Effect of Cabotage policy on coastal shipping.

 

India is emerging as a modern economy and about 95% of India’s EXIM  cargo trade by volume and 70% by value is transported by sea.  At present India’s foreign trade represents less than 3% of global trade and the National Maritime Agenda  set a target of 5% of global market share by the year 2020.  Coastal shipping has a significant role to play in Indian economy to achieve this ambitious target.

Despite of having a rich and proud  Maritime tradition and a long coastline of about 7517km studded with 13 major and 185 Non-Major (Minor / Intermediate)  ports , the potential of coastal shipping has not yet been fully exploited in India.

Cabotage policy has an important bearing on the coastal shipping of a country. Most of the maritime nations like USA, China , Indonesia etc  practice an absolute Cabotage  and it restricts movement of coastal cargo by their own flag vessels . 

By definition , coastal vessel means a vessel of Indian registry with exclusive Indian crew, engaged in carriage by sea of cargo or passengers, from one Indian port to another port or place in India , and/or any other vessel having specified period license for coastal trade issued by Director General of Shipping.

In India the Cabotage, which is provisioned in section 406 & 407 part XIV of Merchant Shipping Act,1958, is not absolute . According to this law, only Indian flag vessels can carry cargo from one Indian port to  another Indian port , however , permission is granted to foreign flag vessels to ply between Indian ports , incase Indian flag ships are not available.

The Indian National Ship Owners’ Association (INSA) consider the absence of absolute cabotage is the major reason for low investments in coastal shipping and  strongly oppose the move of relaxing the  cabotage law arguing that this will not give a level playing ground for Indian bottoms.

On checking the past records of coastal trade , it is evident that the present cabotage policy did not boost coastal trade to the desired levels. The % of coastal shipping in India is only 7% against 43% in Europe.

Coastal Shipping- Present Status

Economic reforms in India have triggered a high rate of economic growth in the country and this in turn has led to an increase in transport demand.  This demand is being met mainly by the rail and road transport systems.  About 50-55% of the freight traffic is carried by road , 30-35% is by rail and only about 7% by coastal shipping .

Though coastal vessel number and tonnage increased from 244 / .60mgt in 2001 to 682/1.0 mgt in 2010, actual number of cargo carrying fleet is very small. The major percentage of fleet is comprises of passenger – cum – cargo vessels, passenger vessels, dredgers etc. And the average age of the coastal fleet is much higher compared to that of overseas fleet with over 60% of its tonnage already overdue for replacement.

  According to Alphaliner report given below , the world liner fleet has crossed 15 million TEUs now .

 

Whereas only 16 Indian container vessels as listed below  with  about 2200TEUs capacity  only available for coastal run at present. (Source :- (Draft )Report of Sub-Group No.VI on Infrastructure to Support Coastal Shipping, Cruise Shipping and Development of Ship Repair, page.11)

 Sufficient Ro-Ro or Lo-Lo services , which can carry trucks from one port to another to reduce the cost of double handling, are not available in India at present . Introduction of such high tech vessel  will make coastal shipping more attractive. As Indian shipping is not in a position to bring in such new technologies at present due to various reasons, foreign shipping should be permitted to operate.

Coastal Traffic – An overview

The commodities carried by coastal shipping are mainly bulk and break bulk cargo. The passage of cargo to both directions are not equal in coastal shipping and this leads to imbalance. This is because the cargo movement pattern and magnitude is mostly dependent on the production/availability, consumption/demand and the distance separating production centre from points of destination.

The commodity wise split  of costal cargo for 2005-06 and  2009-10 are  as under. Though the POL products has the highest share , it is to be noted that the share of liquid /dry bulk cargo has reduced from 94%(2005-06) to 87 % in 2009-10.  And there has been an increase of 7% in the share of “Others” (food grains, automotive spares, automobiles, steel, cotton yarn, other containerized cargo etc) due to increase in containerized cargo movement.

 

Previous studies and surveys reveal that , foreign shipping is more cost effective and technically advanced compared to coastal shipping. This is another reason why foreign ships  to be permitted to carry Indian coastal cargo, this policy change can do wonders in reducing logistics costs and enhancing efficiencies. Also would boost multimodal transportation trade , a business of huge potential waiting to be tapped  in India.

