Protectionism won’t help anyone but shipowners

Protectionism won’t help anyone but shipowners

In its report to the government, the committee has reiterated the existing rule that permission for hiring a foreign ship to operate along the coast will not be granted to an Indian entity if an Indian-registered ship is available to carry cargo or provide other services.

The committee was set up in April after local shipowners complained that the current rules had loopholes that helped local entities to hire foreign ships whose owners offered so-called “dumping rates" to win contracts.

Also Read P Manoj’s earlier columns

As things stand today, the country’s coastal trade is reserved for Indian-registered ships and foreign vessels can be hired only when Indian ships are not available, and that too with the permission of the maritime regulator, the Directorate General of Shipping (DGS).

Ahead of submitting an application to the DGS seeking a licence to hire and operate a foreign ship along the coast, the applicant has to obtain a no-objection certificate, or NOC, from the Indian National Shipowners’ Association (Insa), the local industry body. To hire a foreign ship, Insa has to certify that none of its members has a ship to offer that is similar to the size and specification required by the applicant.

The NOC is necessary for firms/entities to seek the regulator’s permission to hire a foreign ship to operate along the coast. The key point is that foreign ships can be hired only when Indian vessels of the required size, specification and within a specified time are not available for the contract.

In this context, the panel has recommended that the regulator will verify “whether the nature of work requires such specifications or whether the work could be accomplished by the Indian-registered ships available with slightly different specifications".

Such verifications, the panel said, can be carried out by the DGS with the help of the Indian Register of Shipping (IRS), an agency that classifies ships for operational safety. The cost of such verifications will have to be borne by the entity looking to hire the ship.

Every tender or nature of work has got its own specific requirements. Now, to ask Indian entities to tailor their ship-hiring tender to suit the available Indian-registered ships is a rather tall order. It has huge cost implications for oil refiners, offshore oil and gas explorers, port developers and logistics companies. These users will have to spend more on hiring ships for their use because it restricts competition.

Secondly, IRS is not the agency best suited for the verification job. It is a ship classification agency; it cannot vouch for the performance of equipment on board ships. This is vital for dredgers—specialized ships used for deepening the channels of ports and harbours.

The committee report, if implemented, will lead to delays and cost overruns besides affecting end-use customers.

In one instance, Chennai-based logistics firm Caravel Logistics Pvt. Ltd wanted to hire a foreign ship to start a service between Indian ports. Caravel preferred a foreign ship as there are plenty of ships available in the global market now for hire at cheap rates due to the downturn in shipping.

Caravel went through the ship-hiring procedure. The firm was informed by Insa that one of its members, Shreyas Shipping and Logistics Ltd, had a ship similar to the one that Caravel was looking for. But Shreyas was willing to rent out the ship at a rate that Caravel said was higher than the rate prevailing for such ships in the global market and, hence, was unacceptable to it. Insa refused the NOC. But faced with a court case, Insa had to finally relent and grant the NOC to Caravel after several months. If the same situation were to repeat after the Venkiteswaran panel’s suggestions are implemented, Caravel would have no choice but to hire the ship offered by Shreyas.

Unconditional protectionism leads to cartelization and monopoly. This won’t help anybody except shipowners.

Strangely, the panel did not have any representation from the user groups. So, it would be better if the report is discussed with all the stakeholders before implementation. Otherwise it will have serious consequences and may land up in the courts.

P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.

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