Not having a hub port in the country has always rankled. Every plan document makes the customary noises about developing hub ports on each coast of the country and our failure to do a Singapore, Hong Kong or even a Colombo has been the subject of much lamentation among think tanks and conferences on port development. It is strange, therefore, that, when presented with an opportunity to see the emergence of a genuine hub port at Vallarpadam in Cochin, what seems to come in the way is the policy on cabotage.
At its simplest, cabotage means that cargo carried on a country’s coast is reserved for the domestic flag, thus giving a boost to coastal shipping. Many countries have such a policy and indeed the Jones Act in America not only reserves coastal trade for the American flag but insists that ships plying on the coast must be built in the USA. In India, Section 407 of the Merchant Shipping Act (MSA) reserves coastal trading for Indian flag vessels, permitting foreign bottoms only when Indian vessels are not available.
The problem arises because large ships confine their calls to important ports that lie on the sea route, dropping off import cargo for delivery at regional ports and loading export cargo from these ports for delivery at different destinations all over the world. Feeder vessels ferry this cargo to ports in the vicinity and bring export cargo from these ports for aggregation at the hub port. Till as recently as 2005 as much as 68 per cent of India’s exim trade was transhipped in foreign ports. By 2008 that figure was down to 42 per cent, but given the rise in exim cargo the number of containers transhipped actually increased.
The reasons for trying to reduce transhipment and increase direct delivery are obvious. Transhipment means longer delivery periods and leads to higher inventories and greater lead time for export merchandise. Transhipment also implies higher costs and, because it was always done at ports outside the country, it gave an impetus to such ports at the expense of Indian ports. Thus Colombo handled about 3.69 million TEUs in 2008 but less than 25 per cent of this was their own exim cargo. The rest was all transhipment cargo, mostly from India but also from other countries like Bangladesh and Pakistan.
The main reason for our inability to develop a hub port in the country is that important container ports like JNP lie almost two sailing days away from the main shipping routes. No vessel will sail so far just to access a port. This encouraged the emergence of Colombo as the hub port for the area. With the development of the Vallarpadam container terminal, Cochin is all set to challenge Colombo’s pre-eminent position. Its advantage is that it can attract both transhipment as well as Indian exim cargo. The fly in the ointment is the old law of cabotage. As long as the choice of which vessel to use for moving transhipment cargo is left open, mother vessels will be encouraged to call at Cochin. But when coastal movement of exim cargo is reserved for the Indian bottom, foreign shipping lines prefer to call at a port like Colombo where there is no such restriction. If India insists on a strict interpretation of the laws of cabotage, the main beneficiary will be the port of Colombo.
A close look at the background of the cabotage reservation would show that it was really intended to reserve coastal cargo for the Indian flag. Cargo going from one Indian port to another should of course get the benefit of cabotage protection and no foreign flag vessel should be allowed entry into this field. But should this be extended to exim cargo originating from or bound for a foreign port? When the MSA was passed in 1959, there was no container cargo and the concept of hub ports was unknown in India. Hence the distinction was never made. Yet it is a valid distinction and India will never be able to develop a hub port unless it is recognised.
Critics will complain that excluding exim container cargo from the protection of cabotage will adversely affect Indian coastal shipping, but even this is unlikely to happen. By insisting that movement of exim containers between Indian ports must only be on Indian vessels we will only ensure that foreign vessels continue to patronise Colombo as the hub port of choice. Any vessel, Indian or foreign, can drop and pick up cargo from Colombo, so by interpreting cabotage protection very strictly we only end up benefiting Colombo and doing nothing for Indian coastal shipping. But if more exim cargo comes to Cochin, Indian vessels will get the government-mandated concession for coastal movement and will actually be more competitive than foreign vessels. We may also end up attracting a good deal of other cargo that now gets aggregated at Colombo.
Whichever way you look at it, a more liberal interpretation of cabotage rules benefits everybody.
The author is a former Secretary, Shipping, Government of India.