 Containerization – Driving force for coastal shipping.

 Containerization density in India is lower (18%), compared to the world average, though rising containerization is one of the key trends expected to drive coastal shipping. Positive upward trend in containerization is evident in the below given  chart, an increase of 3.2% from FY04 (14.8%) to FY10(18%).

   

The commissioning and successful implementation of India’s first International Container Transhipment Terminal at Vallarpadam, Cochin and the proposed Vizhinjam International Transhipment Terminal are  expected to catalyze  the growth of coastal shipping further as container volumes are projected to flow to/from  all the ports more rapidly than before.  Presently about 70% of the Indian containerized cargo is getting transshipped at Colombo, Dubai, Singapore and Salalah.  The dependents on foreign transshipment ports make the import and export of a country   expensive and less competitive in the international market.

The cabotage restriction has an adverse effect on the growth of India’s first and only transhipment terminal, ICTT-Vallarpadam, which is in its infancy. This is a classic example of the necessity of relaxing the existing Cabotage restrictions for the promotion of shipping trade in general and coastal shipping in particular.  It is estimated that about 1.2 million Indian cargo, mainly from South Indian ports ,  is getting transshipped at Colombo and If these containers are transshipped at  ICTT there would be substantial savings in the cost as well as transit time . For the success of a  hub port, good connectivity ( sea/river, rail ,road  )is required  to pool cargo from other Indian ports/ overseas and to deliver the cargo to final destinations. From Colombo shipping lines are free to feeder in/out container to any Indian ports without any difficulty and this increases the acceptance of Colombo as a preferred hub port.  

The cargo carrying capacity of ships,   is several times greater than that of rail wagons or  trucks  and therefore, coastal shipping offers the benefit of low transport / operating & logistics costs to the trade and industry.  

The Department-Related Parliamentary Standing Committee on Transport, Tourism & Culture in their 170th Report on Modernization of Major Ports presented to the Rajya Sabha on 11.8.2011 says this on cabotage: “346. In view of the critical implication of this regulation in the successful implementation of the ICTT project and in the larger interest of economic self-reliance of the Indian EXIM trade, it is imperative that the Cabotage Law is relaxed to enable transshipment of containers through foreign flag vessels from ICTT, Cochin. The Committee, therefore, recommends that the Government should immediately undertake a review of the Cabotage law and take appropriate decision in consultation with all the stakeholders involved”.

Also ,The Director General, Shipping himself recommend in the draft of the Coastal Shipping Policy, “a nuanced approach towards transshipment cargo would require opening it up foreign flag so as to boost containerization and the requisite infrastructure and practices”.

According to INSA this move will adversely affect the growth of Indian coastal shipping. They also argue that the foreign liners have only short term interest and the Indian shipping companies are equipped enough to cater to the expected increase in demand for more feeders . .   However , it is difficult to foresee the acquisition of sufficient container ships by Indian companies . Though it is argued that the relaxation would hurt the growth of Indian tonnage, in long run ,by creating demand for the coastal shipping, it would be beneficial.  

Key Advantages of coastal shipping.

It is estimated that the nation would save Rs. 15-20 billion through diversion of 5% of cargo from road apart from a reduction in pollutants by 6%  and savings in fuel . India’s transportation sector relies heavily on petroleum as its chief energy source, thereby dominating the country’s oil consumption. 

Indian marine  highways are a vital national resource currently not being used and India should develop a  vibrant system of sea highways connecting a network of  major/minor ports and the Inland water Transport system which would complement the land bound network .A well developed coastal shipping will substantially help to reduce road accidents, fuel conception and will prove to be an environmental friendly mode of transport.  

Also, various studies in India and abroad prove that Coastal shipping can reduce green house gas emission considerably. This makes all the more important that India should look closely at the potential of the coastal shipping transport systems to ease the pressure on surface transport modes and arrest the continuous damage caused to environment.  

