Does India have enough container ships to serve the coastal trade?
The English word ‘cabotage’, which has a Spanish origin, means trade or navigation in coastal waters and the right of a country to operate exclusively in the coastal trade. Such protection to national shipping under the cabotage law is designed to promote and protect domestic shipping. Countries such as India, US, UK, Japan, Australia and China maintain strict reservation of their coastal shipping to domestic services.
Share of container trade in India’s total port traffic: The total traffic handled by all the major and non-major ports in India in 2011-12 stood at around 930 million tonnes. All the major and non-major ports seem to have handled a total container traffic of about 9.9 million TEUs – equivalent to about 125 million tonnes.
Therefore, the share of container traffic in the total cargo handled at Indian ports comes to only about 14%. Further analysis will show that only less than 30% of this cargo traffic will constitute the transshipment trade and, therefore, in actual practice, if relaxation of cabotage law is cleared by the government, it will affect only less than 5% of India’s total port.
Does India have enough container ships to serve the coastal trade?: According to the updated database of the Indian National Shipowners’ Association, only 15 feeder container ships with a total carrying capacity of about 15,000 TEUs are available under the Indian flag. India has a coastline of about 7,500 km with 12 major ports and at least about 20 commercially-significant non-major ports. Those familiar with shipping would know that the Indian container ship fleet is awfully inadequate to service the requirement of Indian shippers efficiently and cost effectively. So long as this cargo reservation remains in force, domestic container lines would try to keep freight rates high.
One reliable source has pointed out that domestic container lines would charge about $1,000 per TEU for moving a container from Kandla (Gujarat) to Kochi whereas a liberalised market environment with international operators would contribute to a substantial reduction in freight rate to as low as about $300 per TEU. In view of the restrictions placed on the movement of containerised cargo along the Indian coast on foreign shipping lines, they are now compelled to make use of foreign ports, namely Colombo, Singapore, Salalah and Dubai, for transshipping India’s foreign trade.
Reforms in cabotage law: In 2003, China eased cabotage regulations to permit foreign lines to ship empty containers between domestic ports. Empty containers were considered ‘domestic cargo’ before and subjected to cabotage regulations. The amendments apply only to shipping companies of countries that have signed relevant bilateral agreements with China.South Korea and China signed an agreement in 2005 to increase the number of empty containers that can be transported by South Korean carriers between Shanghai and Ningbo. Previously, South Korean carriers had to use Chinese shipping lines. In 2003, South Korea abolished transshipment fees and relaxed cabotage rules. The rationale for South Korea was to make its ports attractive as a northern hub for Asian container traffic. Since the relaxation of South Korea’s cabotage laws, six foreign shipping lines have entered the market providing competition to local feeder operators and reducing rates for shippers.
Australia, which relies on shipping for the transport of 99% of international trade, maintains cabotage rules under an ‘operating permit’ system. Foreign-flagged carriers can apply for a licence to move domestic cargo and foreign lines seem to have increased their volumes during the last decade as the domestic shipping fleet has shrunk to just 30 ships. In Indonesia, the government relaxed cabotage law in April this year for six activities of foreign-flagged vessels that are serving Indonesia’s oil and gas sectors.
Lessons from Malaysia: Malaysia has two important ports: Port Klang and the Port of Tanjung Pelepas. They are the 12th- and 17th-largest container ports in the world. The Port of Tanjung Pelepas, situated about 50 nautical miles from Singapore, was developed by the Malaysian government as a transshipment port to compete with Singapore.
In 2009, Malaysian government relaxed its cabotage laws, permitting foreign shipping lines also to carry cargo along the Malaysian coast as a result of which Tanjung Pelepas increased its container traffic from 5.6 million TEUs to 7.5 million TEUs: 94% of the total port traffic is transshipment cargo.
The New Zealand experience: New Zealand deregulated coastal shipping by removal of cabotage law with effect from February 1, 1995. There have been repeated efforts to reintroduce cabotage and, in 2004, the New Zealand government appointed a shipping industry review team to make a comprehensive study into the merits and demerits of reintroducing cabotage.
The main conclusion drawn from the stakeholder analysis was that reintroduction would appear to have an overall net negative impact on the New Zealand economy and, hence, the liberalised environment still exists.
The internal and external environments that exist in India in domestic and international shipping would suggest that the demand for a sectoral relaxation of cabotage law in container transshipment is fully justifiable. In a market environment of reduced freight rates, there will be greater opportunities for migration of container traffic from roadways to coastal shipping, and there will be enough space for both Indian and foreign shipping lines to co-exist and compete to provide a truly competitive shipping service to support India’s economic development.
Source: Economic Times India
