Need of the Hour: Relaxation in Cabotage Law
Vishwas Udgirkar, Senior Director, Deloitte India

Cabotage law has been a subject of debate for quite some time. For taking a cognizant view, this article discusses cabotage law in perspective of status of coastal shipping and domestic shipping industry. While current situation of coastal shipping in India presents a compelling argument in favour of relaxation in cabotage law, current situation of Indian shipping industry cannot be overlooked.

Cabotage law in India provides right of first refusal to Indian flagged ships for coastal shipping. Such or similar laws are there in various other countries of the world, with the intent to promote/protect interests of domestic shipping industry. Countries like USA, China, Indonesia etc. have absolute cabotage i.e. only their own flagged ships are allowed for coastal cargo movement. In India, the cabotage, which is provisioned in section 406 & 407 part XIV of Merchant Shipping Act 1958, is not absolute i.e. foreign flag ships can be used for coastal cargo movement, if Indian flagged ship is not available. In some major maritime nations, substantial cargo support is also extended to national flag ships, which is not the case with India. However, recently Government of India has announced an incentive scheme to encourage manufacturers and transporters to shift the movement of their goods From rail and road to coastal shipping, this would in turn benefit Indian flagged ships.

Cabotage law has been a subject of debate for quite some time. For taking a cognizant view, this article discusses cabotage law in perspective of status of coastal shipping and domestic shipping industry. While current situation of coastal shipping in India does present a compelling argument in favour of relaxation in cabotage law, current situation of Indian shipping industry cannot be overlooked.

Need to Promote and Leverage Coastal Shipping
Benefits of coastal shipping are multi-fold. It can play a very important role in multi-modal freight transportation, leading to reduction in logistics cost as well as reducing pressure on highways and railways. It can also carry relatively larger size of parcels and in other cases options like Ro-Ro or Lo-Lo can remove hurdles of multiple handling also. There are other benefits also in form of reduction in pollution and rationalisation of demand on natural resources.

Approximately 95 per cent of the India’s trade by volume and about 68 per cent by value are transported by sea. However, scenario of coastal shipping in India remains bleak. In India, coastal shipping accounts for about 8 per cent of the total domestic cargo movement in India, on a tonne-km basis. The same per cent in other regions/countries is 42 per cent in Europe, 43 per cent in China and 15 per cent in USA. While the role of coastal cargo movement has been less than optimal in India, its growth also has been slower. From 1997-98 till 2012-13, the overseas trade cargo at Indian ports has increased by a CAGR of about 9.1 per cent, while the CAGR of coastal cargo in same period is only about 4.7 per cent.

Another characteristic of coastal cargo movement in India is that out of the total coastal cargo movement in India, a major share is that of bulk cargo such as POL and coal. However, there is significant scope for movement of containerised cargo through coastal shipping, which has remained unutilised. There are multiple reasons for poor status of coastal shi