Ease of cabotage rules hits Indian-flagged ships

CHENNAI: Foreign-flagged ships operating in Indian waters appear to benefit from lower costs in the country of registration, and according to industry 
estimates, operating costs for Indian lines are about 20 per cent higher than for foreign lines because of the higher cost of financing, and other issues including GST.

The change in cabotage rules has affected Indian-flagged vessels and fleet owners claim that they are unable to compete with foreign ships on domestic voyages due to higher taxes, costlier bunker fuel, tax on wages paid by Indian seafarers employed on Indian flag ships, mandatory requirement on employing more crew per voyage and five per cent IGST on cargo carried along the coast. None of these is applicable to foreign ships, giving them an edge over Indian flag vessels.

Since May this year, international shipping companies have been able to move export and import containers along the country’s coasts, after the Indian Shipping Ministry changed its cabotage rules. As a result foreign-flagged ships no longer require a specialised licence to perform cabotage operations.

Representatives of domestic shipping lines recently complained to the Union Shipping Minister Nitin Gadkari about losing business to foreign competitors due to change in law. He has assured to look into their concerns.

“This lack of capacity meant that cotton produced in Gujarat has to be transported by road to Tamil Nadu even when empty shipping containers are moving from Kandla port (in Gujarat) to the trans-shipment hub in Colombo,” Mr Gadkari said. This, he argued, was not only a waste of resources but increased traffic on Indian roads and provided global trans-shipment hubs like Colombo over 70 per cent of India’s trans-shipment business.

During 2017 fiscal, India paid $52 billion in freight to foreign shipping companies, which carry about 92 per cent of India’s external trade shipped by sea, according to the Reserve Bank of India.