Bengaluru: The initiatives taken by the Narendra Modi government to promote India’s coastal shipping sector has started yielding results with some foreign ship owners seeing benefits of registering ships under the Indian flag to carry cargo on local routes.

In shipping, a ship flies the flag of the country where it is registered and is subjected to the tax jurisdiction of that nation. Only Indian registered ships are allowed to carry cargo on local routes, according to a so-called cabotage rule.

Rules on registering ships in India have often faced criticism even by the local fleet owners because of multiple taxes hurting their operational competitiveness. But foreign ship owners have already converted, or are in the process of converting, some of their ships to fly the Indian flag.

To be sure, the sudden interest among global ship owners to run Indian flag ships along the country’s vast coast line is focussed on container shipping and has been kindled by the unfolding business environment for shipping containers by sea as the shipping ministry led by Nitin Gadkari eases rules and offers incentives for diverting cargo from the predominant road and rail by tapping a cheaper mode of transport which also reduces the carbon footprint.

Singapore-based container shipping company Pacific International Lines Pte Ltd is the first to convert one of its container ships registered in Singapore to the Indian flag to run a service linking Mundra port in Gujarat with the container transhipment terminal at Vallarpadam in Cochin port.

Privately held Pacific International, one of the largest ship owners in South-East Asia and ranked 18th among the world’s top container ship operators with a fleet of 164 ships, is looking at registering at least three more ships in India, said a person familiar with the development. Singapore is a much sought-after place by global fleet owners to register ships because of the island nation’s investor-friendly and tax-friendly rules.

Dubai-based feeder operator Simatech Shipping LLC has started the process of registering two of its container ships under the Indian flag and putting them on a service linking Mundra with Cochin, Colombo and Mangalore, said an executive at one of its India offices, asking not to be named.

A spokesperson for India’s Directorate General of Shipping (DGS), which oversees the ship registration process, confirmed the development. “We’ve started getting enquiries from more global fleet owners to register ships under the Indian flag," said the spokesperson.

Sea Consortium Pte Ltd, which runs container shipping services under the brand name X-Press Feeders, is also discussing the possibility of running Indian flag container ships, a company official said.

Coastal shipping is a different opportunity altogether, said an executive at Pacific International. “If you look at the local cargo moving by road and if we try to convert that into coastal, it is a huge opportunity.

Besides, due to the government’s new policy and projects like Sagar Mala and more emphasis on coastal shipping, naturally the traffic as well as the number of participants will increase. Plenty of ships can come and start operations. That will decongest the roads, there will be lot many advantages, customers will benefit financially also," the executive said, declining to be named.

For years, global container carriers have been calling for the opening up of Indian cabotage trade (shipping cargo on local routes) mainly for container transportation—a plea backed by India’s port and terminal operators.

The demand is based on the argument that India’s locally registered container fleet of 16 ships is inadequate to meet the rising requirements of container trade.

This is particularly so when the government is looking to ship containers directly which are now send via neighbouring hub ports by setting up terminals in India that can facilitate this task by allowing bigger vessels to dock. These require more Indian container ships to feed containers to transshipment terminals and vice versa.

Indian fleet owners, under the banner of industry lobby Indian National Shipowners’ Association (INSA), have been opposing this demand.

Registering ships under the Indian flag by foreign fleet owners would be a half-way meeting point between these two conflicting positions, says a shipping industry executive who declined to be named.

This will help India increase its shipping tonnage (capacity) while foreign owners will get access to Indian container cargo without the need to ease the cabotage rule. India has targeted to raise its tonnage to 43 million gross tonnage (GT) by 2020 from 10.4 million GT.

“It (converting foreign ships into the Indian flag) is non-controversial and is not an emotive issue with the local fleet owners unlike easing of cabotage," he added.

Last year, India’s shipping ministry issued detailed guidelines for implementing a financial scheme to incentivise shifting some portion of the cargo now carried by rail and road to coastal shipping and inland waterway routes to help develop them as an integral part of the country’s logistics chain.

The scheme proposes to provide monetary incentives to beneficiaries when they transport certain identified commodities, containerized cargo or automobiles on Indian flag vessels on local routes.

Among others, transportation of any commodity in containers will be eligible for an incentive of ₹ 3,000 per twenty foot equivalent unit (teu)—the standard size of a container.

Further, India-registered ships carrying export-import containers, empty containers and containers stuffed with cargo meant for local consumption plying on local routes were exempted last year from payment of customs and excise duty on bunker (ship fuel).

This was a big bonanza for Indian ships because bunker accounts for about 40% of the operating cost of a ship.

Since 2004, India-registered ships are subjected to tonnage tax—a levy based on the cargo carrying capacity of a ship—in place of corporate tax which cut the tax outgo of a shipping company to 1-2% of their income. About 95% of the global shipping fleet operates under the tonnage tax regime.

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