India risks losing box transshipment to foreign ports if cabotage waiver not continued, warns CSLA
Countering the government’s assertions for discontinuing the relaxation in cabotage rules, a lobby group of foreign container shipping lines has said that it led to an increase in container transshipment at Indian ports, reduced freight rates to long haul destinations by as much as 80 per cent and clipped the cost of coastal movement of transshipment cargo to its lowest levels.
Describing the January 21 decision by the Ministry of Ports, Shipping and Waterways in this context as “shocking”, the Container Shipping Lines Association (India), warned that it “would force foreign container lines to review their current position and consider moving back to transshipping empty and loaded containers at foreign ports”.
“Needless to say, this could have a severe impact on the Indian trade as far as the feeding of empty containers for the export trade as well as the movement of loaded boxes are concerned, which in turn could impact the efficiency and cost of logistics,” Sunil Vaswani, Executive Director, Container Shipping Lines Association (CSLA) told
“In absence of a waiver in cabotage rules, the proposed expansion plans in some of the ports like Mundra, Vizhinjam etc, might not be implemented thereby further constraining vessel calls and transshipment,” Vaswani asserted.
The easing of cabotage in 2018 was aimed at reducing transshipment of Indian EXIM cargo through foreign ports, lowering freight costs, increasing container availability, and creating a competitive ecosystem for Indian trade and logistics.
Following a review of the orders backed by feedback obtained through public consultations, detailed report of D G Shipping and trade inputs, the Ministry of Ports, Shipping and Waterways observed that “transshipment of Indian containerised cargo through foreign ports has not decreased, nor has the cost for Indian exporters and importers been significantly reduced.”
While scrapping the cabotage waiver, the ministry said that the “anticipated increase in feeder (shipping) capacity and availability of empty containers has not materialised".
“Besides, the Indian container fleet has stagnated, with little to no growth in tonnage or fleet size, discouraging investment in the sector,” the Ministry wrote in the January 21 order, rolling back the cabotage waiver
“Indian trade remains heavily reliant on foreign flag vessels, making the country's exports vulnerable to external market forces. The continued lack of a substantial Indian container fleet has hindered India’s ability to reduce dependency on foreign carriers, impacting efforts to retain foreign exchange and promote domestic shipping,” it said.
The CSLA had written to the government seeking continuation of cabotage waiver.
Rebutting the ministry’s arguments for scrapping the waiver, CSLA said that “relaxation of cabotage eliminated the shortage of tonnage and the licensing requirement that had led to a virtual monopoly prior to the decision due to which the feeder rates of Indian flag vessels had shot up.”
The relaxation, according to Vaswani, resulted in an increase in transshipment of containers at Indian ports thereby intensifying competition and increasing the availability of space and equipment.
“The timely transfer of empty containers between Indian ports enabled the availability of empties to exporters and thereby enhanced the export volumes. As far as the overall transshipment volumes (loaded and empty containers) are concerned, a point to be noted is that prior to the relaxation of cabotage, the daily transshipment volumes at J N Port, for instance, was just about 300-400 containers as against about 7,000 containers daily today,” he disclosed.
Any simultaneous increase in the transshipment volumes at foreign ports, though not very significant, would only have been due to the limitation of draft at Indian ports thereby prompting some transshipment at foreign deepwater ports, Vaswani stated.
According to CSLA, the growth of transshipment volumes, particularly at Vizhinjam and Mundra, is a “very clear indication of the benefits” achieved by the waiver of cabotage restrictions. “Vizhinjam, for instance, which has remained a pure transshipment port, saw a near vertical growth, with solely transhipment volumes, at an average of 1,20,000 TEUs per month, despite the terminal only working in its first phase of development,” Vaswani noted.
“Besides, the competition arising from cabotage easing reduced freight rates from India to long haul destinations like the US and Europe by about 70-80 per cent over the last five years. This was despite the increase in operational costs due to the movement of vessels via the Cape of Good Hope instead of the shorter Suez Canal route due to geopolitical reasons,” CSLA said.
“The rates for carriage of transshipment cargo containers on domestic routes fell to their lowest. For instance, rates between Mundra-J N Port and Mundra- Hazira are on an average at about $80 to $100 per TEU for loaded containers and $40 per TEU for empty containers, which were unheard of prior to the cabotage waiver,” CSLA pointed out.
Increased vessel calls and revenue for Indian ports are the further outcomes of the relaxation of cabotage rules.
CSLA recalled that the international container transshipment terminal at Vallarpadam run by DP World in Cochin Port was granted a three-year waiver from cabotage in 2012 for transshipment of EXIM cargo.
“Unfortunately, it did not help as the other Indian container terminals did not enjoy a similar waiver to make transshipment operationally feasible. Besides, Cochin Port had its own infrastructural limitations in capacity as well in draft with a maximum draft of 13 metres with tidal restrictions at the Vallarpadam terminal at that time, thereby restricting larger vessels from calling there. Transshipment in India grew only after a general exemption was granted across all the ports in 2018. Having said that, there exists a precedent in place to grant a cabotage waiver which should now be applicable to at least a few select ports to help continuation of transshipment at key ports like Mundra, J N Port, Vizhinjam, Visakhapatnam, Chennai and Thoothukudi,” CSLA added.
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