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Indian Cabotage Law: Can it affect transhipment hubs?
The maritime sector is truly a global industry. The design, building, ownership, flagging, finance, insurance and manning of ships and the origins and destinations of cargo all involve several countries. However, for coastal shipping, most governments have protectionist policies, generally called cabotage, permitting only the ships registered in that country to carry cargo between local ports.
The UN convention (UNCLOS) provides that merchant ships of any country have the right of innocent passage, even through territorial waters. Cabotage therefore is an artificial and unnatural restriction imposed by Governments in respect of ships used in coastal transportation.
The worst form of protectionism is displayed by USA. The Merchant Marine Act of 1920, popularly known as the Jones Act, provides that transportation between ports in the US shall be done using only ships that are built in the US, registered in the US and owned and crewed (not less than 75%) by US citizens. The objective is to develop the country’s own merchant fleet to support the domestic and foreign trade and also to serve the country at the time of war or national emergency.
Though, Indian law does not use the term cabotage, section 407 of the Merchant Shipping Act says that only Indian ships or Indian chartered ships shall engage in coastal trade in India.
The Indian policy is similar to that adopted by several big countries, including China. The rationale for the policy is similar to the American reasoning.
A year ago, India relaxed cabotage restrictions for the International Container Trans-shipment Terminal (ICTT), developed and operated by the DP World in Cochin Port.
A former shipping secretary to the Government of India (K. Mohandas) has argued strongly for relaxing cabotage for transhipment container cargo handled at all of the Indian ports as it has been granted for Dubai Port World’s ICTT in Cochin. If it becomes a reality can it be a threat to South Asian transhipment hubs? (Source: The Hindu, Business Line).
Who is the biggest?
As reported in DynaLiners, ‘who is the biggest?’ is a question regularly posed by many in shipping when it comes to the emerging East–West super liner groupings of P3 Network (CMA CGM, Maersk Line, MSC), G6 Alliance (APL, Hapag-Lloyd, Hyundai, MOL, NYK, OOCL) and CKYHE Alliance (Coscon, Evergreen, Hanjin, “K” Line, Yang Ming).
The answer is that in terms of total weekly nominal East-West capacity, P3 is 33% bigger than CKYHE and 20% larger than G6. The latter’s capacity exceeds that of CKYHE by 16%. For the rest, there can be sometimes substantial differences by trade lane. P3 again is the clear number one on the Europe/Mediterranean-Far East routes, but a relatively small player on the Transpacific, where G6 is king, which it also is on the Transatlantic. For CKYHE there remains the Far East-US East Coast via Panama traffic to excel.
Continued carrier woes: Sinking rates blamed
Taiwan’s Evergreen Marine posted a net loss for 2013 of TW$ 1.5 billion ($ 49 million), drawn on revenues of TW$ 139.2 billion, down 1%. This 
wiped out the previous year’s profit of TW$ 312.5 million, a loss attributed to imploding freight rates, according to a company filing to the Taiwan Stock Exchange. Gross profits from operations decreased to TW$ 388 million for the year, down from TW$ 4.2 billion in 2012, while annual operating expenses rose to TW$ 5.5 billion, up from TW$ 5.3 billion, reported Lloyd’s List.
Taiwan’s Yang Ming Marine Transport posted a loss of TW$ 2.9 billion ($ 95.2 million) for 2013, drawn on revenues of TW$ 18.9 billion, down 10%. This widened the previous year’s loss of TW% 1.6 billion, which was also blamed on sinking freight rates. The operating loss for the year stood at TW$ 6 billion, from a loss of TW$ 1.9 billion in 2012, according to a filing on the Taiwan Stock Exchange. The deeper loss came despite asset sales and other one-time gains that generated TW$ 4.5 billion last year. In November the company sold a 12.5% stake worth $ 56 million in Yang Ming’s new Kao Ming container terminal to affiliates of Japan’s NYK. The Taiwanese shipping line said it would book gains of $ 29 million from the sale.
CMA CGM has posted lower core earnings in 2013 but saw its net profits soar as a result of the sale of a 49% stake in its ports business. The French line, one of the last of the big container lines to report 2013 results, posted a 26.9% decline in earnings before interest and tax to $ 756 million last year. Consolidated net profit was 22.8% higher at $ 408 million. Return on invested capital came to 10.4%, slightly down from 10.6% in 2012. Volumes carried rose by 7.5% to 11.4 million TEU, compared with global market growth of around 3%. In 2012, the French line had an operating profit of just over $ 1 billion against $ 484 million in 2011. CMA CGM said that last year it significantly strengthened its’ balance sheet and liquidity, enhancing its’ financial flexibility.
Renewed interest for Vizhinjam
Five parties have submitted requests for qualification to build and operate the Vizhinjam International Container and transhipment Terminal in South India, i.e. Gammon Infrastructure, Essar Ports, APSEZ, Hyundai/Concast and OHL/SREI. Phase I of the project comprises an 800 metre container terminal, to be extended by 400 metres and 800 metres respectively during phase II (2024-2027) and phase III (2034-2037). Previous attempts to attract a port operator failed.
Top five car carriers control 73%
By early January, the world’s five largest vehicle carrier operators combined deployed a fleet of 501 PCC, PCTC and LCTC units (Pure Car Carriers, Pure Car and Truck Carriers and Large Car and Truck Carriers). They had an average 5,400 CEU (Car Equivalent Unit) capacity, total 2,693,000 CEU. The ships on order include quite a number of Post (Present) Panamax units. At 7,500 CEU they have a much higher unit in take on average. Individual car carrying capacity ranged between 1,200 CEU and 8,100 CEU.
The top five fleet constitutes a (CEU) share of 73% of the World Vehicle Carrier fleet, which is 56% for their order book. By quite a margin, WWL (the acronym for Wallenius Wilhelmsen Logistics) including sister companies ARC (American Roll-On Roll-Off Carrier) and Eukor, is the largest operator while it also has the most extensive order book. The 03 Japanese majors MOL, NYK and “K” Line including their various affiliates (as there are EML, KESS and UECC) come 2, 3 and 4, in that order, followed by Hoegh Autoliners of Norway.
Fines for price fixing
The Japanese Fair Trade commission has formally imposed fines totalling JPY 22.7 billion ($ 223.8 million) on four car carriers for fixing rates, collusion and refraining from competition in the 2008-2012 period. Sums to be paid are respectively: JPY 13.1 billion by NYK, JPY 5.7 billion by “K” Line, JPY 3.5 billion by Wallenius Wilhelmsen Logistics and JPY 423.3 million by Nissan Motor Car Carrier, a subsidiary of MOL. Earlier the same 4 companies were fined by the US Federal Maritime Commission (FMC) for similar allegations.
[The writer, a Maritime Economist, is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).]
