienced charterer may decline to do so, if it is familiar with the Brazilian regulatory system: in other words, where the charterer knows that the master has no choice but to discharge and deliver the cargo to a customs bonded warehouse, the charterer may decline to issue an LOI to the shipowner.
Finally, the Latin America’s team (https://www.ukpandi.com/news-and-resources/americas/latin-america-team/) is available for any question Members may have about common issues faced when trading to, from or within Brazil. The Americas’ team also recommends reaching out to the Club’s Loss Prevention division (https://www.ukpandi.com/loss-prevention/) as it has useful information to share that could assist Members.