Project report On

Indian Coastal Shipping

Submitted to:
Prof. Kavita Mathad

Submitted by:
Anto Michael Navin Anupam Samui Dheeraj Pandey Hrudaya Ranjan Dash Ramyakanta Samal

IFIM Business School PGDM 2010-12 Sec-B

Acknowledgement We are extremely thankful to Prof. Kavita Mathad for giving us the opportunity to take up this wonderful project report on “Indian Coastal Shipping” which has helped us to gain a lot of knowledge about the said industry in India. . Her constant guidance and encouraging attitude with a friendly manner has given us the scope to discuss with her the report related activities and study related towards the subjects as well in a more meaningful way without any hesitation.

Content:  Introduction  Background  Past assessment  Present scenario  Coastal shipping versus road and rail transportation  Inter country comparative analysis  Obstacles for coastal shipping growth  Opportunities in coastal shipping  Overall analysis  Corporate tax  Personal tax  Capital intensive nature  Cabbotage law  Ship acquisition  Manning scale  Cost of vessels  Ports  Rail and road connectivity  Inland connectivity  Custom designed vessels  Conclusion & further scope  Bibliography .

Background: India has been blessed with a long coastline of 7. the destiny of the world will be decided in these waters”. India’s geographical setting has played a vital role in the progress of maritime activity. not including the non-contiguous island trades. . gainful and energy proficient mode of transport. water has always been the oldest and most sustainable resource to man.Introduction: “Whoever controls the Indian Ocean. developed as well as emerging economies are emphasizing more and more on the importance of coastal trade and shipping. And the Indian ports owe their existence to the projection afforded by the natural bars and spits in the Indian coasts. Coastal India is characterised by a combination of deltas.Alfred Thayer Mahan Economically speaking. .517 kms. Given that in the contemporary global economy. In fact the Indian waters have been an engine to aid the growth of trade. It is the movement of cargo by sea between ports in India. the answer to why India which today is very much firmly planted in the global business not doing as ‘Romans do’ is the pressing need of the hour. This paper attempts to analyze the role of Coastal shipping in Indian business coupled with its unlimited potential and challenges. dominates Asia. Trade through water can be divided into:   Inland Water Transport (IWT) Shipping (Coastal Shipping & Overseas Shipping) Coastal shipping is an eco friendly. This ocean is the key to the seven seas in the twenty first century. The physical features of the coastal regions of India are a sort of terra incognita.

2003 grew at a Compounded Annual Growth Rate (CAGR) pf 8. Tuticorin and across to Kochi and even to Kandla and on the return journey salt.7 million gross tonnage (GT) during the last five years.Rangoon stretch vide Colombo was designated as coastal route.4% vis-à-vis the coastal tonnage growth in terms of capacity (gross tonnage) at CAGR of 2. . coffee.47 million GT and has increased only marginally to 0. the flow of bulk goods from west coast hinterlands to the east coast hinterlands always followed the coastal route. the coastal fleet inched upwards in the corresponding period to 209%. coal from Kolkata was carried in bulk on regular basis by coastal vessels to ports around the country right up to Kandla and Bhavnagar! And salt in bulk was carried back to Kolkata either from Kutchh ports or Tuticorin. until efficient containerization and equally rapid rail and road systems took over. it had been hovering around 0. While the Indian overseas fleet registered 1173% growth in numbers from 1951 to 2003.41 per cent vis-à-vis the coastal tonnage growth in terms of capacity (GT) at CARG of 0. was about 2 million tones corresponding to just over 1. Although cargo is moved between Indian ports not only by dedicated coastal ships but also by ocean going vessels the growth of coastal fleet tonnage is an indication of the growth of coastal shipping. India’s coastal fleet has been hovering around a meagre level of only 0.Past assessment: The infrastructure in India has always provided tremendous potential for coastal shipping to take off. The total cargo moved by Inland Water Transport (IWT) in 2002 –03. This marked the shift of proportionate trading activities towards other modes of transport such as rail and road rather than coastal shipping.6 million gross tonnes (GT) in 2003. Coastal cargo traffic during the period 1993. For instance. the Karachi . The ships carried rice in bulk as well as bags right from Rangoon to Chennai. In the past. cement and clinker were the cargo carried to Kolkata.5%. Oversees fleet grew by 3256% between 1951 to 2003 whereas coastal fleet increased by just 172%. Coastal cargo traffic during the period 1995-96 to 1999-00 grew at CARG of 5.15 % of the total inland cargo.15 per cent. Coastal vessels freighted small parcel sizes of general cargo such as spices. In the past.5 billion tonne kilometre or 0.6 to 0. From 1992 to 2002. tea. cashew nuts coir and jute.