India should reduce the stress on road and rail and also on environment by diverting a sizable  percentage of  cargo moved by rail and road to coastal shipping. A relatively modest investment in coastal sea routes with appropriate policy changes, would bring substantial benefits by  reducing burden on present transportation system, traffic congestion and pollution

Cycle of Container Shipping Activities

CONTAINER TERMINAL

Containers are the foundation for a 'unit load' concept and they came into the market in the 50’s for the safe transportation of commodities. There has been a significant spurt in worldwide container transportation in the current decade and this inturn resulted in development of seaport container terminals across the globe. Today the competition among the terminals are remarkably high and all of them are gearing up to meet the challenges of handling mega vessels upto 10,000 to 12,000 TEUs capacity and beyond.


What is in a terminal ?

1.  The Quay ( is a structure on the shore where ships can dock to load &

                      unload cargo. And this structure can have 1 or more berths (mooring

                      locations)

2. Yard ( Space to store the containers to be loaded / discharged on to/ from

              the ship)

3. Equipments ( both the quay side and yard equipments)

4. Labour ( the admin & field work force).

In other words a typical container terminal consist of a land area with good infrastructures ( road/gate/lights etc) and superstructures (gantry cranes/ yard equipments etc) to carry out the quayside and the yard operations.

Yard management

Terminal Equipments

Gantry Crane & Straddle Carrier

Selection of a container terminal

Below given are some vital elements which are considered by the shipping lines while selecting a container terminal to call their ships

- Geographical Location (Hub or not)

- Strategical Position ( Required deviations from international maritime
  routes)

- Economical conditions ( Size of the commercial market, costs, tariffs etc)

- Physical Elements ( Draft, Berth length , access to sea, stack capacity, no.of   

  gantry cranes, CFS etc)

- Political Environment ( labour unions, strikes, work timings, quality of work

   force)

- Environmental Conditions ( Monsoons/ Winter)

- Intermodal facilities (Rail / Road / Water connectivity)

Why is a ship called "SHE" ?

DANGEROUS GOODS

Dangerous Goods or Hazardous Materials are chemicals in Solid , Liquid or Gas form which can harm people , other living organisms , property or the environment .One of the sensitive issues faced by the transportation industry today is the safe transportation of the Dangerous Goods. Considering the risk associated with DG, safety precautions are to be applied during its storage, usage, transportation and disposal. Laws and regulations on the use and handling of hazardous materials may differ depending on the activity and status of the material.

INTERNATIONAL MARITIME ORGANISATION (IMO)

IMO is United Nation’s specialized agency which has developed international legislations dealing with two key issues for the maritime industry

(1) The safety of life at sea

(2) Prevention of pollution from ships

IMO has developed two international conventions two address these issues. They are

(1) The SOLAS Convention (covering safety of life at sea)

(2) The MARPOL Convention (covering pollution prevention)

To supplement the principles laid down in above two conventions IMO developed International Maritime Dangerous Goods Code (IMDG Code).IMDG Code contains detailed technical specification to enable safe handling and transportation of DG. The main objective of the IMDG code is to:

• Enhance the safe transport of dangerous goods

• Protect the marine environment

• Facilitate the free unrestricted movement of dangerous goods

Also IMDG code is a complete instruction manual for DG cargo Classification, documentation and packaging .The IMDG Code became mandatory for adoption by SOLAS signatory states from 1st January 2004 and is based on an internationally agreed system which:

• Groups dangerous goods together based on the hazards they present in transport (classification).

• Contains the dangerous goods in packaging/tanks which are of appropriate strength and which will prevent the goods escaping.

• Uses hazard warning labels and other identifying marks to identify dangerous goods in transport.

• Requires standard documentation to be provided when dangerous goods are being transported.

• Lays down principles for ensuring that dangerous goods which will react dangerously together are kept apart.

• Lays down principles for where to place dangerous goods on board ship to ensure safe transport.

• Provides emergency response advice for dangerous goods involved in a fire or spillage on board ship

The IMDG Code is updated every two years to take account of:

• New dangerous goods which have to be included.

• New technology and methods of working with or handling dangerous goods.

. Safety concerns which arise as a result of experience

Layout of IMDG code

• The Code comprises 7 parts.

• It is presented in two books; Volume 1 and Volume 2.

• It is necessary to use both books to obtain the required

information when shipping dangerous goods by sea.

• The Code also contains a Supplement.

