Futility of cabotage law

Source: The post “Futility of cabotage law” has been created, based on “Futility of cabotage law” published in “BusinessLine” on  19th March 2026.

UPSC Syllabus: GS Paper-2- Governance

Context: Cabotage refers to the restriction of domestic coastal shipping to vessels registered in a particular country. In India, it is governed by the Ministry of Ports, Shipping and Waterways with the objective of promoting domestic shipping. However, the recent rollback in 2026 of cabotage relaxation for foreign vessels has revived the debate regarding its effectiveness.

Rationale behind Cabotage Law

1. Cabotage laws are intended to protect the domestic shipping industry from foreign competition.
2. They aim to ensure strategic and economic security by maintaining national control over coastal trade.
3. They also seek to promote the development of indigenous fleet capacity in the long run.

Issues with Cabotage in India

1. Limited Impact of Relaxation
2. The relaxation provided between 2018 and 2026 was limited only to trans shipment container trade.
3. As a result, it benefitted less than 8 per cent of India’s total port traffic, thereby limiting its overall impact.
4. Inadequate Domestic Capacity
5. India currently has only around 30 feeder container ships with a carrying capacity of about 56,000 TEUs.
6. This capacity is insufficient to efficiently service a long coastline of 7,500 km along with numerous major and non-major ports.
7. Higher Freight Costs
8. Limited competition due to protectionist policies often leads to cartelisation tendencies among domestic players.
9. Consequently, domestic shipping companies tend to keep freight rates higher than competitive global standards.
10. Risk of Cargo Diversion
11. The rollback of relaxation may lead to diversion of cargo to foreign transshipment hubs.
12. Major hubs likely to benefit include the Port of Colombo, Port Klang, and the Port of Singapore.
13. Weak Global Competitiveness
14. The global shipping market is dominated by large companies such as Maersk and MSC (Mediterranean Shipping Company).
15. These companies collectively control around 78 per cent of the global container shipping market, creating high entry barriers for Indian firms.

International Practices

1. Countries such as the United Kingdom and New Zealand have adopted relatively liberal regimes in coastal shipping.
2. Australia follows a conditional licensing system that allows foreign vessels under certain conditions.
3. Malaysia and Indonesia have introduced sector-specific relaxations in their cabotage laws.
4. These examples indicate a broader global trend towards controlled liberalisation rather than strict protectionism.

Way Forward

1. India should adopt gradual liberalisation of cabotage laws to enhance competition.
2. Greater competition would help in reducing logistics and freight costs.
3. The domestic fleet should be strengthened through targeted incentives rather than excessive protection.
4. India should also focus on developing its own trans shipment hubs to reduce dependence on foreign ports.

Conclusion: While cabotage laws are intended to protect domestic shipping, excessive protection often results in inefficiency and higher costs. Therefore, a balanced approach that combines strategic protection with competitive liberalisation is essential for India to realise its maritime potential.

Question: Critically examine the relevance of cabotage laws in India. Do such protectionist measures help or hinder the growth of the shipping sector?

Source: BusinessLine