Efforts to Expand

Opportunities abound in the coastal shipping space

 The coastal shipping segment has made significant headway over the past few years, receiving attention from various quarters. The government has taken several initiatives to increase the share of coastal traffic in the overall cargo handled at Indian ports. These include the issuance of the draft Coastal Shipping Bill, 2020, extension of the coastal berth scheme (CBS), relaxation in the cabotage law and provision of financial support.

Indian Infrastructure presents an overview of the coastal traffic trends, commodities handled, industry structure, government initiatives, issues and challenges, and future outlook for the coastal shipping segment…

Traffic trends: Rising coastal volumes due to increased attention

The government is focused on increasing the share of coastal shipping in the total cargo handled at Indian ports. To put things in perspective, the share of coastal cargo in the total cargo handled stood at around 16.34 per cent (2014-15) at the start of the Sagarmala programme. In 2020-21, as per the latest estimates available, the share of coastal cargo stood at around 22 per cent, a marginal decline over 2019-20 (22.63 per cent) on account of the spread of Covid-19. The year-on-year growth in coastal traffic has remained positive for years. However, due to the outbreak of the Covid-19 pandemic and the lockdown that followed, a negative impact was seen in the shipping sector. The traffic dipped by 3.34 per cent.

The share of non-major ports in the total coastal traffic handled at Indian ports has been increasing since 2014-15, with a marginal decline in 2019-20. Meanwhile, the share of major ports in the total coastal traffic declined from 73 per cent in 2013-14 to 66 per cent in 2020-21.

Commodity-wise, the current Indian coastal cargo mainly consists of petroleum, oil and lubricants (POL), iron ore, pellets, coal and fertilisers for the use of PSUs. In 2019-20, POL and thermal coal together accounted for a large share of around 60 per cent in the total coastal traffic handled at major ports. However, the overall share of both the commodities has declined in the past five years (2014-15 to 2019-20).

Coast-wise, the share of the east and west coasts in the total coastal traffic handled at Indian ports has stood at 48 per cent and 52 per cent, respectively, during 2014-15 to 2019-20. With respect to major ports, coastal traffic volumes are concentrated in the eastern region. The east coast major ports handle around 60 per cent of total coastal traffic on major ports. Among major ports at the east coast, Paradip port handles about 40 per cent of the total east coast coastal traffic.

Industry structure: New players show interest in coastal shipping

As of April 30, 2021, the Indian shipping industry had a fleet of 1,478 vessels of 12.88 million gross tonnage (GT) and 19.39 million deadweight tonnage (DWT). Of the total vessels, there were 1,011 coastal vessels of 1.57 million GT (1.75 million DWT) and 467 overseas vessels of 11.31 million GT (17.63 million DWT).

The entry of the Container Corporation of India (CONCOR) in coastal shipping marked an important development in the segment. In January 2019, CONCOR launched the maiden coastal voyage of one of its vessels, SSL Mumbai, from Deendayal port. Following the significant government emphasis on coastal shipping, new players are entering the coastal shipping segment, especially in coastal container shipping. Besides, existing players are acquiring new coastal vessels.

Government push: A string of initiatives

The Ministry of Ports, Shipping and Waterways (MoPSW) has approved various incentives to increase the share of coastal traffic in the overall cargo handled. In addition to the much-needed impetus given by the Sagarmala programme, the key incentives include the introduction of CBS, the relaxation in the cabotage law, various modernisation projects undertaken by the port authorities, and port-rail/road connectivity projects, among others.

In November 2020, the MoPSW issued the draft Coastal Shipping Bill, 2020, for suggestions from stakeholders and the general public. The bill seeks to create a competitive environment and reduce transportation costs, while encouraging Indian vessels to increase their share in coastal shipping. Other reforms include a discount of 40 per cent on port/vessel-related charges for coastal vessels at major ports; a discount of 80 per cent for a period of two years on vessel- and cargo-related charges for coastal roll-on roll-off vessels; and the provision of green channel clearance for coastal cargo from existing berths. On the taxation front, a duty exemption has been put in place for Indian flag container vessels, and the goods and services tax levied on bunker fuels has been reduced from 18 per cent to 5 per cent. In addition, the MoPSW approved a policy for the reimbursement of freight subsidy for the transportation of fertilisers through the coastal shipping route in June 2019. Accordingly, in the case of single-mode or multimodal transportation of fertilisers, which includes coastal shipping, the freight subsidy will be restricted to the railway charges or the actual freight incurred, whichever is less.

Pain points: Issues marring segment growth

Despite being a key focus area under the Sagarmala programme, the coastal shipping segment continues to be marred with challenges. The issue of two-way traffic, unavailability of return cargo coupled with small shipment size and unavailability of vessels are major concerns for shipping operators. Further, coastal shipping is only one leg in the entire multimodal transport chain, which also includes land modes. Cargo has to be transported from its inland origin to the port of loading and again from the port of discharge to the destination inland by road or rail. Often, the first- and last-mile connectivity is more expensive than the coastal freight, even if they cover a short distance.

One major reason that coastal shipping has been unable to pick up is the lack of suitable infrastructure. Low least available depth and inadequate terminal infrastructure have affected the penetration of coastal shipping as a mode of transportation. Currently, most of the cargo in India is transported through roadways and rail. There is a reluctance to shift to coastal shipping. One of the reasons behind it is multiple loading and offloading points required for transporting cargo through coastal shipping, as compared to roadways or rail.

The road ahead: Significant growth potential

Despite the various initiatives taken, coastal cargo accounts for a small share in the overall traffic. Further, coastal shipping of cargo is largely restricted to the transportation of thermal coal, iron ore and POL. Going forward, the transportation of commodities such as cotton, tiles, sugar, cement and automobiles through this mode can be explored. They are currently being transported through road or rail modes. In the base case scenario (GDP growth expected at 7.5-8 per cent), India has the potential to increase its coastal cargo to around 320 million tonnes. w

Garima Arora

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