Recent Developments In The Shipping Sector Of India

The present update deals with two latest developments in the shipping sector of India, viz. The Coastal Shipping Bill, 2024 and the Draft Migration of Tariff Guidelines, 2024.

On 16th October 2024 the Union Cabinet led by the Hon’ble Prime Minister of India approved the Coastal Shipping Bill, 2024 which is expected to be tabled before the Parliament in the coming session. This bill intends to provide a comprehensive regulatory framework for coastal shipping and grow the industry in India.

Separately, the Ministry of Ports Shipping and Waterways has published Draft Migration of Tariff Guidelines, 2024 and has invited comments and recommendations from the stakeholders and the public at large. Considering the growth witnessed by the shipping industry in India and with a view to increase the container holding capacity of major ports these guidelines are being issued in furtherance to the Major Port Authorities Act, 2021. These guidelines majorly aim for adoption of market determined tariffs for public private partnership (“PPP”) projects in order to deal with the competitive landscape comprising private and non-major ports.

Please find hereinbelow the details of these developments:

I. The Coastal Shipping Bill, 2024

In a major development the cabinet of ministers led by the Hon’ble Prime Minister has approved the Coastal Shipping Bill, 2024 & confirmed the repeal of Part XIV of Merchant Shipping Act 1958 except section 411A.

The Coastal Shipping Bill 2024 is a significant piece of legislation aimed at enhancing the coastal shipping industry in India. Here are some detailed comments on its key provisions, potential benefits, challenges, and implications:

A. Key Provisions

a. Regulatory Framework:

i. The bill establishes a comprehensive regulatory framework for coastal shipping, aiming to simplify licensing and compliance processes for shipping operators.

ii. It seeks to create a single-window clearance system to streamline approvals, thus reducing delays.

b. Incentives for Coastal Shipping:

i. The bill proposes fiscal incentives, such as tax breaks or subsidies, to promote coastal shipping and encourage the use of Indian flag vessels. The bill proposes to remove the requirement of obtaining a trading licence for coastal trade for Indian flag vessels.

ii. It aims to incentivize private investment in shipping and port infrastructure through PPPs.

c. Safety and Standards:

i. Provisions for enhanced safety standards are introduced to ensure maritime safety and environment protection.

ii. The bill includes provisions for the training and certification of personnel involved in coastal shipping.

d. Promotion of Indigenous Shipbuilding:

i. The bill encourages the development of the domestic shipbuilding industry by mandating that a certain percentage of vessels used for coastal shipping be built in India.

e. Integration with Other Transport Modes:

i. the bill emphasizes the integration of coastal shipping with other modes of transport, such as rail and road, to create a seamless logistics network.

B. Potential Benefits

a. Cost Efficiency:

Coastal shipping can be more cost-effective than road and rail transport for bulk goods, potentially lowering the overall logistics costs for businesses.

b. Reduced Congestion:

By shifting freight traffic from land to sea, the bill aims to alleviate congestion on highways and railways, leading to improved traffic flow and reduced wear and tear on infrastructure.

c. Environmental Impact:

Utilizing ships for cargo transport is generally more environmentally friendly than trucking, as it reduces greenhouse gas emissions and fuel consumption.

d. Economic Growth:

By promoting coastal shipping, the bill can stimulate economic growth in coastal regions, create jobs in shipping, logistics, and related industries.

e. Boost to Exports:

Improved coastal shipping can enhance India’s export capabilities by providing a more efficient means of transporting goods to global markets.

C. Perceived Challenges

a. Infrastructure Development:

There may be significant infrastructure investments required to support the increase in coastal shipping activity, including upgrades to ports and the development of the hinterlands to increase connectivity.

b. Stakeholder Resistance:

Existing stakeholders in the transport sector, including road and rail operators, as well as those affected by the infrastructure projects that ensue may resist the changes brought about by the bill, leading to potential conflicts and delays.

c. Regulatory Compliance:

Ensuring compliance with safety and environmental regulations may pose challenges, particularly for smaller operators who may lack resources.

d. Skilled Workforce:

There may be a shortage of skilled personnel trained in maritime operations, necessitating investment in training programs.

e. Market Competition:

The success of coastal shipping will depend on the competitiveness of coastal routes compared to other transportation methods. If not managed effectively, it could lead to under-utilization of coastal shipping capacity.

