India’s Cabotage Policy and Relaxation in Cabotage Rules

To promote trans-shipment at Indian ports, the Government has relaxed the Cabotage rules in March 2016.

What is Cabotage?

Cabotage refers to the transport of goods or passengers between two ports / places within the same country by a foreign shipping / transport operator. This term was earlier applicable to only shipping industry but is now applicable for road, rail as well as aviation transports. However, in aviation, still there are strict restrictions on Cabotage.

Cabotage Policy of India

India’s Cabotage policy is enshrined in the Merchant Shipping Act, 1958. As per the erstwhile policy, only Indian flagged vessels or vessels chartered by an Indian citizen or company, operating under a licence granted by the Director General of Shipping (Director General), can carry cargo or passengers from one Indian port to another Indian port. Foreign flagged vessels are permitted to carry only if Indian flagged vessels are not available.

Demand for Change in Cabotage Rules

The main objective of Cabotage is to protect the domestic shipping industry in coastal transport. However, in recent times, the economic growth has tiggered a higher demand of transport of goods within India. Most of the demand of intra-country transport of goods is being fulfilled by road and rail sector and the shipping transport is serving only 8-9% of the total demand. The cargo carrying capacity of the ships is higher than rail / road and is also cost effective. However, Indian Shipping companies have shortage of shipping vessels and there is always a pressure to allow the foreign-registered ships to carry cargo on Indian coastal routes. Thus, the logic behind demand for easing the cabotage rules was that the Cabotage restrictions hinder the transport of goods via sea and thus escalate the cost.

Recent Relaxations in Cabotage Rules

In March 2016, the Government has relaxed the Cabotage rules and now foreign registered ships will be able to deploy between Indian ports. With this, India’s coastal trade has been thrown open for foreign vessels. However, there are a few conditions as follows:

• The cabotage relaxation would depend upon the capacity of the port, and only those ports which trans-ship at least half of their container traffic would be eligible for relaxation.
• The container ports seeking cabotage relaxation for trans-shipment port will need to achieve trans-shipment of 50%. If they are unable to port to trans-ship at least 50% of containers handled in a year, then the relaxation would be revoked.
• Once the relaxation is revoked, the same port will not be considered for cabotage relaxation for the next three years.
• The container handling port will also be required to provide monthly container traffic data for monitoring to the Directorate General of Shipping and the shipping ministry by 5th of the following month.

Implications

Relaxation in Cabotage rules will attract more containerized cargo. The ports that are eligible for cabotage relaxation will now enable foreign container lines to carry export-import laden and empty containers between that port and other Indian ports. Apart from this, relaxation in cabotage rules would also allow India to compete with Sri Lanka and similar countries in terms of international shipments also. Since shipping lines from Colombo are free to feeder in or out the containers at any Indian ports without hindrance, Colombo has become a preferred hub port in South Asian region. Same is with Dubai, Singapore etc. and Indian ports are losing out in competition with these ports.