For now, grade India’s liberalized cabotage program a modest success.
That’s because the latest stakeholder data show the cabotage policy is slowly but steadily driving transshipment activity at some domestic ports, but the bulk of those moderate gains thus far have come from empty container repositioning by ocean carriers operating to/from the emerging market economy.
After India implemented cabotage relaxation May 21, foreign-flag carriers became free to transport laden export-import containers for transshipment and empty containers for repositioning between Indian ports without any specific permission or license from local maritime authorities. The change was essentially intended to create a level playing field in coastal freight handling, which was previously the exclusive domain of Indian-flag ship operators.
Highlighting the benefits of that reform, the Container Shipping Lines’ Association of India (CSLA) — the umbrella body of foreign carriers in trades to/from India — estimated that member lines “transshipped” 16,543 TEU at Indian ports during July, as a result of the cabotage relaxation, which is volume the group argues would otherwise have been relayed over foreign hub ports — such as Colombo (Sri Lanka), Singapore, and port Klang (Malaysia), using feeder networks.
By international hub, the percentage of Indian recaptured freight in July is: Colombo, 6,783 TEU (41 percent); Singapore, 3,639 TEU (22 percent); Klang port, 1,820 TEU (11 percent); and others, 4,301 (26 percent), according to CSLA.
However, a JOC.com analysis of those figures shows 12,407 TEU, or roughly 75 percent, represented empty containers, with laden export-import freight pegged at 4,136 TEU.
The picture was little-changed from June, the first full month after the cabotage reform was announced, with laden containers then estimated at 2,312 TEU, out of the perceived, incremental 11,589 TEU of transshipment.
Further, the analysis appears to reaffirm a general industry argument/view that privately operated minor ports would stand to gain the most from the cabotage rule change, due to their pricing and infrastructure competitiveness, compared with government-owned rivals, as the majority of such transshipment gains reported by CSLA for June was generated by Adani Group’s terminals at Mundra and Hazira. July statistics by terminal were not immediately available.
On the east coast, the public port of Visakhapatnam and the privately operated Krishnapatnam port are leading the transshipment race, data show.
Repositioning containers — costly for ocean carriers
Repositioning empty containers — from surplus locations to deficit areas — is typically a challenging/costly task for ocean carriers, especially in the Indian market, where logistics costs are considerably high. The above analysis is a clear sign that unrestricted coastal shipping — thanks to the scrapping of cabotage — is helping carriers reduce their transportation costs associated with equipment relocation.
On the other hand, Indian shippers seeking breakthroughs in cost reduction and supply chain efficiency will continue to remain in the doldrums, unless ocean carriers substantially beef up their mainline, direct service offerings and transform some of the domestic ports into their regional hubs.
Transshipment traffic is the cargo that is transported between an Indian port and an international hub port, when direct mainline connections are not available. This inadequacy is more pronounced on India’s east coast, where ports generally lack the necessary draft and other infrastructure capabilities to handle the latest generation ships.
As a result, as much as 35 percent of the total 9.14 million TEU handled at Indian major, public ports during fiscal 2017-2018 was transshipped, with Colombo commanding the largest pie, according to a recent JOC.com study.
With a renewed government focus on port development and ease-of-doing-business measures, infrastructure and productivity rates have improved at Indian ports, to some extent, but ocean carriers see high port charges there as a stumbling block to their ability to deploy larger vessels in pursuit of cost optimization and scalability in the long run.