Concern as India plans to open up coastal shipping to foreign competition

Domestic shipping lines are upset by the Government's move to open up coastal shipping to foreign competition, reported The Hindu.

This is natural as they will now have to compete for the very cargo they have been carrying as their right for many years.

Right now, the plan is to open up only container services, but clearly, the end of “cargo reservation’’ is not too far away.

The proposed policy aims at easing the capacity constraints in coastal container services. Inadequate capacity delays delivery of cargo and pushes up overall transportation costs. But local shipping lines argue that coastal cargo is reserved for them under the Cabotage regulations to ensure national safety and to boost coastal tonnage. Foreign lines initially offer “dumping’’ freight rates to attract cargo. But once they know they can dictate terms, they will jack up rates, it is argued.

These arguments are fine. But they have not translated into any action that has helped coastal shipping to grow. Today, despite being an eco-friendly, low-cost and fuel-efficient mode of transport, coastal shipping accounts for just seven per cent of the total domestic cargo movement, the bulk of which moves by road and rail, adding to the pressure on these transportation modes.

In a country with a coastline of over 7,000 km, there is no reason why a large part of this cargo cannot be moved by sea. In fact, domestic coastal shipping tonnage — around 700 ships — accounts for only 10 per cent of the country's total shipping tonnage. This include tugs and offshore support vessels; thus, actual cargo carriers would number around 300-350. And their average age is much higher than that of the ocean-going vessels. Domestic coastal operators have their own cup of woes: lack of connectivity to the hinterland and ports, heavy taxes, high cost of funds, absence of dedicated berths and many others that stifle their growth.

No doubt, these problems need to be addressed at the earliest. At the same time, Indian coastal operators cannot be oblivious to the winds of change sweeping across the coast. Any rule that restricts competition cannot survive for long in an increasingly free-trade environment. Trade cannot be allowed to suffer if domestic lines cannot deliver service of the desired quality at a competitive price. At the end of the day shippers should benefit.

Indian coastal shipping operators should invest in capacity as the market for domestic cargo is bound to expand. The Government has rightly decided to open up coastal shipping only gradually, given the considerable advantage foreign lines have and the crushing impact they might have on domestic shipping if a free-for-all environment is created at one stroke. But open up it must, if the logistics efficiency of the economy as a whole is to improve.

For a country with a coastline of over 7,000 km, there is no reason why a large part of domestic cargo cannot be moved by sea.
(Source:www.cargonewsasia.com)