The Hindu Business Line : ‘Allow foreign vessels to compete for coastal cargo’

With a view to develop Indian ports as transhipment hubs for Indian-origin cargo, there has been a growing demand to open up coastal shipping and relax cabotage laws to foreign flag carriers.

The Merchant Shipping Act does not permit foreign vessels to carry cargo between Indian ports. However, permission is accorded to foreign ships for this, if no suitable Indian vessel is available.

The cabotage restrictions, while protecting Indian tonnage, discourage the growth of coastal shipping in as much as Indian tonnage is not adequate and the Indian industry is not aggressive enough to increase the share of coastal shipping.

Sources in the shipping fraternity say international competition would bring about greater efficiency and reduced cost, which could increase the percentage of coastal transportation in the overall transportation business.

However, relaxing cabotage laws would not create a level playing field. It would be desirable to allow foreign vessels to compete for coastal cargo and this would help bring in technology and efficiency, which would reduce the cost of logistics and make Indian products more competitive in the international market.

The sources said ships with foreign flags have the advantage of being able to hire international crew at very low rates and are not bound by restrictive manning norms.

Besides, Indian taxes and duties do not apply to foreign vessels and they operate under favourable taxation rules, subsidies and lower costs. Foreign vessels, therefore, have inherent advantages as compared to Indian vessels.

With growth in the economy and increased demand for transportation, there was need to increase the share of coastal shipping in the total transportation business, the sources said.

Given the slow growth of coastal tonnage today due to the various bottlenecks faced by the Indian coastal vessels, and large percentage of Exim trade being transhipped through Colombo, the logistics cost for Indian trade was very high.

With the development of the International Container Transhipment Terminal (ICTT) at Vallarpadam, transhipment of container traffic could be done in India itself instead of Colombo, ensuring that this revenue stayed within the country.

This, however, would depend heavily on the coastal connectivity between Kochi and the various other ports within the country.

Permitting foreign flag carriers for coastal movements would bring in cost efficiencies, technology and the network to connect the various ports in the country to the ICTT at Kochi, the sources said.

Coastal shipping can effectively meet a substantial portion of transportation demands as the country has a tremendous potential on account of its vast coastline (of around 7,500 km) and a number of major and minor ports.

An optimal mix of road, rail, and coastal shipping was, therefore, necessary, said the sources.

They also cited some of the main factors for the slow growth of coastal shipping — non-availability of concessional finance for acquisition of coastal vessels; high import duties on bunker oil and spares; high manning scales, which increase operational costs; incidence of corporate for coastal as against tonnage tax for ocean-going vessel and personal income tax, etc.

Heavy Burden

It is pointed out that coastal tonnage has been more or less stagnant. One of the reasons for this, apart from the profitability of coastal shipping, is the high interest rates on finance vis-À-vis ocean-going vessels.

Coastal ships, unlike ocean-going vessels, have to pay duties on bunker oil. This duty increases the cost of operation.

The cost of bunker fuel oil for a coastal vessel is reported to be higher than that for an ocean-going vessel to the extent of around 28 per cent to 36 per cent.

Similarly, import duties on capital goods and spares also cast a burden on coastal shipping, as these vessels are heavily dependent on imported spares.

Moreover, Indian shipping companies pay corporation tax at the rate of 36.75 per cent or the Minimum Alternate tax at 7.5 per cent.

The industry also enjoyed benefits under Section 33 AC of Income Tax Act in which the amounts transferred to a reserve specified under this section were not considered as a part of book profits.