Published on April 13th, 20170
No Takers for Cabotage Relaxation Under New Policy Unveiled in 2016
No Indian port has yet applied to the government seeking relaxation from a so-called cabotage rule more than a year after a policy was announced by the shipping ministry, re-affirming what sceptics said at the time that the stringent and unrealistic conditions imposed for availing the benefit would render the plan a non-starter.
“We have not received any application from ports seeking to avail of the cabotage relaxation,” a government official said. “We don’t know why ports are not coming forward to take advantage of the relaxation in cabotage rule,” he added.
A lack of interest to apply for the relaxation deals a blow to the government’s efforts to check Indian containers being routed through neighbouring hub ports such as Colombo and Singapore.
Only Indian registered ships are allowed to ply on local routes for carrying cargo, according to India’s cabotage law. Foreign container carriers and container terminal operators have been lobbying the government to relax the law to allow foreign box ships to operate along the country’s coast. This, according to them, was essential as India seeks to set up transhipment hubs to reduce dependence on neighbouring foreign hubs to send and receive containers, entailing extra time and costs for exporters and importers.
In 2016-17, India’s 12 major ports handled 8.446 million TEUs, of which some 2.84 million TEUs or 34% were transhipped through overseas hubs such as Colombo, Singapore, Port Klang and Jebel Ali, according to the shipping ministry. India has been trying to cut this dependence by transhipping Indian containers from within Indian shores.
On 7 March 2016, the shipping ministry relaxed cabotage restrictions for transportation of export-import (EXIM) loaded and empty containers on foreign containers ships on local routes for aggregation of containers to facilitate transhipment. Indian private container ports and terminals, though, have suggested amendments to the new rules to make it work, but the government is not in a mood to budge, in a bid to lend a protective shoulder to local fleet owners in an operating environment that is getting worse by the day.
“The purpose behind the government’s objective of cabotage relaxation is to attract Indian containers transshipped through foreign hub ports to Indian ports. However, the conditions imposed for availing cabotage relaxation are so stringent and unrealistic that none of the existing ports/terminals/new ports will be in a position to meet them. Thus, the entire move will be a non-starter,” the Indian Private Ports and Terminals Association or IPPTA, a trade lobby, had warned after the government lifted the cabotage restriction.
“Cabotage relaxation to be meaningful should be applied unconditionally at all the container handling ports at least for five years,” IPPTA had suggested. The main point of contention in the new rules relates to a stipulation that once cabotage relaxation is granted to an existing container handling port, it should be able to tranship at least 50 per cent or more of the total containers handled during the first year while a new port would have to achieve this level in the second year after a gestation period of one year. Otherwise, the relaxation granted would be revoked and the port/s will not be considered again for such relaxation for the next three years.
A transhipment container is one that arrives in a port, for instance Cochin, on a ship, either from India or outside and is unloaded and then re-loaded onto another ship and taken out of Cochin to its destination, either in India or abroad. But, even after cabotage is relaxed, we cannot expect that foreign container lines will immediately start using the relaxation on a large scale, IPPTA said. Many factors such as container volumes available, depth restrictions, facilities available at the Indian transhipment hubs compared with those at nearby foreign transhipment hubs and regulatory issues will determine the deployment of foreign container ships for moving transhipment containers along the Indian coast. Hence, sufficient time should be allowed for the cabotage relaxation policy to succeed, it said.
“We therefore suggest that there should be no stipulation as to the quantum of transhipment containers to be handled by a port in the first five years in order to avail cabotage relaxation and there should be a review thereafter,” IPPTA wrote in the representation. For a new port, achieving the stipulated transhipment container traffic of 50 per cent of the total container volume handled in the second year of operations would be a “tall order as it takes time for any new port to establish itself as a transhipment hub”. “This period needs to be considerably relaxed and a period of five years should be allowed for cabotage relaxation,” IPPTA said.
The shipping ministry, though, is unrelenting to these entreaties. “There’s a domestic shipping industry. We are somehow also trying to meet their ends. And container is not a very lucrative business at this time. What we have been trying to do is to bring down their cost of operations. So, from that perspective, the government has removed customs and central excise duties on bunker (ship fuel) for Indian registered container ships. This is an area where there is a fair amount of difference in operating costs between Indian and foreign container ships. The proportion has come down a little due to the recent slide in oil prices, but it still is a significant cost element. Given this, what we are trying to find is a need balance. Some ports want to operate essentially as a transhipment hub. Then, we expect such ports to tranship at least half the containers, to be fair. But, if you say, I tranship 20% and I’m a transhipment hub, then I’m saying please work out your schedules with the Indian container ship owners also so that they can carry your containers, optimize and bring down the overall cost which is the whole idea”, a shipping ministry official said.
“Secondly, for 95 per cent of the containers, the cabotage is not an issue. The issue is only for the five percent domestic containers. Now, I don’t understand why this is such a big issue. I think we need to find a balance by discussion between Indian ship owners and port/terminal operators. Indian container ship owners are saying that they cannot run their ships because of the tough operating conditions. The point I’m trying to make is in this environment for the small piece of five per cent what is the great issue, I don’t understand. You can’t have a one-way traffic,” the ministry official said.
Local container fleet owners say that relaxing cabotage was not the solution to grow container transhipment hubs in the country. “For setting up transhipment hubs, India need to reduce its vessel related charges/ port charges. Cabotage relaxation is not the solution,” says the top executive of an Indian container shipping company.Share Follow