Friday, 26 August 2011

Crisis at Vallarpadam: Indian Cabotage Law to be relaxed?

The ongoing crisis at the International Container Transshipment Terminal (ICCT) at Vallarpadam may have prompted the Parliamentary Committee on Transport, Tourism and Culture to recommend relaxing Indian Cabotage Laws, which so far allow only Indian flag vessels to carry cargo between Indian ports. The Committee presented its report to the Rajya Sabha earlier this month, saying, “The Government should immediately undertake a review of the Cabotage Law and take appropriate decision in consultation with all stakeholders involved.” It is learnt that Indian shipping is fiercely defending the law, one that many countries including the US enforce.

Shortage of Indian container ships has meant that Vallarpadam, the country's first ICCT, has been plagued with hundreds of containers held up at the port because of lack of feeder container vessels. Foreign flag ships calling Vallarpadam simply do not have enough Indian feeder vessels to support them. The result is poor productivity, a disincentive to containerise, bad connectivity and bottlenecks. Because of this, major players, including Maersk, Zim and CMA CGM, have gone back to calling Colombo, which is well connected with most Indian ports.

The Vallarpadam ICCT had planned to handle 7.75 lakh TEUs this year, while the 13 Indian feeder vessels available together have a capacity of just 12,156 TEUs- and they do not call Vallarpadam regularly. Trains capacities are extremely low, with just ninety boxes possible per train.

Relaxation of Cabotage, at least for container ships, has been a longstanding Vallarpadam ICTT demand. Some observers say that, unless the government implements the Parliamentary Committee's recommendations, the Rs 1800 crore port, operated by DP World on a 30-year lease, will find it very difficult to function effectively as a transhipment hub for containers. A worried Chairman of the Port Mr Paul Antony had told reporters earlier this month, “The productivity at the terminal is world class, but few ships are calling at the port.”  

The port has been plagued with dredging difficulties right from the beginning, adding to its woes. Antony was confident, however, that the port would be able to cater to vessels with a 14-metre draft well before the end of the year. He said that the main issue was Cabotage. “Unless the terminal is exempted from the Cabotage Laws, it will not be able to attract mother vessels,'' he said.

The government has yet to announce its final decision on Cabotage; no doubt, Indian shipping companies will object strongly to any proposed relaxation. Meanwhile, it is believed that the Directorate General of Shipping is leaning towards a relaxation of Cabotage for container operations, especially since Indian companies do not have the tonnage to operate feeder vessels to any satisfactory degree.

Vallarpadam, at the time of its commissioning, was supposed to give Colombo a good run for its money. This crisis could have been well averted- and major embarrassment avoided- if only the authorities had thought the transhipment requirements through and had put in place the required infrastructure and legislation to support the ICTT at Vallarpadam before permission to build was given. As things stand now, there seem to be few options available if Vallarpadam is to survive as a container transhipment terminal.

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