Indian govt fumbles on easing key shipping rule

The government's decision to ease a so-called cabotage rule for ports that tranship at least half of their container volumes handled in a year to create hubs within India and cut dependence on neighbouring hub ports is flawed, say ports and shipping lines.

Only India-registered ships are allowed to ply on local routes for carrying cargo, according to India's cabotage law. A transhipment container is one that arrives in a port, for instance Chennai, on a ship, and is unloaded and then reloaded onto another ship and taken out of Chennai to its destination either in India or abroad. Many such services together constitute transhipment.

Container shipping lines typically look at a period of at least five years before working out transhipment route networks. Cabotage relaxation should match this long-term planning of lines, say industry experts.

Global container carriers have been lobbying with the government for relaxing the cabotage law arguing that lack of adequate Indian ships was hindering the growth of transhipment ports that require large volumes to attract mainline container ships with bigger capacities to call.

"In the absence of cabotage relaxation, foreign container lines will not do trial runs for a year to convert a port into a transhipment hub. Lines will not come without a long-term perspective; nobody will even think of doing it," said the chief executive officer of a container terminal located in southern India.

"Transhipment involves many services. The shipping ministry decision indicates that it was taken without any application of mind and written by someone who has no idea about shipping," he said, asking not to be named because of company policy on speaking to the media. Transhipment ports that are eligible for cabotage relaxation will enable foreign container lines to carry export-import (Exim) laden and empty containers between that port and other Indian ports, according to a 7 March circular issued by the ministry.

For evaluating the volumes handled by a transhipment port for granting cabotage relaxation, only Exim containers (overseas loaded and unloaded), contain- er transhipment of Exim and empty containers handled by all the terminals of that port will be included, the ministry wrote. New or existing container ports handling transhipment traffic can apply for cabotage relaxation to the directorate general of shipping (DGS) which shall grant relaxation for a period of one year for existing ports and two years for a new port (including a gestation period of one year).

An existing container handling port should tranship 50% or more of the containers handled during the first year while a new port will have to achieve this level in the second year. Otherwise, the relaxation will be revoked.

The container handling port whose relaxation is revoked shall not be considered for cabotage relaxation for the next three years, according to the circular.

"The government has put the cart before the horse," said a Chennai-based executive of a European container shipping company.

"No Indian port is currently handling 50% of their business as transhipment. The whole idea to get the cabotage relaxed is to convert one or two ideally located ports to handle transhipment. If ports already tranship 50% of their container volumes, then what is the need to relax cabotage," he asked. "It looks weird and impractical," he added.

"The first thing that hits me straight in the face is that for cabotage relaxation it is up to the port to apply. Suppose a port does not wish to apply for cabotage relaxation, there will be no transhipment from that port," said the India head at one of the top three global container shipping firms based in Europe.

"If my line wants to do 200,000 containers in transhipment from Mundra port in a year, Mundra port cannot go to the DGS for cabotage relaxation until Mundra port is sure that it can do at least 1.36 million containers in a year," he said. "Why? Because Mundra port is already handling 2.72 million containers (in 2014-15). It means that if Mundra is doing 2.72 million containers and if it goes to the DGS seeking cabotage relaxation, it will have to ensure that 1.36 million containers (half of 2.72 million containers) will be transhipment containers. Those transhipment containers can come from anywhere," he explained.