Cabotage review has shipping sector in knots

The Shipping Ministry’s plans to review provisions governing cabotage has sent alarm bells among domestic companies and ports. Major ports such as JNPT have written to the Ministry expressing apprehensions.

Cabotage is the right of Indian ships to carry cargo on the national coast by paying local taxes and employing Indian seafarers. Under the present provisions, only ships registered in India can provide their services on the coastal shipping route. However, foreign companies have been lobbying with Modi government for relaxing the law to so that they can operate along India’s coast.

A recent study by Shipping Ministry has shown that coastal shipping could carry about 230-280 million tonnes per annum (mtpa) of coal, cement, iron and steel, food grains, fertilisers, petroleum, oil and lubricants, which could save ₹21,000-27,000 crore by 2025.

However, the Indian National Shipowners’ Association’s CEO, Anil Devli, told BusinessLine that due to the addition of new container ships by Indian companies about 1.25 lakh TEUs is going empty. Cabotage relaxation will further impact the business. Indian container fleet has increased 36 per cent over the past six months as eight new ships were added to the fleet at a $40-million investment.

“Believing in the country’s growth potential, a number of companies have made investments. They run competitive and seaworthy ships but they face the problem of high cost of capital,” Devli said.

Indian companies borrow at 12-14 per cent and the debt has a tenure of about seven years while foreign companies borrow from 0 to 2 per cent for a period of 10-12 years. Therefore the per day repayment cost for Indian companies is much higher. Such a skewed borrowing cost makes services of foreign ships in coastal waters much more competitive that Indian-registered ships, he said.

He pointed that in terms of fuel too, there is a cost advantage for the foreign ships. Foreign ships get fuel at cheaper prices in overseas ports while Indian ships pay 17-20 per cent higher cost for fuel in Indian waters.

The cabotage revision plan also has the JNPT management very worried, Deputy Chairman of JNPT, Neeraj Bansal, told media persons at a shipping event last week. JNPT has expressed its reservations to the Shipping Ministry, he added. Changes in the law could lead to shifting of cargo from one port to another.

Indian shipping companies should be given a maturity period before opening the sector fully. JNPT is a hub port and these of kind of changes could have an impact, he said.

On the other hand, foreign companies welcome the review of cabotage provisions. Franck Dedenis, MD of India, Sri Lanka & Bangladesh Cluster, Maersk Line, in an email response said that easing the cabotage regulation is the right thing to do for India as it would mean a cheaper, smoother and more robust supply chain benefiting both exporters and importers while improving the carbon footprint.

Indeed, a relaxed Cabotage regulation would help India develop its coastal shipments and attract more containerised cargo on its ports, he added.

Dedenis said that by easing its Cabotage regulations, India could attract more containerised cargo by reducing time and cost for mainline vessels that now transship containers at neighbouring hub ports. It would eventually help India in building a successful transshipment hub.

He pointed that often there is a misunderstanding that global shipping lines want a relaxation of cabotage rules in India so that they can tap into the domestic or coastal cargo. “However, we want transshipments of loaded exim units and empty units that are being taken elsewhere to come to India so that we can have efficiencies of scale and work on a hub and spoke model wherein bigger vessels can come and transship in India and go to other ports,” he said.

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