Classification Of DG

DG are classified according to their specific properties ( explosives, corrosive, flammable , radioactive, oxidizing, toxic etc.) and hazards it may cause. Nine (9) classes have been established internationally by a UN committee to ensure that all modes of transport (road,rail ,air and sea) classify DG in the same way.

The 9 classes are:

Class 1 Explosives

Class 2 Gases

Class 3 Flammable liquids

Class 4 Flammable solids

Class 5 Oxidizing substances and organic peroxides

Class 6 Toxic and infectious substances

Class 7 Radioactive material

Class 8 Corrosive substances

Class 9 Miscellaneous dangerous substances and articles

The purpose of the classification is

- To distinguish between goods which are considered to be dangerous for transport and those which are not

- To identify the dangers which are presented by DGs in handling and transport

- The type of packaging to be used

- What type of DGs can be transported and stored together

- Where the goods can be stored within the port and on the ship

- To ensure that correct measures are taken in case of mishaps

Packing And Labeling the DG Product

Packing of DG product is another area of importance. IMDG code has given clear guidance / instructions on the tests to be conducted on DG products to decide the kind of packaging to be used. There are 3 packing groups PG1 , PG II , PG III .

Correct labeling of the product and placarding the container with accurate information is also very important. This helps to identify and segregate the DG products. Also enables quick reaction to dangers and mishaps.

The external packing and the vehicle in which the goods are transported must have the appropriate diamond shaped label (placard) fixed to them. This helps a great extent to overcome the language barriers.

UN Number and Proper Shipping Name. (PSN)

The DG products are uniquely identified by 2 piece of information within the 9 classes

1. Four digit number known as UN Number

2. Proper Shipping name or PSN.

Impact of E-commerce on Ecosystem.

The Information technology provides a new platform for the trade activities and is growing fast. One of the benefits of IT is its power to link the whole globe. This has changed today’s business environment dramatically. Internet has become a global market which could penetrate in to various geographic markets successfully. In this system the business organizations no longer need to provide a luxury office space instead through a virtual environment can trade goods and services without an intermediate link.

It is also known to everyone that e-commerce doesn’t emit any pollutants and uses low energy and natural resources. The internet replaces buildings into websites and warehouses to supply chain software.

What is e-commerce ?

Electronic commerce or e-commerce is generally considered to be the sales aspect of e-business. In other words ,buying and selling of products and services over the internet or other electronic networks is called e-commerce. It promises to make buying and selling fast, efficient , transparent and cheap . Various e-business models in use are as under.

B2B (Business-to-Business) -Companies doing business with each other such as manufacturers selling to distributors and wholesalers selling to retailers.

B2C (Business-to-Consumer)- Businesses selling to the general public typically through catalogs utilizing shopping cart software.

C2B(Consumer-to-Business)- A consumer posts his project with a set budget online and interested companies review the consumer's requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project.

C2C (Consumer-to-Consumer) -There are many sites offering free classifieds, auctions, and forums where individuals can buy and sell . e-Bay's auction service is a great example of where person-to-person transactions take place every day since 1995.

Environmental impact of e-commerce.

E-Commerce has both positive and negative impact on ecosystem. The effect of e-commerce on environment reflects on three aspects - Energy, Resources and Pollution.

Energy

It is commonly believed that e-commerce industry demand lower energy compared to the traditional industry. This is because of the reduced use of warehouses, showrooms and factories. However the computers and other communication equipments required for the electronic industry consumes a lot of electricity which inturn increase the requirement of electricity generating units. These units are one of the major causes of environment pollution in many countries.

Resources

As e-industry reduces the requirement of showrooms and warehouses, the consumption of natural resources like land , wood, cement, steel and iron etc. are less. And e-commerce said to have reduced the usage of petrol by promoting the teleshopping and telecommunication. However, the globalization and e-village concept made it easy to purchase goods from faraway places which increase shipping in general. Even though the teleshopping involves the transportation of physical items in some way or the other , it has considerably reduced the customers visit to stores using their own vehicles and inturn reduce the toxic green gas emissions.

Though the advancement of e-industry was expected to reduce the usage of paper , the overall effect is the reverse. The usage of paper has been increasing along with the e-industry . Various studies point out that the paper usage in the developed countries were much lower before the e-commerce era.