carbon monoxide. as many as 149 were non-cargo carrying vessels reducing the effective cargo carrying fleet to 95 vessels of 0. noise pollution. and usually much safer than road transportation. The cargo mix has not changed over the years. Crude oil. environment friendly and energy efficient mode of transportation. climate change.Out of the 244 vessels in 2003. This is precisely evident from the recent statistics. Yet. the marginal . The potential for coastal shipping has not been exploited in India. Present scenario: The commodities carried by coastal shipping have mainly been bulk and break bulk commodities. iron ore etc.43 million GRT. air pollution. It is environment friendly. the cost of coastal shipping as a percentage of road and rail transport is much lower. Emissions: Emissions of carbon dioxide.83 g m/tkm is just 15% of the consumption by road and 54% of that by rail. hydrocarbon etc with the exception of SO2 from coastal shipping are much lower than that in rail and road. with its accounting for only 7% of domestic cargo movement. cement and others. Cost of Carriage: Coastal shipping can handle large parcel sizes easily. External costs: Taking in account the external costs arising out of accidents. infrastructure burden etc. The cargo currently moved through coastal shipping constitutes Thermal. Coastal shipping versus road and rail transportation: Coastal shipping has inherent advantages over rail and road transport. Fuel Consumption: Fuel consumption by coastal shipping at 4. from coast to coast. congestion. In the EU.. Although cargo is moved between Indian ports not only by dedicated coastal ships but also by ocean going vessels the growth of coastal fleet tonnage is an indication of the growth of coastal shipping. iron ore. There are 12 major ports and a number of minor and intermediate ports providing tremendous potential for coastal shipping an economical. Whereas rail and road transport because of their limited capacity and infrastructure cannot handle large quantities of coal. coastal shipping in India has not developed to its fullest potential. The cost of carriage of goods. by coastal shipping (about 21% of cost by road and 42% of cost by rail) works out to be much lower than that by road and rail.

lakes.7 million gross tonnage (GT) until some years ago. 5 million tonnes transshipped and 42 million tonnes unloaded). Over the years. there has been a substantial amount of investment in creating and improving the basic infrastructure for road transport. Obstacles for coastal shipping growth: With most of the production and consumption centers being land locked and the facility of door-to-door movement that road transport provides. The total tonnage (originating traffic) moved by coastal shipping in India in 2001.costs of coastal shipping have been estimated at 20.15%. In the EU for instance. Korea 141 million tonnes and even Indonesia. India’s coastal fleet has been hovering around a meagre level of only 0.7% and 40. This is in sharp contrast to other countries like China where the coastal cargo traffic handled in 2000 was around 614 million tonnes. etc. which is not a developed country. having much higher coastal cargo movement of around 133 million tonnes. coastal cargo even before 1988 touched some 870 million tonnes. Indicative of this not-too-healthy scenario. and also overlapping coastal shipping in tidal rivers—constitute 20% of the transport sector in Germany and 32% in Bangladesh. this has not happened in the case of coastal shipping. it has taken precedence not only over water transport but also over rail transport. Many other countries are making optimal use of coastal shipping as an effective mode of transport.2 mt (30% of total) and petroleum products for 16. Inter country comparative analysis: Transport based on inland waterways (IWT)—rivers. followed by Japan with 549 million tonnes.41 percent vis-à-vis the coastal tonnage growth in terms of capacity (GT) at CARG of 0. Coastal cargo traffic during the period 1995-96 to 1999-00 grew at CARG of 5. For instance. which is abysmally low compared to the coastal cargo movement in other countries in the region. canals.6 to 0. in China. .5% of road and rail respectively. The total coastal traffic at Indian ports in 1999-00 was just around 78 million tonnes (comprising around 31 million tonnes cargo loaded.4 mt (30% of total). coastal shipping has an enviable 43% modal share in tkm and is set to increase further.02 was around 54 million tonnes of which coal accounted for 16. However.15 per cent. In India it has a paltry share of 0.

