What Is Cabotage and How Is It Regulated in India?

Cabotage refers to the transportation of goods or passengers between two points within a nation’s borders, typically along the coastline, by sea. In India, cabotage regulations are essential to protect and promote the national shipping industry, ensuring that Indian vessels benefit from coastal trade opportunities. However, these regulations have been evolving to meet the needs of global trade, boost port efficiency, and attract foreign investment.

What is Cabotage?

Definition of Cabotage

Cabotage refers to the coastal shipping of goods or passengers between two points within the same country, generally from one port to another. It applies to trade that occurs entirely within the country’s territorial waters. For example, a ship carrying cargo from Kochi to Mumbai in India is engaged in Indian cabotage trade.

Cabotage vs International Shipping

Cabotage: Coastal shipping conducted between ports within the same country, using ships registered in that country.

International Shipping: Shipping trade between ports located in different countries, which is typically open to foreign vessels, subject to international maritime agreements.

Cabotage in India: Regulation and Control

Cabotage Laws in India

The regulation of cabotage in India has historically been governed by the Merchant Shipping Act, 1958, which provides that only Indian-flagged vessels are permitted to transport goods or passengers between two Indian ports, ensuring that India’s national fleet benefits from the trade.

The law mandates that foreign ships cannot carry out cabotage operations in India without specific permission from the government. This was done to protect the interests of the Indian shipping industry and to ensure national security and economic sovereignty.

Cabotage Restrictions for Foreign Vessels

Foreign vessels have historically been restricted from engaging in coastal trade in India. The restrictions are meant to support Indian shipping companies and ensure the development of a domestic maritime industry. Foreign vessels could only operate in India’s domestic shipping routes if:

• They were granted special permission by the Indian government.
• They were only allowed to carry cargo that Indian vessels could not handle due to capacity issues or other reasons.

Impact of Cabotage Regulations

Protection of Indian Shipping

The cabotage laws were intended to support and promote Indian shipping companies by ensuring that coastal shipping remained within the purview of Indian-flagged vessels.

Economic Impact

By restricting foreign participation, the laws ensured that local shipping businesses could capitalize on coastal trade, providing jobs and contributing to the national economy.

Recent Reforms and Liberalization of Cabotage Rules

Cabotage Policy Reform (2018)

In 2018, the Indian government took significant steps towards liberalizing cabotage laws to enhance the competitiveness of the Indian shipping sector. These reforms were aimed at:

• Opening up the coastal shipping sector to foreign vessels.
• Reducing restrictions on foreign vessels in certain cases to boost port efficiency and reduce logistics costs.
• Encouraging competition and improving service quality in coastal shipping.

Key Changes in the 2018 Reform

Under the reforms, the restriction on foreign vessels carrying out cabotage trade was relaxed for certain conditions:

• Foreign ships were allowed to carry out cabotage operations if they were carrying cargo for export or import.
• It was also permitted for foreign vessels to transport cargo between two Indian ports without special permission if they were involved in transshipment operations.
• The policy change aimed to increase container traffic and streamline port operations, especially in major ports like Mumbai, Chennai, and Kolkata.

Benefits of the Reforms

The liberalization of cabotage laws is expected to bring the following benefits to India:

• Increased Efficiency: Allowing foreign vessels to engage in coastal trade can help in the optimizing of container transport and reduce congestion at Indian ports.
• Boosting Port Utilization: Foreign participation can lead to better utilization of underused port facilities, especially for transshipment activities.
• Lower Freight Costs: The increased competition may lead to reduced shipping costs, benefiting the exporters and importers.
• Foreign Investment: Attracting foreign shipping companies could bring in investment and advanced technologies that enhance the overall maritime infrastructure of the country.

Cabotage Reforms Impact on National Shipping

While the liberalization opens doors for foreign vessels, it also includes provisions to protect and encourage the Indian shipping industry:

• Indian-flagged vessels remain prioritized for domestic trade, and the government ensures that local carriers continue to receive the lion’s share of coastal shipping.
• The reforms also call for modernization and upgrading of Indian ports, ensuring that they can handle both foreign and Indian vessels efficiently.

Example of Cabotage in Practice

Foreign Vessel Engaged in Transshipment

A foreign-owned vessel carrying goods from Sri Lanka arrives at the Jawaharlal Nehru Port Trust (JNPT) in Mumbai for transshipment. Previously, foreign ships could not carry cargo directly between two Indian ports, but under the new rules, this vessel can unload cargo and reload it onto another foreign vessel for export, improving the turnaround time at ports and enhancing the efficiency of the transshipment process.

Coastal Trade by Indian Vessels

An Indian shipping company operates between Chennai and Kochi, providing cargo transport services within India’s territorial waters. Under the cabotage laws, the company enjoys exclusive rights to carry cargo between Indian ports, ensuring that India’s domestic maritime business remains protected and fostered.

Conclusion

Cabotage is a vital component of maritime law that governs the coastal shipping of goods within a country's waters. In India, cabotage regulations have historically been designed to protect and promote the national shipping industry. However, recent reforms have opened the sector to foreign vessels under certain conditions, aimed at enhancing port efficiency, lowering logistics costs, and attracting foreign investment. While promoting competition, these reforms ensure that Indian shipping companies retain a dominant role in domestic trade.