India’s cabotage policy change fails to lift direct carrier loadings

India’s cabotage policy change fails to lift direct carrier loadings

Compounded by COVID-19-linked disruptions and a sudden spurt in exports, Indian shippers are facing the dual headwinds of heightened carrier capacity shortages and high freight rate increases. Photo credit: Maersk (India).

India’s cabotage liberalization — enacted in May 2018 with a broader government goal to encourage more direct carrier calls — was seen as a game-changing maritime reform, but a JOC.com analysis of new port data after two down years does not paint an upbeat picture for the country’s overall port flow efficiency.

With the policy modification, foreign-flagged liners became free to transport laden export-import containers for transshipment and empty containers for repositioning between Indian ports without any specific permission or license, thus paving the way for more cargo aggregation opportunities.

Across “major public” ports, container volumes rose 2 percent in fiscal year 2019-2020 to 10 million TEU from 9.8 million TEU a year earlier, but the volume of containers that enjoyed origin-to-destination port pairings — without the need for intermediary calls — saw a dip. Fiscal 2019-2020 direct movement slid to 5.77 million TEU from 5.89 million TEU in 2018-19, according to the analysis.

In contrast, foreign transshipment continued at the same pace. Of the 10 million TEU, 2.93 million TEU, or 30 percent, found their way into the destinations via hub ports in the region, mainly Colombo, Sri Lanka; Singapore; and Port Klang, Malaysia. That share is relatively unchanged from 2018-19 when relayed movement stood at 2.96 million TEU.

At the same time, albeit an early measure of the impact, data provides two positive omens for India’s containerized supply chains — a slowdown in cargo transshipped at Colombo, while others captured more, and a sharp rebound in coastal activity. Colombo’s share of Indian transshipment cargo fell to 1.3 million TEU from 1.4 million TEU in 2018-19, an outcome that could be attributed to Hapag-Lloyd and Ocean Network Express (ONE) jointly opening a South India–Europe routing last year.

Reflecting short-sea network improvements, coastal movement or intra-country transportation swelled 25 percent to 1.28 million TEU.

Local ship owners opposed to cabotage liberalization

From an industry perspective, the analysis could draw questions around elevated direct shipping opportunities often advocated by the Container Shipping Lines Association (CSLA), the umbrella body of foreign liners in India, along with grist for the Indian National Shipowners Association (INSA) — a representative body of local ship owners who have been opposing the abolition of cabotage restrictions on coastal trades. 

“The fact that the relaxation for foreign ships to carry coastal feeder traffic has not led to advantages for India on the whole is not surprising,” Anil Devli, CEO of INSA, told JOC.com. “While the objective of this was that since main lines would carry their own laden and empty containers between two Indian ports, they would save freight and repositioning costs. However, none of this has been passed onto the shippers or consignees, and the trade has seen no benefit at all due to this [reform].”

Efforts to seek comment from major foreign liners were unsuccessful.

Compounded by COVID-19-linked disruptions and a sudden spurt in exports, Indian shippers are facing the dual headwinds of heightened carrier capacity shortages and high freight rate increases. That hard-pressed market environment can only offer more ground for foreign transshipment, amplifying the Indian exporter-import community’s perennial concerns over logistics costs and transit times.

Bency Mathew can be contacted at bencyvmathew@gmail.com.