D. Conclusion

The Coastal Shipping Bill 2024 has the potential to significantly transform the maritime transport landscape in India. By creating a conducive environment for coastal shipping, the bill can drive economic growth, improve supply chain efficiency, and promote sustainability. However, discussions on effective implementation and investments in infrastructure will be crucial to address the challenges and maximize the benefits of this legislation.

II. Draft Migration of Tarriff Guidelines, 2024

The Ministry of Ports Shipping and Waterways (“MOPSW”) on 26th September 2024 has invited comments and suggestions on the Draft Migration of Tariff Guidelines, 2024. The guidelines are for adoption of Market Determined Tariff for PPP projects under the Guidelines for Regulation of Tariff 2005, Guidelines for Upfront Tariff Setting for PP Projects 2008, Guidelines for Determination of Tariff for Projects 2013 and Tariff Guidelines 2019.

A. MOPSW noted that considering the limited competitive landscape in the past, tariffs were being duly regulated; however owing to the evolving market conditions and trade scenarios, the deregulation of tariffs was necessary. The Regulation for Tariff 2005 was initially introduced and brought into force with an aim to bring in protection of interest of the users while ensuring at the same time that sufficient and fair returns are generated by the ports.

B. It is pertinent to note that in 2020 MOPSW decided to repeal Major Port Trust Act, 1963 and bring in force the Major Port Authorities Act, 2021 (“MPA Act”). The two fundamental tenets envisaged in the MPA Act were i) enabling transformation of major ports from ‘service port’ model to ‘landlord port’ model by providing them greater independence and governance and ii) empowering the port authorities and PPP Concessionaries to fix tariffs in order to match the price competitiveness of the minor/non major ports.

C. Section 27 (1) of the MPA Act specifically and mandatory mandated all the existing and future PPP Concessionaries to fix the tariff prospectively based on the market conditions. As on date, the tariff setting of the PPP Concessionaries operating at major ports are governed by the following tariff guidelines:

i. Tariff Guideline 2005 superseded by Tariff Guideline 2019.

ii. Tariff Guideline 2008

iii. Tariff Guideline 2013

D. In view of the recent developments, considering the evolving market conditions and competitive landscape and the transition of port operations from the ‘service provider’ model to the ‘landlord’ model pursuant to the provisions of the MPA Act, the deregulation of tariffs is necessitated.

E. Accordingly, on 9th May 2024 MOPSW had constituted a committee to consider the required modifications to the tariff regime in furtherance to the MPA Act as well as the recent developments in the industry. After detailed deliberation and consultation, the committee outlined the following approach:

“(a) All PPP Concessionaires operating under Guidelines for Regulation of Tariff 2005, Tariff Guidelines 2008 / Reference Tariff Guidelines 2013 or Tariff Guidelines 2019 should migrate to market determined tariff regime subject to conditions laid out in the tariff guidelines.

(b) The PPP Concessionaire shall be required to sign a Supplementary Agreement.

(c) The PPP Concessionaire on migration shall be free to fix tariffs/fee/scale of rates of the services while ensuring due transparency and competitive landscape.

(d) There shall be no change in Royalty per unit/MT/TEU/FEU etc. or Royalty on Revenue share basis as per the original Concession Agreement. Accordingly, the provisions of MPA Act 2021would be adhered to.

(e) As an additional measure the Royalty as Revenue share of the Major Port, should/would not go below what it would have got under the regime when tariff was fixed/determined as per the Tariff Guidelines. This would be done by converting the Revenue share to Royalty based on the Annual Revenue Requirement of the Project as determined earlier.

(f) The concessions extended by the Central Government with regards to tariff for coastal cargo/ container, transhipment container, etc shall be applicable and other Policy/ directions issued by the Government or clarification in this regard shall be applicable.

(g) The past disputes relating to tariff and other concession conditions may be resolved between the parties (Major Port Authority and PPP Concessionaire).”