Indian ship owners, seafarers up in arms against new cabotage rules

      07/13/2018

Indian ship owners and seafarers working on different ships, are up in arms against Union Shipping Ministry’s new regulation to allow foreign ships to operate in Indian waters without any pre-condition.

The National Union of Seafarers of India (NUSI) has already decided to launch an agitation, which would include steps like blockade of foreign ships in Indian waters, if this decision is not withdrawn by the Government.

NUSI and Maritime Union of India, in the memorandums, have urged Prime Minister Narendra Modi to save Indian flag ships from being wiped out and have also appealed to all Indian seafarers to send long entreaties to PMO, urging Modi and the Union Shipping Minister Nitin Gadkari to “re-consider” the decision and to desist from scrapping the Right of First Refusal (ROFR) given to Indian ships. Indian National Shipowners’ Association (INSA) has also opposed the move arguing that it would potentially undermine the position of the domestic shipping industry in coastal trading.

Shipping goods from one Indian port to another is known as “cabotage.” It is governed by the Merchant Shipping Act 1958 (MSA). As per the earlier Indian Cabotage rules contained in sections 406 and 407 of the MSA, only Indian flagged vessels or vessels chartered by an Indian citizen or company, operating under a licence granted by the Director General of Shipping (DG, shipping), were allowed to carry cargo from one Indian port to another.

Earlier the foreign flagged vessels were permitted to carry cargo only if Indian flagged vessels were not available. That too if DG, shipping, received a no-objection certificate (NoC) from the Indian National Ship owners’ Association (INSA), a Mumbai-based trade association. However now this restriction has been relaxed and ships with foreign flags are required to only obtain a licence under Section 407 of the MSA to operate in Indian waters.

“This decision is likely to result in major gains for companies which own and operate private ports in India, which import coal and agricultural products. This is the latest move in a policy tussle going for many years and appears to tilt the balance in the shipping industry and the ports sector, hugely in favour of major multinational shipping lines and private port operators to the detriment of Indian shipping companies and government-run ports,” a spokesman for NUSI said and added that due to this move, Indian ships will lose business and eventually “thousands of seafarers, who include officers, petty officers and ratings, will be rendered jobless”.

“Indian companies borrow at 12-14% and the debt has a tenure of about seven years while foreign companies borrow from 0 to 2% for a period of 10-12 years. As such the per day repayment cost for Indian companies is much higher. Such a skewed borrowing cost makes services of foreign ships in coastal waters much more competitive than Indian-registered ships”, sources said and added that in terms of fuel too, there is a cost advantage for the foreign ships. Foreign ships get fuel at cheaper prices in overseas ports while Indian ships pay 17-20% higher cost for fuel in Indian waters”.

Most of the ports are also opposed to the change and JNPT has also expressed apprehension about the change. The main point of contention in the new rules relates to a stipulation that once cabotage relaxation is granted to an existing container handling port, it should be able to tranship at least 50% or more of the total containers handled during the first year. The new port would have to achieve this level in the second year after a gestation period of one year. Otherwise, the relaxation granted would be revoked and the port/s will not be considered again for such relaxation for the next three years.

But according to official sources in Union Shipping Ministry, the decision is part of India’s plan to promote coastal shipping on major scale. At present only 100 million MT of cargo is moved along the Indian coast in India and 80% of it comprises petroleum products, coal and iron ore. A study by the Shipping Ministry has shown that coastal shipping could carry about 230-280 million tonnes per annum (MTPA) of coal, cement, iron and steel, food grains, fertilisers, petroleum, oil and lubricants, which could save Rs21,000-27,000 crore by 2025. Besides, by easing cabotage regulations, India could attract more containerised cargo by reducing time and cost for mainline vessels that now trans-ship containers at neighbouring hub ports. It would eventually help India in building a successful trans-shipment hub.

There are over 1200 Indian merchant ships with about 10300 million MT total gross registered tonnage (GRT) and 14.500 million MT dead weight tonnage (DWT). India ranks 15th in the world in terms of total DWT. At present India supplies around 12.8% of officers and around 14.5% of ratings to the world seafaring community.