04-06-2018

India: Relaxing cabotage law set to be game changer; scope for further improvement

Indian government’s latest initiative to relax cabotage law is set to be a game changer that is set to transform ports on Indian coast into a major transhipment hub.

Apart from creating a level playing field, reduction in freight rates and making Indian trade more competitive; the move would allow coastal movement of EXIM / Empty Containers by Foreign Vessel leading to a healthy competition among the shipping lines.

In other words, Indian Ports can now also potentially attract cargo originating from or destined for Foreign Port, leading to cargo growth in India. Needless to say, this move would also have a positive impact on the competitiveness of the Indian Traders and Manufacturers by reducing the Supply Chain lag time and Transhipment cost at a foreign port.

This would also lead to more employment opportunities within the country as Indian cargo, unlike in the past which was transhipped via foreign ports would now be increasingly transhipped at Indian ports.

The relaxation in cabotage law would also address the problem of empty containers getting accumulated at some Indian port while other ports facing a shortage of empty containers. As a result, the additional cost of repositioning of these empty containers to deficit port(s) across the Indian coast would be reduced substantially with foreign vessels now being allowed to pick up such containers. The issue of empty containers was an outcome of uneven growth in containerized cargo resulting from the imbalance in exports and import.

Over all, we might see a surge in sea borne movement of cargo with this reformed law and it would reduce the per tonne – km cost as well as greenhouse gas emission per tonne – km of transporting the goods by sea over long distance by one-third, compared to rail and road transportation.

The only lacuna in this changed norm is that only those Exim containers can only be moved by foreign flag vessels on the coastal route. Effectively, it means India is now only partially open to coastal movment of containers as foreign flags vessels are deprived from participating in coastal trade movement. The law also applies only to container trade and not all types of cargo that leaves scope for further improvement in the interest of Indian trade and economy.

Source: Mumbai and Nhava Sheva Ship Agents Association

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