Pollusion

The growth of Information Technology resulted in increased usage of computer and other electronic equipments . The production of computer components like semiconductors, micro-chips, batteries etc causes significant green gas emission which adversely affect the ecosystem .

Also e-waste is one of the major concerns of the developed countries today as recycling of the scraped electronic instruments produces toxic gases and other harmful substances which cause serious damage to the ecosystem.

Conclusion

E-commerce is a two- edged sword , it has its own share of advantages and risks. The commonly recognized advantages are the reduced usage of resources , energy and less transportation. The major risk is the pollution and increased usage of paper which has a serious implication on the ecosystem.

It is a good sign that most of the companies are taking these issues seriously and promoting environment saving activities. Awareness campaigns are conducted for employees which is expected to reduce the energy and other resource usage.

Is Cabotage law relaxation for Vallarpadam International Transhipment Terminal is required ?

In most of the countries Cabotage law restricts movement of coastal cargo by their own flag vessels. In India too Merchant shipping Act does not permit foreign bottom to carry cargo between the Indian ports . However , permission is granted to foreign flag vessels to ply between Indian ports , incase Indian flag ships are not available. This law said to have given a certain level of stability to Indian bottoms.

Cabotage law is provisioned in section 407 part XIV of Merchant Shipping Act,1958 . According to this law, only Indian flag vessels can carry cargo originating in one Indian port to be another Indian port. In view of commissioning of VICTT in Aug/Sept, MoS is reported to have taken a decision in principle to relax cabotage law atleast for a year or so with respect to transshipment cargo passing through VICTT.

The Indian National Ship Owners’ association strongly oppose this move arguing that relaxing the cabotage law will not give a level playing ground for Indian bottoms. According to them this move will adversely affect the growth of Indian coastal shipping. They also argue that the foreign liners have only short term interest and the Indian shipping companies are equipped enough to cater to the expected increase in demand for more feeders .

However , the statistics released by DG Shipping in 2009 shows that the total number of vessels registered under Indian flag is only 664 and out of which dedicated cargo carriers(tankers + bulk + break bulk + Ro-Ro+silo+ container carriers) are very small. Most of the coastal container ships which is plying between Cochin and other Indian ports are very old and they are not in good condition. The ground reality is that the dedicated coastal shipping lines are unable to provide sufficient ships at present to cater to the limited transshipment requirements at RGCT Cochin.

Cochin Port Trust and other supporters of VICTT argues that the containers originating in other Indian ports destined to overseas ports, and containers originating abroad and destined to other Indian ports, which are getting transshipped at VICTT , should not be treated as coastal cargo, within the meaning of Cabotage law. VICTT is located within a Special Economic Zone and customs clearance will not happen there. Customs clearance formalities will have to be completed only at the respective origin / destination ports only.

Moreover, VICTT will have to compete with neighboring ,well established ,International transshipment terminals like Colombo, Singapore , Port Kelang , Jebel Ali etc. It is estimated that about 1.2 million Indian cargo is getting transshipped at Colombo and If these containers are transshipped at VICTT there would be substantial savings in the cost as well as transit time .
From Colombo all liners are free to take cargo to any Indian ports without any difficulty. Though ,CoPT and DPW offered a very competitive tariff to liners calling VICTT, which is at par with Colombo , the hub port also require sufficient feeder services to pool cargo from other Indian ports/ overseas and to deliver the cargo to final destinations. Which , under the present conditions, I feel, Indian feeder operators do not have the capacity to provide required services and the foreign lines, mother and feeder vessels, should be allowed to carry cargo between the Indian ports.

If the primary objective of the MoS is to promote coastal traffic and in turn to promote VICTT , the law should be relaxed for transshipment containers. Also understand that the 10th five year plan recommend relaxation of cabotage law to promote gateway ports and to prevent transshipment at Colombo. It is expected that the presence of foreign liners will bring new technologies , efficiency and cost reduction, which is a major constraint for the growth of coastal shipping.

Though it is argued that the relaxation would hurt the growth of Indian tonnage, in long run ,by creating demand for the coastal shipping, it would be beneficial. The law can be reintroduced once VICTT is up and running and there is sustained growth for coastal cargo.