The prospect of a new round of cabotage laws being brought into force has been rising in recent weeks as the Association of African Shipowners (ASOS) has been pressing for the African Union (AU) to introduce a regulation that would bar non-African-owned vessels from carrying cargo between African countries.
The AU’s African Maritime Transport Charter, introduced in 2010 and amended last year, has a clause that states AU members would look to establish a new cabotage regime: “the establishment of national and regional maritime cabotage shipping lines should be encouraged in order to promote intra-African trade and facilitate the economic and socio-economic integration of the continent.”
Similarly, last October, the African Maritime Administrations and Ship Registrars conference in Mombasa concluded with the resolution to “urge all the African countries to ratify the African Maritime Transport Charter as it is central to the implementation of coastal shipping”.
It added that the group would look to “engage with best practices from a few member states which already have policies on cabotage” while also looking to hire a consultancy to help formulate a cabotage policy.
However, the move flies in the face of recent research into existing cabotage regimes from the World Economic Forum, which concluded that “such barriers actually damage local economies and saddle business and consumers with significant costs. Lack of competition forces businesses to use high-cost logistics suppliers and requires international export/import businesses to use inefficient transhipment operations – which come with high environmental costs.”
The WEF report, Enabling Trade – Valuing Growth Opportunities, published shortly before its annual meeting in Davos last month, singled out China and the US as the two most obvious cabotage jurisdictions.
While noting that support for the Jones Act – which reserves the carriage of US domestic cargo to vessels built in US shipyards, crewed by US mariners, owned by US owners and flying the US flag – was “unwavering”, it said that reform of international relays, where cargo could be moved between US ports by foreign-owned vessels running international services, rather than currently using road and rail connections, could save the country’s shippers around $200m per year.
Its analysis of container movements in the country last year suggested some 500,000 boxes could be taken off domestic roads if they were allowed to travel between US ports on foreign box ships.
In China, which has a very similar restriction in place to protect domestic Chinese shipping lines, the potential savings are much greater. “Relaxing China’s international relay restrictions would also save logistics providers (and exporters) around $500-700m per annum from lower port charges and optimised shipping networks. Furthermore, inefficient relay solutions add five to 10 days to the transportation time and carry significant costs for cargo owners.”
It estimated that some 10m teu per year of Chinese export volumes are transhipped through foreign ports – including Hong Kong – rather than mainland Chinese ports as a result of the cabotage restrictions. This has been to the great benefit of ports such as Busan in South Korea, Singapore and even Kaohsiung in Taiwan, but has cost Chinese ports and estimated $321m per year in lost revenues.
In addition, the WEF report said, the extra transportation involved with transhipping through non-Chinese ports accumulatively costs shippers $500m to $1bn per year in added inventory costs.
A similar loss for local port operators has also been seen in India and Vietnam. Debate in India has centred on the recent relaxation of cabotage restrictions for foreign carriers calling at the DP World-operated Vallarpadam International Transhipment Terminal, which had failed to attract serious volumes since its opening precisely because the Indian domestic fleet simply doesn’t have the capacity to carry the volumes that could go through the terminal.
Currently, about 60% of India’s total container trade is transhipped through the Sri Lankan port of Colombo, and while the WEF acknowledged that the Vallarpadam decision was progress of sorts, it added that it was “hardly a systemic solution and one that illustrates the challenges of appeasing competing interests”.
An analysis of the world’s ocean-going cabotage fleet by liner consultancy Alphaliner found that some 550,00teu is deployed on such trades, with 250,000teu operating in China’s cabotage trade. Indonesia is the next highest user of cabotage capacity, operating 130,000 teu, and the US the third, operating 55,000teu.
However, Alphaliner also noted the old age of the Jones Act fleet, pointing to the fact that many of these vessels are far more fuel-inefficient than modern vessels. Some 20 of the 25-strong fleet is more than 25 years old, with the oldest, the Horizon Challenger, set to celebrate its 45th year of operation this year.
That will change slightly in 2015, when US line TOTE will introduce the first of its LNG-powered box ships, which will run on the Puerto Rico-US trade.
Nonetheless, the WEF reports concluded: “Abolishing or relaxing cabotage regulations around the globe would reduce costs, but will require a gradual approach, particularly when it comes to the legitimate national security concerns that surround domestic transport.
“The wisest course will focus first on protectionist international relay restrictions, whose abolishment will bring economic and environmental benefits that clearly outweigh security concerns.”
It is precisely those international relay movements that the Association of African Shipowners is now urging governments to restrict, in a region that most container lines have identified as a key one for growth. As Alphaliner notes, by at least revisiting the legislation, “the US and China could set a global example for other nations to follow”.