Finally, Cabotage laws relaxed for Vallarpadam ICTT

The Union Cabinet made the decision, four days ago, to relax Cabotage laws for three years to benefit the International Container Transhipment Terminal (ICTT) at Vallarpadam, Kochi. Cabotage, meant to protect domestic shipping, effectively bars foreign vessels from operating between domestic ports. Under the new Cabinet ruling, foreign vessels will now be allowed to operate feeder services for three years, something that will immensely benefit the Vallarpadam ICTT.

The move has been welcomed by large sections of industry, especially in Kerala. The Vallarpadam terminal is being operated by Dubai Ports World, which had consistently asked for a relaxation in the country’s Cabotage laws that were enshrined in the 1958 Merchant Shipping Act. This would allow foreign vessels to tranship Export-Import containers to and from the Vallarpadam ICTT.  Because of these laws, they argued, India was unable to compete with Colombo that tranships 2 million twenty foot equivalent units (TEU) from India annually. Vallarpadam is handling just 20,000 a year, according to media reports. Encouraging mainline foreign ships at Kochi would boost the sector and bring down costs, many claimed, pointing out that about half the country’s containers were transhipped in foreign ports.

Head of DP World Asia region Anil Singh is understandably happy at the Union Cabinet decision, saying that the ruling would greatly help Indian trade and reduce freight costs. “It is good news and the Government has taken the right decision. As you know, huge investments have gone into the project, not from us alone. The Government also invested a lot. Erosion of these investments hurt all stakeholders,” he told the Hindu Business Line. 

Industry analysts say that the idea of an ICTT at Vallarpadam was to create a transhipment hub close to the mainline trade route to compete with Colombo and, to a lesser extent, Salalah.  President of the Cochin Chamber of Commerce and Industry P. Narayan says that mainline vessels can now commence services to Vallarpadam, making delays and the consequential financial burden due to a lack of feeder vessels ‘a thing of the past’. Congestion and problems due to the need to rely on limited Indian feeder vessels will now ease, he added.

Cabotage restriction were said to be the primary reason why the ICTT Vallarpadam was languishing, but critics point out that there are other issues too, including high terminal costs, dredging costs and other logistical problems. In addition, the decision has worried many Indian ship-owners, who were lobbying hard against the relaxation of Cabotage. “Without creating a level playing field, opening up of coastal trade to foreign competition is not in the interest of the Indian shipping industry,” said one, after the announcement.

The timing of the decision seems to have been made keeping the upcoming “Emerging Kerala” investment summit in mind, but whether Vallarpadam can effectively compete with Colombo or whether the relaxation of Cabotage will prove to be a major setback for Indian shipping- suffering the high taxes and poor governmental support as it does- is something the next three years will clarify.

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