Cabotage holding back growth

The current rules based on the US Jones Act restrict the use of non-Indian vessels and there is a strong lobby within the shipowning bodies in India to keep the cabotage rules.

“Currently only 16 container vessels under 2,000 teu capacity fly the Indian flag and therefore the capacity to carry coastal trade is very limited. The operating costs for Indian-flag vessels are high as compared to foreign-flag vessels. If the cabotage rules were relaxed then a greater percentage of trade could be carried by sea and would also reduce transport costs as well reduce the volume of container traffic on rail and road.”

A positive however is the commissioning and successful implementation of India’s first International Container Transhipment Terminal at Vallarpadam, Cochin which should see the growth of coastal shipping.

“Currently about 60% of the Indian containerised cargo is transhipped at Colombo, Dubai, Singapore and Salalah. The dependence on foreign transhipment ports makes the import and export of India expensive and less competitive in the international market. The cabotage restriction has an adverse effect on the growth of India’s first and only transhipment terminal, ICTT-Vallarpadam, which opened in 2011.

“Since September 2012 the cabotage rules have been relaxed for a trial period of three years for ICTT-Vallarpadam with the aim of promoting coastal trade and to be able to compete with the major transhipment port at Colombo for Indian cargo.

“It has recently been announced that even though the rules have been relaxed for Vallarpadam, the foreign-flag vessels are required to hire at least one third Indian nationals for training. Each foreign-flag vessel entering the trade is required to obtain an approval from the Ministry of Shipping.

“It is a common belief that the Government of India agreed to the waiver not on economic grounds but for the reason to impact the transhipment trade in Colombo … who are expanding the port with Chinese assistance,” he says.