Ø Boon of a cleaner and greener environment offered to society at large. Ø Lack of separate berthing facilities at Major ports and inadequate cargo handling facilities at the minor ports Ø Absence of institutional mechanism for inter-sector coordination Opportunities in coastal shipping: Ø Tremendous cost-advantages to Indian trade Ø Immense benefits of energy savings to the country’s economy. . which discourages quality officers from continuity on India coastal vessels. it has not grown to become an integral part of the country’s transport Infrastructure.Some of the key reasons for the inadequate share of coastal shipping to the trade activities are: Ø Competition provided by rail and road transportation Ø Double handling costs involved and Ø Lack of active policy Ø Cumbersome and lengthy customs procedure Ø Non availability of concessional finance the acquisition of coastal vessels Ø High import duties on bunker oil and spares Ø High manning scales which increase operational costs Ø Stringent specifications for construction of vessels leading to higher capital costs Ø Incidence of corporate for coastal as against tonnage tax for ocean going vessel and Ø Personal income tax. Ø Catalyze the development of an efficient and integrated transport and logistics system. Overall analysis: In spite of the obvious advantages that coastal shipping has over land-based modes in India. Ø Boost transhipment at Indian ports Ø Enhance competitive edge of Indian exports Ø Increase port’s potential to develop as hub-ports Ø Increase revenues and opportunities for generating both direct and in-direct employment. despite the oftrepeated chant about its potential and the need to develop this mode of transportation. Coastal shipping in India is anchored almost where it was decades ago. Today.

the sector continues to get the short shrift from the Government and the planners.Though more than 30 per cent of the total traffic handled by the Indian ports is routed through the coastal mode. which work outside Indian territorial waters for more than 183 days in a year. In the international arena. The industry also enjoyed benefits under Section 33 AC of Income Tax Act. To raise equity capital. and is not available to coastal shipping. To enhance investor appeal for developing a larger equity base and encouraging larger investment in coastal shipping. Additionally shipping companies now have the option of choosing between corporate tax and tonnage tax. Cabbotage law: Cabbotage Law in most countries reserves the movement of coastal trade of the country for its own flag vessels. stores and bunkers imported by coastal operators etc confronted by the sector.75% or the minimum alternate tax at 7. the Indian shipping companies had to pay corporation tax at the rate of 36. has been restricted to ocean going vessels to make them competitive with vessels registered under other national flags. This benefit. Personal tax: The present system of income tax differentiates against the seafarers employed on Indian coastal vessels. Unlike other industries. In India. the cost of capital is higher compared to many other countries. Corporate tax: Till date. are entitled to non-resident status and pay no taxes.5%. shipping should attract investors. time-bound solutions would have to be found for many of the complicated and vexing problems such as levy of Customs duty on spares. the benefits of waiver from payment of import duty in shipping are available only to the intermediary (SRUs) who imports the spares and not to the end-user (ship owner) in the coastal shipping business. Capital Intensive nature: Shipping is a capital-intensive industry. This dispirits officers and seafarers from enlisting on coastal ships and makes it all the more obligatory to appraise the aptitude requirements and improve the emoluments. majority of maritime nations protect their domestic transportation industries through cabbotage laws (imposing restrictions such as . Indian seafarers who are engaged on foreign vessels for 183 days or more in a year or on an Indian vessel.

