Relaxation of Cabotage Rules - how will it help? - Archie D'Souza

The Planning Commission has favoured relaxation of Cabotage law for at least three years for exim containers handled at Vallarpadam terminal.  A letter written by the Advisor (Transport) of the Planning Commission to the Shipping Ministry said that the Commission was of the view that the Cabotage policy can be initially relaxed in respect of exim containers for a period of three years after which, a review may by undertaken regarding further relaxation of the policy.  This was conveyed by the Deputy Chairman of the Planning Commission to Prof K.V. Thomas, Union Minister of State for Food and Consumer Affairs.
Coastal shipping

The Planning Commission also suggested that the Shipping Ministry should come out with a policy for encouraging coastal shipping so that multi-modal transport could be developed and pressure on roads could be reduced.  There has been a growing demand from the shipping community, DP World and the Kochi Port for the relaxation of cabotage law allowing foreign flag carriers to carry cargoes between Indian ports.  The existing Cabotage rules mandated by the Merchant Shipping Act, 1958 stipulate that the movement of containerised cargo between domestic ports should be undertaken only on Indian flag vessels.
Sources in the shipping fraternity pointed out that the Vallarpadam container transhipment terminal could be developed as a transhipment only if the foreign flag vessels are permitted to carry export/import transhipment containers from any of the Indian ports to the ICTT or vice-versa.  The Vallarpadam terminal was developed as the first Indian transhipment port by the government.

The country's container traffic is estimated at more than 70 lakh a year.  Of this, 40 per cent are now transhipped in Colombo, Dubai and Singapore.  Every container transhipped through a foreign port incur additional cost of about Rs10,000, they pointed out.
[(This report by Sanjeev Kumar (sajeevkumar@thehindu.co.in) was published in the Business Line on April 11, 2012]

Will this be a boon for traders?  Will it help Indian shipping lines?  Let’s explore.
The report shows that 40% of our containers are transhipped through Colombo, Dubai and Singapore.  There is a sizeable number that tranships Port Klang and El Salala.  Even assuming that this figure is negligible, 40% of India’s container trade of 70 lakh would amount to 28 lakh TEUS.  Why and how will this shift to Vallarpadam?  Why would foreign flags want to call on more Indian ports if and when the cabotage rules are relaxed?

At the moment India does not have the desired coastal and fluvial shipping capacity to ensure more containers move through the ICTT.  Further, a great deal needs to be done with regard to connectivity with the ICDs and CFSs dotting the country.  In what way will foreign ships calling on more than one Indian port benefit exporters who use terminals that are far from the coast?  And, without the needed coastal infrastructure and with the presence of so much congestion why would they want at all to call on more than one Indian port?  These are questions no planner seems to ask.

The only way the exim community can benefit from the presence of the ICTT is for connectivity to improve.  The coastal and inland waterways should see enhanced services.  Barge services should commence from minor ports in the East & West Coast.  This will require that these ports be declared customs ports and the necessary facilities for container shipping be put in place.  Rail and road connectivity too should be enhanced.  And, most important, we need foreign ships to call at Valarpadam not the minor or intermediate ports.

Open cabotage policy could result in drop in shipping costs, but only at the shipping points that are viable to the shipping companies.  A congested port will not invite new entrants who want to move in/out quickly between ports.  Relaxations will achieve nothing mainly because a lack of new entrants will allow incumbents to maintain prices at current levels.   A lack of investment in ports and in inland infrastructure (roads, warehouses, consol/de-consol facilities) allowing efficient functioning of the supply chains, will not produce the desired benefits that one would expect from relaxed cabotage rules.

Together with a national policy, states need to pitch in.  Also needed is a regional policy of building new ports and inland infrastructure friendly to logistics.  All this needs to be enabled to serve vibrant regional economies, which may be too far from the any port.  Once we have our own fleet and infrastructure of nodes and routes we will be able to produce enough volumes for shipping companies to make Valarpadam a regular stop.  The need to relax cabotage will never arise.

Infrastructure investments take a long time to fructify and even longer to show gains, relaxing the policy for 3 or even 5 years will not be of any use

[I had posed a question on this subject on Linked-in. The main ideas stated here are from an answer by Kris Kosmala.  Thank you Kris]