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Monday, October 23, 2000



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Cabotage relaxation move -- Foreign ships to ply the coast

P. Manoj

AS THE Union Government initiates moves to convert the Jawaharlal Nehru port and the Chennai port into container hubs, there is a parallel initiative to relax the Cabotage Law, at least partially, to allow foreign flag vessels to ply along the coast with containerised cargoes and load/unload them at more than one port.

The matter is being examined by the Department of Shipping in the Ministry of Surface Transport following demands from several quarters for such relaxation, even as various interest groups continue to differ on the issue.

Since a hub port must necessarily attract more and more mainline vessels, the ports wing in the Department of Shipping is keen that the Cabotage Law is relaxed. The relaxation of the law, the ports wing thinks, will boost the movement of coastal cargo an d, thus, help the speedy development of infrastructure at major ports.

The view has support of the port authorities of New Mangalore, Paradip, Mormugao and Calcutta while those of Mumbai, Kandla, Kochi, Chennai and the JNPT are yet to make their stand clear. The opposition to the proposed relaxation of the Cabotage Law has come from the Indian National Shipowners Association (INSA), the Directorate General of Shipping and the National Shipping Board.

INSA's opposition is understandable as its members fear that any relaxation of the Cabotage will harm the Indian shipping. But, then, INSA's concern is not shared by many. Many feel that the proposed relaxation should be viewed from the larger perspectiv e of improving the competitive edge of the country's exports -- something the Export Promotion Board, headed by the Cabinet Secretary, has been reiterating.

Currently, more than 90 per cent of India's exports and imports by containers are transshipped through foreign hub ports such as Dubai, Singapore and Colombo. This means outgo of foreign exchange. If the dependence on foreign hub ports is to be reduced, the Government has to come out with certain policy changes one of which is the relaxation of the Cabotage Law by invoking the powers vested with the Union Government under Section 407 (3) of the Merchant Shipping Act, 1958.

Section 407 (1) of the Act bans the movement of foreign flag vessels along the coast. It states that no ship other than an Indian vessel or one chartered by a citizen of India shall be engaged in the coastal trade except under a licence granted by the DG S.

According to the Cabotage Law, a foreign flag vessel can come to an Indian port, unload and load cargo but must return without loading/unloading cargo at any other Indian port. Under the proposed relaxation, a foreign flag vessel will be allowed to move along the coast from one port to another to pick up containers meant for transshipment.

The international shipping industry favours a relaxation of the Cabotage Law pointing out that the foreign flag carriers' interest in this regard will be limited to the traffic to and from foreign countries. More specifically, containers transshipped thr ough an Indian hub and originating in or destined for a location overseas. Precisely for the same reason, it is argued that the transshipment cargo should be classified as international, and not coastal, traffic.

Second, the successful development of hub ports in India such as the JNPT and Chennai necessarily requires comprehensive feeder networks, which the country now lacks. Of the 80 feeder vessels operating, only six carry the Indian flag.

Moreover, the demand for feeder services is bound to increase because of the fact that the mainline operators are introducing larger and larger vessels which calls for extensive feeder networks to back them up.

The demand for more and more feeder services will remain a distant dream and containers would continue to be transshipped outside India as long as the Indian tonnage remains largely inadequate and the Cabotage Law remains in force.

The global shipping community has evinced a keen interest in a container hub in India after seeing success of the Nhava Sheva International Container Terminal operated by P&O Ports. NSICT, it is claimed, has achieved productivity of the international lev els. In fact, the NSICT example has emboldened the advocates of the Cabotage relaxation who are convinced of the development of hub operations and the consequent benefits accruing to the Indian operators.

The pro-relaxation lobby also cites the example of the US where the domestic shipping industry is protected by the Jones Act. The Jones Act permits transshipment of container cargo originating in or destined for a overseas location on foreign flag vessel s through a US hub port. But the domestic trade is reserved for US flag vessels.

However, the anti-relaxation group is of the opinion that the Cabotage provisions must to be strictly enforced to ensure that foreign flag vessels do not operate in Indian coastal waters for transporting cargoes between Indian ports. It says that most na tions impose the Cabotage restrictions to promote their national fleet and on strategic considerations.

It may be recalled that the Union Government had relaxed the Cabotage Law partially from 1992 to 1997 in respect of transshipment of containers by foreign flag vessels or feeder lines from one Indian port to another.

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