The Indian Merchant Shipping Act does not permit foreign bottoms to carry cargo between Indian ports nonetheless. reflagging restrictions. Suitable amendments need to be made in order to enact a separate legislation for coastal shipping to provide for different specifications for coastal vessels as also for lower manning scales. . Ship Acquisition: The coastal tonnage in India has been more or less dormant. There is scope to review both the manning scales as well as the qualifications. There is. Although coastal ships are also permitted to external commercial borrowing. This has led to capital costs of coastal ships being higher than necessary. is the complexity in getting finance at low interest rates. and Maldives. ownership restrictions.crewing restrictions. provisions for subsidy etc). Sri Lanka. Bangladesh. consequently. Cost of Vessels: Keeping in line with the Merchant Shipping Act. apart from the productivity of coastal shipping. they are effectively not in position to do so as they do not earn in foreign exchange. Banks are not prepared to deal with the financing of ships as it entails high interest rates and short maturity. Increasingly companies have no alternative but to rely on conventional bank funding. Now coastal ships have to comply with the scales that are applicable for Near Coastal Vessels that ply between India. the specifications used for the construction of coastal vessels are the same as those for ocean going vessels even though coastal vessels are not subject to the same stress and turbulence as ocean going vessels. One of the reasons for this. provisions for domestic fleet subsidy. foreign ships are permitted to ply between Indian coasts if no suitable Indian vessels are available. a case for developing specialized wings in development financial institutions for funding coastal shipping. Manning Scale: The manning scales for the coastal shipping industry continue to be stringent.

like international shipping. Conversely. and Germany etc. Netherlands. the IWT system is highly urbanized. Inland Connectivity: India has an extensive network of rivers. in countries like China. it is vital to provide for connectivity of the minor ports with the road and rail network. depend principally on efficiencies in the ports. at present Inland Waterway Transport forms a very diminutive part of the total transport network. The promotion of IWT concurrently with coastal shipping would go a long way in moving cargo from up country locations to major/minor ports for movement between ports in India.15 per cent. Given the belief that the Phase 3 of the National Highway Development Programme would provide for connectivity to the minor ports. should be explored.Ports: Efficient shipping operations. Ports like the Pipavav port had suffered because of the lack of connectivity. which are capable of moving in IWT as well as coastal areas. Potential of planning vessels. requires competent bulk cargo handling facilities and speedy berthing facilities. China is directing a lot of investment towards further developing the infrastructure and system. In terms of tonne kilometres of total inland cargo. whether international or coastal. can provide resourceful inland connectivity. if developed for shipping and navigation. Most of the waterways suffer from a number of inadequacies like navigational hazards and lack of infrastructure facilities like terminals and inadequacy of navigational aids. . and the Pipavav – Surendranagar rail link was established by the port of Pipavav in joint venture with the Indian Railways. The Yangtze river in China moves around 80% of the countries IWT traffic. in addition coastal shipping requires concessional port tariff. Rail and Road Connectivity: Along with the development of minor ports. Coastal shipping. lakes and canals. higher priority and weightage needs to be assigned to this. its share is a paltry 0. It has approximately 15000 kms of navigable waterways. In contrast. which.

Ms. If the problems of this industry are solved in some extent what can be the future of this industry is a important subject for further discussion.Custom designed vessels: It is essential to design vessels like Ro-Ro vessels.aspx  ‘Unlocking India’s Coastal Shipping Business Potential’ by. Konkan Railways has demonstrated that Ro-Ro wagons can effectively shrink movement by road.worldcement. silo vessels etc to facilitate the movement of trucks over long distances and cargo like cement and food grains efficiently. . Also it does not require the same infrastructure investment or maintenance In this report the present scenario and the past performance of the Indian shipping industry is  http://www. for bulk cargo shipped over long distances. Conclusion & further scope: Coastal shipping is a new opportunity on the horizon for India’s economic development. Coastal shipping’s potential lies in transporting less time critical Bibliography:  http://www. It represents an environmentally beneficial and cost effective alternative to rail and road modes. Charanya Krishnan. Apart from this the shipping network within Indian ports can be effectively planned and described. Gujarat Ambuja Cements move significant quantities of cement using silo vessels through water transport.


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