India’s Shipping Policy and Relaxation in Cabotage Rules

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(Image Courtesy: Vansh Logistics)

In a major decision last week, India’s Ministry of Shipping (MoS), relaxed the cabotage law issuing a General Order, under which it is now not required for a foreign flag vessel to obtain a licence under Section 407 of the MSA to carry ex-im containers and empty containers on the Indian coast.

Shipping goods within India’s domestic jurisdiction, that is, from one Indian port to another, is known as “cabotage.” It is governed in India by the Merchant Shipping Act (MSA) of 1958. Under Section 407 of the Act, only ships registered (or “flagged,” in shipping parlance) in India, which follow Indian laws and pay taxes to the Indian government are permitted to engage in cabotage trades.

Who Gains?

Significantly, the decision is likely to result in major gains for companies which own and operate private ports in India, which import coal and agricultural products. Foreign-flagged ships can transport cargo within the country if they obtain a licence from the Directorate General of Shipping (DGS) in the Union government.

“This is the latest move in a policy tussle going for many years and appears to tilt the balance in the shipping industry and the ports sector in the country hugely in favour of major multinational shipping lines and private port operators to the detriment of Indian shipping companies and government-run ports,” a National media house reported.

Relaxation of “Cabotage” was much on the cards

Foreign-flagged ships can transport cargo within the country if they obtain a licence from the Directorate General of Shipping (DGS) in the Union government. These licences are meant to be granted only in when there are no Indian ships available for moving a particular shipment from one port to another. The DGS is supposed to issue a licence in this regard to a foreign ship after it obtains a no-objection certificate (NoC) from the Indian National Shipowners’ Association (INSA), a Mumbai-based trade association and lobby group of domestic shipping companies.

A report in The Hindu Business Line in June 2014 stated that the new government had already spent “a couple of weeks” meeting “stakeholders” who wanted cabotage rules relaxed. The position was consistent with a view that Prime Minister Modi had apparently supported when he was chief minister of Gujarat. Under his tenure, the Gujarat Maritime Board, the state’s ports regulator, had demanded a relaxation of cabotage rules. The board sent another representation to the same effect after Modi took over as Prime Minister, according to a report in the Mint.

Can Cabotage Waiver Address Container Shipping Sector’s Issues?

The myth regarding share of coastal shipping in overall transportation has not changed in the last many years, while the growth during the last three years alone in the containerised coastal segment, as highlighted, indicates a different story. Another myth that if cabotage law is relaxed for ex-im containers, foreign transhipment will shift to Indian terminals, is far-fetched, since the reason is not cabotage restriction but many other challenges like infrastructure and capacity constraints, high port costs, documentation procedures, etc. It also largely depends on the network planning of the shipping lines, it was said.

(Image Courtesy: Star India Container Line)

How Encouraging is the Govt’s Move?

The essence of this order is that there is no necessity to have an Indian flag vessel for the purposes of carriage of ex-im and empty containers between two Indian ports. While the outcome of this circular as envisaged by MoS will be seen in course of time, this may be a setback for Indian coastal shipping with respect to carriage of ex-im transhipment containers.

In the absence of a level playing field, Indian companies may therefore consider flagging vessels outside India and operating on foreign trade, resulting in India losing the opportunity to develop a transhipment hub port and grow the country’s tonnage, a couple of Shipping companies in India noted.

(References: The Wire, Steel Guru, Business Standard, Reuters)

Sea News Feature, May 30