Shipping Agency in Brazil: how agreements are made

  • 02/09/2020
  • 11 minutes

The role of a shipping agency in Brazil is regulated by a series of legal provisions, ordinances and other rules. However, international trade has a peculiarity: as judged cases can happen on the high seas, it becomes more complex to establish which law will be used. 

In this regard, a shipping agency agreement needs to be very well written. After all, in case of non-compliance or conflict of interest, the responsibilities have to be very well investigated to establish fair reparations.

To talk about this topic, Wilson Sons invited its business manager Luiz Maluza. The specialist has clarifications of interest to anyone who operates in international trade or even studies the subject. Follow in the next topics.

Contractual relations in international business

Currently, with the fluidity and speed of information and, consequently, of commercial transactions, both in Brazil and in the world, the scenarios are constantly changing. Thus, there is a fear that, during negotiations between business partners and the usual need for contracting and urgent demands, the agreement is often not seen as an essential element.

Naturally, a shipping agency in Brazil is subject to rules common to those operating in international trade operations.

However, both nationally and internationally, the importance of an agreement cannot be ruled out. The instrument is, and always will be, the maximum expression of the agreement between the parties. When we talk about business partners in different countries, subject to different laws and customs, more than ever, an instrument capable of resolving possible conflicts and unequivocally translating the parties’ intentions is needed.

Regarding the agreement signed by a shipping agency, Maluza points out that “the functions performed by the shipping agent are complex and involve services disciplined by different rules. The agreement signed between shipowner and agency includes the tasks of managing the ship and its operation, not granting him powers to act on its behalf without a specific mandate. The shipowner is responsible for intervening in legal matters involving cargo, in addition to providing direct service to his clients.

Thus, the contract signed between the shipowner and the shipping agency stipulates that the shipping agent is mandatary, even if for convenience, local authorities want to understand that this is a representation.

The agency’s limitations and responsibilities

In this case, Wilson Sons’ business manager points out: “It is one thing to be mandatary and quite another to assign responsibility as a representative. The performance of the shipping agent takes place on behalf of and in the name of its mandatary shipowner or ship operator. The shipping agent is not the charterer of the ship, does not handle the cargo, nor is he a carrier, does not perform the transport and, much less, has the power to contract freight — exclusive activity of freight agents, freight forwarders and NVOCCs. This is the reason why the shipping agency should not be held responsible for the actions taken by the shipowner, ship operator or charterer, in the exercise of their duties”.

A shipping agency, therefore, has very limited responsibilities. For acting only as a mandatary, under the terms of article 663 of the Civil Code, it is responsible only within the limits of its obligations. In other words, it is up to the principal to take responsibility for any and all complications that arose during the execution of the agreement, if the mandatary has acted in strict terms of the mandate. There are even decisions of the Superior Court of Justice in this regard.

Anyway, a shipping agency in Brazil does not differ from its counterparts on the international scene. This is the case if we consider that all must answer for their actions according to the decisions of the Baltic and International Maritime Council (BIMCO), the largest association of shipowners in the world, and the Federation of National Associations of Ship Brokers and Agents (FONASBA).

Regarding these bodies, Luiz Maluza recalls that they “prepared a standard agreement model in order to formalize the relationship between principal and agent in the modalities of shipping agency services.”

The cases in which the contracting of an agency is indicated

“Although these agreements can be adapted and changed according to the needs or particularities of each business, they must serve as a standard. This makes them indispensable also in specific agency agreements and for long-term agreements”, highlights Maluza.

This broad application, on the other hand, increases the possibilities in which contracting a shipping agency in Brazil may be necessary. After all, we are in a country with 7,941 kilometers of coastline, ideal for domestic navigation and which makes cabotage an important means of transporting and distributing production.

Mistakes to avoid when signing agreements

Luiz Maluza also emphasizes the importance of the rules determined by BIMCO and FONASBA since “shipowners and agents have not always had formal agreements. Some commercial relations have worked so far without the use of these agreements, although there is always the risk of disagreements over payments, scope of services and responsibilities and even what legislation to adopt in case of disagreement between the parties. Without references to support diverse interests, the practice shows that the agent usually takes the loss.”  It is also important to note that pre-contractual instruments, such as a letter of intent and memorandum of understanding (MoU), can assist the parties before formalizing the instrument itself.

The specialist also lists the most recurring errors in the relationship between shipowners, carriers and agencies when they do not observe the risks of operating without an agreement:

• non-alignment of scope and responsibilities of the parties;

• inability to resolve omitted cases;

• lack of support for collections;

• greater vulnerability in the relationship between the parties.   

He adds, highlighting the advantages of working protected by this instrument: “the agreement is the fundamental tool for a business relationship to be respected and satisfactory for both parties. It is the regulator of everything that involves the contracted service, including how the work will be carried out, the definition of deadlines, among other points.

The agreement is the means by which the parties demonstrate their intentions, and therefore its guiding principle is objective good faith. More than complex terms or the usual legal jargon, an agreement needs to be clear in what it wants from both parties. The tendency is for them to be more and more simple, so that those who negotiate feel free to do so, without fear of contracting something with which they do not agree.

The most used terms in this market

A shipping agency in Brazil must always work with attention to the most common terms used in foreign trade. This way, their agreements will be better drafted, ensuring the necessary legal certainty. In this sense, Luiz Maluza ends by pointing to some of the most frequent ones:

• agreement — the signed and validated agreement between agency, carrier and shipowner;

• agent — professional responsible for intermediating the relationship between shipowner and carrier;

• disbursement of accounts — accountability, costing;

• fee — fee or emolument to be paid for some type of onboard or onshore operation;

• husbandry — activities related to the ship’s stop over

• proforma — cost estimate of the stop over;

• port call — stop over at the port;

• spot — expression used to refer to short-term operations.

Finally, Luiz adds: “the constant innovation also impacts the legal universe. In other words, new forms of business arise and, therefore, it is up to the legal system to adapt and regulate these trends and innovations”.

To complement what you have just learned in this article, download the e-book in which we show a broad view of shipping agency in Brazil. Information is power!