Relaxation at Vallarpadam opens floodgates

The Hindu Business Line reports that more ports are asking the Central Government to relax the cabotage policy that effectively bars foreign vessels from operating in the costal trade between domestic ports in the country, except under a licence from the Directorate General of Shipping (DGS). The move comes two months after the Union Cabinet decided to relax cabotage for a period of three years for the Dubai Ports World (DPW) operated Vallarpadam International Container Transhipment Terminal (ICTT) at Kochi.

 The newspaper quotes Shipping Ministry sources as saying that the Vallarpadam decision has prompted other ports like Visakhapatnam and JN Port to seek relaxation in cabotage for their container terminals. Interestingly, sources say that the relaxation of cabotage at Vallarpadam is yet to be notified; insiders say that there is still stiff resistance from domestic tonnage against granting DPW a three year cabotage free operation. The Company has always maintained that the freedom granted to foreign feeder vessels to operate- without cabotage- would go a long way in making the ICTT at Vallarpadam fit to compete with established players like Colombo in the region. 

Unsurprisingly, Indian shipowners had been up in arms even before the Cabinet decision to relax cabotage for DPW. Anil Devli, CEO of the Indian National Shipowners’ Association (INSA), told the Business Line that INSA had ‘expressed fears’ to the Ministry when it relaxed cabotage at Vallarpadam. 

“The Government cannot favour one terminal operator,” he says.  “A monthly capacity of 42,900 twenty feet equivalent unit (TEU) is being provided by Indian flag vessels calling on Vallarpadam Terminal, the August data shows. This entire capacity is available for transhipment boxes for Western Coast ports, which include the port of Cochin. The total transhipment cargo carried provided by Vallarpadam Terminal to these Indian carriers is about 2,500 TEUs a month, which is a dismal six per cent of the capacity deployed,” he added, pointing out that cabotage was very much alive and kicking even in developed countries like the US. “Even the US relaxed cabotage rules only for 15 days in the aftermath of hurricane Sandy,” he said.

To reinforce INSA’s point, Devli told the newspaper, “It would be important to note that on the East Coast of India, Indian ships are carrying transhipment volumes of about 5,000 TEU a month. This data shows that cabotage has nothing to do with transhipment. This needs to be considered before any decision is made in haste or on the basis of incorrect information.” 

Indian shipowners allege that there are other issues why the DPW project has run into headwinds, including high terminal costs, dredging difficulties and other logistical problems. In addition, they fear that foreign vessels- that enjoy easy taxation regimes compared to their Indian counterparts- make the playing field even more unfavourable for them, as Indian bottoms cannot compete with the lower freight rates that foreign ships can offer on the back of lower taxes. 

Those in favour of a relaxation in cabotage have a different view, of course; they cite the sorry state of Indian shipping- not enough tonnage, substandard ships and what they see as high freight demanded by Indian shipowners who seek captive cargo, thanks to cabotage-as arguments in favour of cabotage relaxation. With other ports now seeking an exit to the policy, the debate is sure to hot up even more.