Cabotage Law: A wind of change for coastal ego

      07/09/2018

In May, India relaxed its cabotage law, allowing foreign ships to transport local container cargo from one domestic port to another. The move came four years after the Ministry of Shipping recommended the same. In addition, the ministry has relaxed the coastal movement of agriculture, horticulture, fisheries and animal husbandry commodities, a potentially significant easing of doing business.

That is also set to trigger three major changes in coastal and shipping logistics. First, some container ports in India would be transformed into transhipment hubs. So far, shippers needed to relay their cargo via distant foreign ports in the Middle East and Sri Lanka. Almost a third of India’s container cargo is transhipped through foreign hub ports, which has meant longer transit times and additional costs for shippers.

Domestic ports have been losing millions of dollars in revenue because of the restriction on movement of domestic boxes by foreign ships along the country’s coastline. Now, such ‘boxes’ meant for transhipment can be accumulated at domestic ports and picked up by motherships, to be carried to their final destination.

Second, the move would help reposition containers and, most importantly, the empties, along the Indian coast, obviating the need to park them on foreign shores. If a box is needed by an exporter at the Jawaharlal Nehru Port Trust near Mumbai and one is available at the Mundra port in Gujarat, it can now be directly sent to the exporter through a foreign vessel. Hitherto, only an Indian ship could do that job, or the box needed to be sent to the Middle East before being brought back.

Third, the move will provide a much-needed fillip to coastal shipping in India and also potentially lower transportation costs. A vicious circle – lack of cargo for ships, and non-availability of ships to deploy cargo – has kept coastal shipping from taking off in India. Cabotage sorts out at least one issue: ships should now be readily available. And trade is likely to slowly realign itself on account of predictability and cost savings.

To be sure, there would also be a negative impact —a short-term one, at that – on local shipping lines with significant coastal operations because some of their business would be weaned away. But in the medium to long term, they can claw their way back by sailing on incremental volume growth due to the modal shift that will ensue.

Cabotage would also intensify competition in the feeder market, benefitting Exim traders in India, and help improve the competitiveness of the main ports in the country compared with the regional hub ports. The movement of empty containers would now be driven by strategy than compulsion, which should help reduce logistics costs in the supply chain.

As shipments of domestic cargo utilise the sailing channels now thrown open, overall container volume handled within the country should increase by a fifth, according to a CRISIL Infrastructure Advisory estimate for the medium term. Since there’s no such thing as a free lunch, such a modal diversion would also have implications, albeit not very significant, for road and rail freight, both of which have been the de-facto mode of transport for domestic movement.

But for the domestic port sector overwhelmed by excess capacity, that would sound way more uplifting than Samuel Taylor Coleridge’s The Rime of the Ancient Mariner. Verily, a pleasing draft has been triggered by the ministry.

By- CRISIL Infrastructure Advisory