India to spruce up Vallarpadam port as Colombo goes Chinese

Indian Government is sprucing up Vallarpadam port in a move of self reliance as South Asia’s hub Colombo port’s latest terminal has gone to the Chinese.

Recently the Indian Premier Manmohan Singh intervened to resolve a dispute between Ministries of Commerce and Finance over the authority of Vallarpadam Special Economic Zone (V-SEZ).

Indian media reported that the decision may set a precedent for other SEZs. The customs department and the DRI are part of the Central Board of Excise and Customs, which functions under the ministry of finance. SEZs come under the purview of the ministry of commerce. The (Indian) Prime Minister’s Office (PMO) decision will take SEZs further out of regulatory reach. Such zones already enjoy significant autonomy, the Mint newspaper reported.

The International Container Transshipment Terminal (ICTT) in Vallarpadam will soon start handling all container cargo currently passing through the Rajiv Gandhi terminal in Cochin port in keeping with an agreement between Cochin Port Trust and India Gateway Terminal Pvt. Ltd, a subsidiary of DP World. When that happens, the customs department will no longer have jurisdiction over the container cargo, reports added.

The recent meeting of secretaries of the ministries of shipping, commerce and revenue convened by Prime Minister’s Principal Secretary Pulok Chatterjee in New Delhi had also decided to take the long-pending demand for giving cabotage law waiver to the ICTT to the cabinet for approval.

Federal Shipping Secretary K Mohandas said that the cabinet may take a final decision on this by the end of February.

As per Indian media reports, the meeting decided to adopt the best practices at transshipment terminals in Dubai, Singapore and Colombo at Vallarpadam. The decision to speed up the process for giving exemption to the ICTT from cabotage law is part of this. Cabotage rules stipulate that only Indian feeder vessels can move cargo from one Indian port to another.

Mother vessels were finding these rules as disincentive to come to Vallarpadam and they opted for ports like Colombo as they can re-ship the cargo from there in foreign flagged vessels even to Indian ports.   

In a related move Maersk Line had cited the cabotage law as a reason why Vallarpadam hadn’t fully realized its potential.

“Currently, the cabotage law does not allow a foreign flag ship to carry export-import cargo between Indian ports which has been transported on the same shipping line. The law does not even allow for empty containers to be transshipped between Indian ports on a foreign flagged sipping line. This affects the ‘Just In Time Logistics concept’ to an extent as it increases the cost of the end product and burdens the associated infrastructure. Allowing transhipping export-import cargo at Indian ports would also put a lot less pressure on the road and rail transportation in India, thus allowing for lower emissions and more efficient transportation,” Rizwan Soomar, the Company Spokesperson and Managing Director, India & Sri Lanka Cluster, Maersk Line India Pvt. Ltd, had told Frontline magazine.

With regard to Maersk’s views on why Colombo is preferred by major shipping lines over Vallarpadam?, Soomar had said: “Today, Indian export-import cargo is being transhipped extensively through foreign ports like Colombo, Dubai and Singapore. The port costs at these ports are much lower, which makes shipping lines prefer calling majority of their services at these ports, and onward connections are then made on India services. This is a huge loss in business with regards to both throughput and revenue for the Indian ports. Furthermore, relaxing the cabotage law and making the port tariff competitive with nearby foreign ports would assist in getting more mainline vessels calling India, as it will provide better parcel sizes and economies of scale. We would definitely consider transhipping export-import cargo coming to and from India at Indian ports if the tariff at Indian ports is competitive and if the law allows.

Reduced restrictions on export-import cargo flow along the coast will definitely help Indian cargo interests ultimately. Without the cabotage law relaxed at all ports in India, including Vallarpadam, we will not be able to give a competitive edge over Colombo or other neighbouring foreign ports.

Today, it is cheaper for us to tranship export-import cargo at the neighbouring foreign ports rather than using Indian Flag operators for shipping export-import cargo between Indian ports. These services are largely unscheduled and there is also not enough capacity and spread to meet the high demand of the export-import business, thus causing undue delays and incremental costs within the logistics chain.

With regard to the question how far does Maersk think will a relaxation in cabotage laws help Vallarpadam, he had said: “The port costs in India are very steep for foreign flagged ships as compared to the three ports mentioned above (Colombo, Dubai and Singapore), while it is subsidised for coastal shipping. If foreign flag vessels are allowed to carry their cargo between the various Indian ports, it brings in greater economies of scale for the shipping line and, in turn, lower costs for the customer.”