In a major policy reform, India plans to further liberalize its shipping sector by conditionally allowing foreign vessels to ferry cargo between the country’s ports, a move seen as boosting trade and reducing costs.
The shipping ministry has proposed to change a law to allow foreign shipping companies to carry container cargo to and from the Vallarpadam international container transhipment terminal in Cochin port, according to two government officials close to the development.
The cabinet of ministers is expected to discuss the proposal shortly, the officials said, requesting anonymity.
The Vallarpadam terminal, run by DP World Pvt. Ltd, the world’s fourth biggest container port operator—majority owned by the Dubai government—is designed to reduce India’s dependence on neighbouring hub ports such as Colombo in Sri Lanka, Singapore, Salalah and Jebel Ali in Dubai, Tanjung Pelepas and Port Klang in Malaysia to send and receive containerized cargo, saving time and cost.
India’s exporters and importers incur costs in excess of Rs. 1,000 crore a year on
the transhipment of containers through overseas ports, the shipping ministry says. They pay an additional Rs. 600 crore
every year to ship their containers via Colombo alone.
A container transhipment terminal is a hub where smaller vessels transport cargo to and from larger ships. As the economies of scale lower the cost of operations for shipping lines, it results in lower freight rates.
The likely policy change will be subject to two conditions.
“The relaxation will be only for export and import containers or transhipment containers going through Vallarpadam,” said one of the two officials. “Second, the relaxation in cabotage law will be for a limited period of three years, after which it will be reviewed by the government.”
Cabotage is the transport of goods between two points in the same country by a vessel registered in another country.
A shipping ministry spokesman declined to comment.
DP World won a 30-year contract to build and operate the Vallarpadam terminal in a public auction in 2004. The first phase of the terminal, built at an investment of Rs. 3,000 crore,
can handle one million standard containers a year. It began operations in February 2011 and loaded 337,053 containers in the year ended March.
A spokesperson for DP World declined to comment.
India’s coastal trade—shipping cargo between different domestic ports—is reserved for ships registered in India, and foreign ships can be hired only when local ships are not available, according to the cabotage law.
A cabotage relaxation will benefit global container carriers such as Maersk Line, the world’s biggest container ship operator, Mediterranean Shipping Co. SA, CMA CGM SA and Hapag-Lloyd AG.
If approved by the cabinet, the plan will also bring an end to a debate on the issue that lasted for three years, and was marked by intense lobbying by proponents and opponents of the move.
A section of local fleet owners, led by state-run Shipping Corp. of India—India’s biggest ocean carrier—said they were not in favour of easing the cabotage law. Shipping Corp. is India’s only mainline container ship operator.
Lifting cabotage restrictions will help the country and trade as it will decongest roads by shifting cargo movement to coastal shipping and will make coast-to-coast shipping more lucrative, said Hemant B. Bhattbhatt, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, a consultancy.
“Indian shipowners’ protests towards cabotage relaxations are short-sighted. Indian ports do not have land to keep the cargoes till some Indian shipowners pick them up, and moving by roads is costly and non-environment friendly. Moreover, Indian shipowners do not have that kind of capacity to move cargo coast-to-coast,” he said.
As the market develops, Bhattbhatt said that Indian shipowners will gain confidence in investing more in this market and the cost of moving cargo will come down further.