Shipping laws must be relaxed to boost maritime capabilities

By Shardul Thacker, Mulla & Mulla & Craigie Blunt & Caroe
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India’s shipping policy aims to reduce the dependence of external sea borne trade on foreign shipping services. The cabotage regulations in India through the Merchant Shipping Act, 1958, have reserved coastal trade exclusively for national flag vessels, thereby restricting the operation of foreign vessels in Indian waters, enabling payments to be made more easily.

Shardul Thacker Partner Mulla & Mulla & Craigie Blunt & Caroe
Shardul Thacker
Partner
Mulla & Mulla & Craigie Blunt & Caroe

The implementation of cabotage regulations ensures the availability of reliable domestic shipping services and the existence of maritime capability, which is subject to government control in times of war and national emergency.

While there is no blanket prohibition on the carriage of coastal cargo by foreign flagged vessels, such services are regulated and require the director general’s approval. A foreign flagged vessel is permitted to arrive at an Indian port to unload and load cargo, but should return without loading/unloading cargo at any other Indian port.

Foreign ships are prohibited from operating in India’s coast trade without obtaining a licence. Foreign ships may hold (i) a general licence; (ii) a licence for a part or the entire coasting trade of India; or (iii) a licence for a specific period or voyage.

Licences for foreign ships

The director general is fairly liberal in granting licences to foreign shipping companies to charter hi-tech vessels and to use foreign flagged vessels in India.

Licences are granted to a company for a period of only one or two years, once it has been established that no vessel of the specification owned by the company is available.

Allowing foreign lines to have open access to carry Indian cargo, without requiring any registration would defeat the purpose of building national tonnage. The government is considering the possibilities of relaxing section 407 of the Merchant Shipping Act, which restricts the movement of foreign vessels in Indian coastal waters.

The international shipping industry is in favour of relaxations to cabotage law. It is widely believed that the interest of foreign flag carriers in this regard would be limited to traffic to and from foreign countries, mainly to transship containers through an Indian hub.

It is also highly likely that these carriers would originate from, and be destined for, overseas locations. It is thus argued that transshipment cargo should be classified as international and not coastal traffic. Proposals are also being made to allow foreign flag vessels to move along the coast from one port to another to pick up containers meant for transshipment.

Currently, it is mandatory that Indian flag vessels be owned only by Indian entities. However, if foreign entities are permitted to invest up to 100% in Indian companies, they could incorporate an Indian subsidiary, or invest in an Indian ship-owning and ship operating company, which would enable them to enjoy all the privileges granted to Indian companies and allow them to acquire a ship flying the Indian flag with 100% overseas debt or equity finance.

Relaxing coastal shipping laws

The Indian government is making efforts to ease the rapidly increasing congestion at major ports throughout the Indian peninsula. At present, these ports account for over 50% of coastal traffic and this is expected to increase to 75% in the next few years.

For now, a large portion of India’s exports and imports by container is transshipped through foreign hub ports, resulting in a huge outflow of foreign exchange. To attract more mainline vessels, the Indian Ministry of Shipping is keen to relax shipping laws to further encourage the early development of infrastructure at major and minor ports.

Port policies

Indian ports over the years have grown in size and have evolved drastically from being mere points for the basic pick-up and drop-off of cargo, to serving as indispensable links in the development of India’s infrastructure.

The Major Port Trusts Act, 1963, has been amended to allowing major ports to enter into joint ventures. The number of container-handling ports and terminals is increasing and now port authorities are being privatized or entering into joint venture partnerships with private players, foreign ports and other companies. This has been facilitated by allowing foreign direct investment of up to 100% of equity in port projects.

Ports today are also aiming to establish ample, well-equipped warehouses for the storage of goods during the transmittal stage. This fulfils the need for the storage of manufactured raw goods, equipment and other commodities before they are shipped to their final destinations.

The Indian government and the shipping industry foresee the significance of boosting shipping logistics in order to regularize coastal transportation and sustain the growth of cargo movement throughout India’s waterways.

Shardul Thacker is a partner with Mulla & Mulla & Craigie Blunt & Caroe in Mumbai.

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