Cabotage change drives India transshipment growth

India’s cabotage policy liberalization has bred a buoyant trade outlook and a touch of hubris among foreign ocean carriers seeking new growth avenues, but a closer look at the pre- and post-reform port data begs a question: Has there been any competitive impact on the country’s containerized supply chains?

With the cabotage modification, enacted in May 2018, intra-country transportation of laden export-import containers for transshipment and empty containers for repositioning between Indian ports became a free market to foreign-flag operators. The main government strategy behind this was to enhance the attractiveness of Indian ports as direct ports of call for mainline carriers and thereby regain domestic cargo transshipped over foreign hubs.

While too early to declare success or failure, the amount of Indian foreign transshipment has remained steady in the past two years, although hopeful signs are apparent.

Indian ports cumulatively saw a 9 percent rise in export-import containerized movement during fiscal year 2018-19, to 15.2 million TEU. Of that, foreign transshipment represented 6.1 million TEU, or 40 percent. That share is unchanged from 2017-18 when transshipment of 5.6 million TEU was 40 percent of total volume of 14 million TEU, an analysis found.

However, with the overall growth, domestic transshipment and direct shipping activities gained traction. Transshipment over Indian ports — connecting intra-India gateway cargo through aggregation — rose 29.6 percent to 350,000 TEU, while direct movement — from the origin to the destination without intermediary port calls — was up 7.6 percent to 8.7 million TEU.

One clear positive takeaway is the resurgence in coastal shipping, which swelled 29 percent to 1.4 million TEU from 1.1 million TEU thanks to short-sea network improvements.

The Container Shipping Lines Association (CSLA), the group representing foreign carriers in India, have portrayed the cabotage refining as a major boon to India’s containerized supply chains. The group has been highlighting pent-up demand for transshipment at Indian ports since the “coastal doors” were opened to them.

CSLA’s September data is the latest proof of that view. Indian ports last month regained a total of 107,271 TEU usually shipped through foreign hub ports, up from 47,000 TEU during September 2018, they said.

That data yields another positive sign — empty container moves that were becoming a concern from a broader industry perspective have slowed down. Over the past two months, such activity has remained static at 21 percent, down from 36 percent in July and 30 percent in June.

Emergence of minor ports

The costly, complex foreign transshipment practice had long been more pronounced on India’s east coast, where ports historically lacked deep drafts, adequate infrastructure, and sufficient gateway traffic to lure long-haul calls. But with the emergence of private, minor ports equipped with modern infrastructure and recent upgrades at major ports, mainline carriers have lately shown a renewed interest in adding direct calls in the region. Hapag-Lloyd and Ocean Network Express (ONE) last month rolled out the South-East India – Europe Express (IEX) Service with five port calls in the region — Visakhapatnam, Krishnapatnam, Chennai, Tuticorin, and Cochin. The weekly loop deploys nine vessels with an average capacity of 6,500 TEU each, providing ample tonnage for the budding market. Approximately 4.8 million TEU move in and out of India’s southeastern corridor annually, according to the port data.

Local industry leaders have cited uncompetitive port tariffs as the main factor preventing mainline carriers from introducing more calls at Indian ports. Bowing to that pressure, the government recently called on port leaders to rework vessel-related charges applied to mainline calls at busy ports, particularly Jawaharlal Nehru Port Trust (JNPT), to bridge the gap with global counterparts. There is also a plan in the works to draw up a robust, alternative pricing policy, rather than ports independently offering discounts on a controlled basis that seldom work due to their ad-hoc nature.

That said, recent direct call additions — including an intra-Asia port rotation upsizing by Wan Hai Lines to add Tuticorin and Cochin to its China-India (CI2) on top of the existing JNPT — suggest carriers’ mindsets around Indian port competitiveness have begun to change somewhat.