Indian ship owners threaten to flag out if cabotage is eased and RoFR removed

P. Manoj | | Updated on: Dec 06, 2021

Industry body warns of impact on economy with no ‘discernible gain’

Fleet-owners in India have threatened to flag their ships outside the country if cabotage is further eased and a so-called right of first refusal (RoFR) available to them is removed.

Forcefully defending its turf in the wake of signals emanating from the governments policy managers in Delhi on potential cabotage relaxation and removal of RoFR, industry lobby Indian National Shipowners Association (INSA) has said the move will have a “definite impact” on the economy without any “discernible gain”.

This has sparked fears among fleet owners at a time when many developed countries are strengthening their cabotage laws to protect their national flag ships.

Only Indian registered ships are allowed to ply on local routes for carrying cargo, according to India’s cabotage law. Foreign ships are allowed to operate along the coast if Indian ships are not available, and with the permission of India’s maritime regulator.

No incentive

Local shipping companies get a right to match the lowest rate offered by a foreign flag in tenders issued by state-run firms under the chartering guidelines framed by the Director-General of Shipping. Only if Indian shipping companies decline, is a foreign flag ship allowed to carry the cargo.

This mechanism does not mean added costs for the consumer but gives Indian companies the opportunity to carry cargo at the rate quoted by a foreign line.

“If these are not there, why do we need to be in India,” said Anil Devli, CEO of INSA. “There will be no incentive to remain flagged in India; we will have to change the flag,” he stated.

Fleet owners say that a partial relaxation of cabotage for transshipment of export-import containers and roll-on-roll-off (ro-ro) ships, given earlier, have not met the desired objectives. “Just relaxing cabotage doesn’t get us anywhere as borne out by the cases of EXIM container transshipment and ro-ro vessels,” Devli said.

On the contrary, despite the unfavourable operating environment, the participation of Indian flag ships in tenders have meant state-owned companies benefited from lower freight rates.

Struggling to compete

Local fleet owners say they are unable to compete with foreign ships on domestic voyages due to higher taxes, costlier bunker fuel, tax on wages paid by Indian seafarers employed on Indian flag ships, mandatory requirement on employing more crew per voyage and 5 per cent IGST on cargo carried along the coast. None of these is applicable to foreign ships, giving them an edge over Indian flag vessels.

“Despite bearing all these costs, we are asked to match the lowest rate offered by foreign ships. We still match and do better,” says Devli.

To back his claim, Devli said India’s state-run oil firms paid ₹744 per tonne as average freight to foreign ships in FY15, 58.1 per cent higher than the ₹470.4 average freight per tonne paid to Indian flag ships.

The average cost per tonne, including freight and detention demurrage paid to foreign ships, was ₹515.64 in FY15, 28.38 per cent more than the average cost per tonne paid to Indian ships, according to data obtained through RTI queries.

In FY17, India paid $52 billion in freight to foreign shipping companies, which carry about 92 per cent of India’s external trade shipped by sea, according to the Reserve Bank of India.

“We are not asking for more freight or any price preference. Put us on par with global fleet owners,” says Ranjith Singh, CEO, Essar Shipping Ltd.

INSA, a 42-member group, paid ₹7,994 in duties and taxes in FY16 apart from hiring only Indian seafarers and giving seafarers free training, spending ₹16 lakh a year on each cadet.

“What is wrong if I expect some kind of support from the government as a legitimate tax-paying industry with no extra cost to the consumer or charterer. Why does someone grudge the fact that we carry cargo at the same rate as foreign ships. Yet, to be knocked off or thrown away is something that we don’t expect from the government,” Devli added.

Published on March 30, 2018
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