India’s first container trans-shipment terminal struggles to reach full potential

The customs regime in India is a deterrent to trans-shipment within India


Vallarpadam in Cochin port continues to be dogged by procedural ambiguities so much that even its operator, Dubai’s DP World Ltd, has not been able to use its clout to bring a mainline vessel to call there for trans-shipment. Photo: Wikimedia Commons
Vallarpadam in Cochin port continues to be dogged by procedural ambiguities so much that even its operator, Dubai’s DP World Ltd, has not been able to use its clout to bring a mainline vessel to call there for trans-shipment. Photo: Wikimedia Commons

Bangalore: India’s first container trans-shipment terminal at Vallarpadam in Cochin port continues to be dogged by procedural ambiguities so much that even its operator, Dubai’s DP World Ltd, has not been able to use its clout to bring a mainline vessel to call there for trans-shipment.

A container trans-shipment terminal such as the one developed at Vallarpadam acts like a hub into which smaller feeder vessels bring container cargo, which then gets loaded onto larger ships. Larger vessels bring about economies of scale and lower the cost of operations for shipping lines, which translates into lower freight rates for exporters and importers.

More than half of India’s annual container cargo is being trans-shipped at ports outside the country, mainly at Colombo, Singapore, Salalah and Jebel Ali. This is because India had no port near international sea routes to handle large vessels. Cochin port enjoys nearly the same locational advantage as Colombo, with a mere 76 nautical miles deviation from the main east-west shipping route.

However, locational advantages apart, there were practical difficulties that the terminal faced.

Foreign container carriers realized that they could not carry containers either to or from the Vallarpadam facility to any other port in the country, hampering its operations following the February 2011 start. This is because India’s coastal trade is reserved for ships registered in India and foreign ships can be allowed to operate only when Indian ships are not available, after taking a licence from India’s maritime regulator, according to a so-called cabotage law. The lack of adequate Indian container ships only added to the woes.

This restriction was one of the main factors that discouraged mainline foreign vessels from calling at Vallarpadam. To overcome it, the cabinet eased the cabotage law in September 2012 despite opposition from local fleet-owners and permitted foreign registered container ships to carry cargo between the country’s ports. The permission though was applicable only to foreign-registered vessels that shipped export and import containers out or in through the container trans-shipment terminal at Vallarpadam. Secondly, the relaxation in cabotage law was for a limited period of three years till September 2015, after which it will be reviewed by the government.

The primary objective of relaxation in cabotage law was to help Vallarpadam attract cargo originating at and destined for Indian ports, which are presently being trans-shipped at Colombo and other foreign ports. This initiative was expected to promote trans-shipment of Indian cargo from Vallarpadam and reduce the dependence on nearby foreign ports. Then, a jurisdictional issue cropped up. Unlike other ports in India, the Vallarpadam facility operates from a special economic zone (SEZ), which comes under the purview of the commerce ministry, whereas other Indian ports follow procedures framed by the customs department in the finance ministry on clearing cargo. A lack of clarity on procedures between SEZ and customs meant that no trans-shipment happened.

After much discussion, the government finally decided in June last year that all trans-shipment at Vallarpadam terminal, located within an SEZ, would follow SEZ procedures. Cabotage was relaxed by India to make India’s first trans-shipment terminal competitive and operationally on par with other trans-shipment hubs in the region. However, the ground reality is that not a single trans-shipment container has moved to or from the facility on the basis of this relaxation.

The basic issue still remains that the Indian customs department (with the exception of its Cochin office), which monitors these movements, have still not accepted this relaxation, citing that they have not received an official communication to this effect. While the customs department at Cochin has accepted this relaxation, no containers can move from Cochin to another Indian port as the customs department at that port will not permit containers to be carried by a foreign vessel from the Vallarpadam terminal. The same goes for containers originating from other Indian ports and moving to Cochin. There is no manual on how to treat a trans-shipment container.

The transshipment procedures finalized by India for the Vallarpadam facility has also not been accepted by the customs department at other Indian ports. The government had cleared the SEZ procedures at Vallarpadam for trans-shipment containers by sea, which are in line with similar procedures in other international trans-shipment ports.

According to the customs procedure, an export container originating from an Indian port being transshipped through another Indian port will be considered for export benefits only after it has left Indian shores. To validate this, the customs department at the originating port requires a confirmation from the customs department at Cochin trans-shipment port that the container has sailed out of India. However, there is reluctance on the part of customs stations at other Indian ports in accepting the SEZ documentation from Vallarpadam. This reluctance and non-cooperation from the customs departments has induced fear in the trade to use Vallarpadam as a trans-shipment hub. They do not encounter such issues while using a foreign transshipment hub like Colombo.

Given the scenario where customs at other Indian ports are not accepting the relaxation of cabotage for Vallarpadam, it is evident that easing of cabotage for the Vallarpadam terminal remains only on paper. The customs regime in India is a deterrent to trans-shipment within India. In the meanwhile, India’s exporters and importers continue to be dependent on foreign transshipment ports to send and receive container cargo, thereby incurring extra time and costs while hurting the competitiveness of Indian goods.

P. Manoj looks at trends in the shipping industry.

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