Debate over India cabotage flares again

Debate over India cabotage flares again

Some industry groups argue Mundra Port (above), India

New intra-India or domestic transshipment data released by foreign container carriers could engender continuing controversy about India cabotage reform's competitive impact on supply chains.

In its latest filing to the Ministry of Shipping, the Container Shipping Lines Association (CSLA), the local umbrella body of foreign-flagged carriers operating to and from India, said member lines continue to accelerate coastal operations due to the liberalized maritime environment, with more export-import containers converted from foreign transshipment to direct shipping.

According to the group, incremental domestic transshipment handling at Indian ports hit a new peak in June, at 108,552 TEU, outpacing the previous high of 107,598 TEU in April.

The CSLA also said if the cabotage regulations had been in place, shippers would have had to rely on feeder-supported foreign transshipment, mostly via the ports of Colombo, Sri Lanka; Singapore; and Port Klang, Malaysia, for those container movements.

A closer analysis of the latest data, however, yields one glaring fact: Foreign carriers are increasingly using the open, freer coastal market for equipment repositioning, usually a costly and complex logistics challenge for them in the Indian context due to road and rail infrastructure inadequacies. To illustrate, out of that estimated regained volume, empty container moves constituted 30 percent, or 32,784 TEU, in June, up from 25 percent in May; it averaged no more than 15 percent in April and March.

That underlying trend echoes an argument proffered by Indian-flagged tonnage owners skeptical of the merits of the cabotage reform — that there is no real cost benefit to cargo interests as freight rates for export-import cargo have yet to see any downward adjustments because of foreign carrier participation in coastal trade.

“It’s irrational to believe that foreign companies will drop freight rates. History has shown no evidence of the same,” leaders of the Indian National Shipowners Association (INSA) said at a recent industry-wide session hosted by the Ministry of Shipping to take stock of trade developments over the past year.

INSA called for a review of the revised cabotage policy that they feel unfairly hurts Indian tonnage growth.

Carriers show interest in adding calls in southeastern India

With the modified cabotage law, enacted in May 2018, foreign-flag ships are now free to transport laden export-import containers for transshipment and empty containers for re-positioning between Indian ports without any specific permission or license. The landmark reform program is modeled on a two-pronged government strategy — encourage coastal shipping as a viable alternative to traditional trucking and enhance the attractiveness of Indian ports as direct ports of call for ocean carriers to scale down the country’s rising foreign transshipment trade.

Foreign transshipping has been more pronounced on India’s east coast, where most major ports have thus far largely functioned as feeder handlers. However, with cargo aggregation gaining ground on the back of improved coastal networks, mainline carriers are showing greater interest in adding calls at some of the ports in the southeastern region, such as Chennai, Tuticorin, Visakhapatnam, and Cochin. For example, a nine-vessel weekly loop led by Hapag-Lloyd will open a new direct shipping link, branded as the South-East India – Europe Express (IEX) Service, in October, which the consortium said will be a game-changer for the shipping community who has often found themselves uncompetitive globally due to higher transportation costs and longer transits caused by relayed connections.

Official data shows Indian ports handled a combined 16.5 million TEU in fiscal year 2018-19, of which about 3 million TEU were transshipped through various foreign hub ports, with Colombo leading the chart. Those numbers in the previous year stood at 15.3 million TEU and 3.2 million TEU, respectively, arguably reflecting a downward trend in the pace of foreign transshipment.

According to the CSLA, Indian ports have been able to regain a total of 916,484 TEU usually transshipped over foreign hub ports from May 2018 through the end of June following the reform implementation.

“Both the coastal trade and the transshipment of containers from Indian ports have shown an increase subsequent to the relaxation of licensing conditions for plying of foreign ships for specified types of cargoes,” Indian Shipping Minister Mansukh Mandaviya said in a recent statement.

As India’s foreign transshipment problem is rooted in many other inherent factors, with high vessel-related charges at the center of ocean carrier concerns seeking new Indian call opportunities, it is too early to say definitively if coastal improvement is a harbinger of what the CSLA and other reform proponents say are more streamlined and efficient supply chains. However, with that argument making headlines, much of stakeholder discussions in the coming days may revolve around cost gains for cargo owners. 

Contact Bency Mathew at bencyvmathew@gmail.com.