Indonesia has revoked its new cabotage rules after coming under fire from organizations in the shipping industry. According to the rule, specific commodities were only allowed to be shipped by Indonesian firms – both for import and export.
This is just one of several developments in container cabotage in the last few months. A lot has been happening concerning container cabotage. And will continue to do so.
In this article, we will try to explain what cabotage was and how it is evolving.
A classic definition of cabotage containers
Finding its origin in the French expression ‘caboter’ it means to travel by coast. Cabotage stands for the right of domestic coastal trade. Precisely cabotage defines the domestic transport of goods or people done by a foreign company.
The first regulations that were developed in this area were in the 18th century. These rules were set in place to prevent foreign ships from threatening the local shipping industry. Today cabotage laws exist globally. Not only to protect the domestic industries. They’re also instated to protect shipping infrastructure, keep the territorial seaways clear as well as for reasons of national security.
Although cabotage laws are present in most countries, the extent to which they are enforced varies from country to country.
The most well-known regulations are the “Jones Act”(1920) present in the USA, imposing an absolute ban on cabotage. This means all domestic transport along the US coastlines must be carried out by US vessels with a US crew. Currently, at least 75% of the crew has to be made up of US seafarers. Though there is a strong push to increase this even further. Another prominent example of outright cabotage restrictions is in China. But even there the regulations have started to relax in recent years.
The root of cabotage rules
There are various reasons why cabotage restrictions are employed and to what extent it is done. Yet the most important reason is pricing. In most cases, vessels coming from abroad offer lower prices for transport. Prices the domestic market can’t compete with. The lower prices can be achieved because of a number of reasons. Such as: lower labor costs, borrowing costs/interest rates, lower fuel prices or even the material and repair costs they have.
However, recently there have been debates in certain countries about the level of cabotage present. And whether it is actually protecting or rather hurting the domestic industry. In countries like India, the number of domestic vessels is unable to cope with domestic transport demands. These places cabotage restrictions are slowing down the economies. It is a sensitive topic. It shows the struggle of how to relax regulation without losing control. While simultaneously strengthening the domestic shipping market and not slowing down growth.
The biggest exception is the case of the European Union. Due to trade regulations, coastal trade is admitted between all member states to support free trade. Although it can be argued that there are at times both winners and losers of the system. The goal is to increase the overall economic benefit by increasing trade and economic activity between all members.
Finally, cabotage restrictions have also been applied to other transport modes. Namely the domestic transport of passengers and goods by road, rail or air. Again, there are a few notable exceptions to encourage overall economic benefit. For the sake of analyzing the term of cabotage in the shipping industry, we will not get deeper into this.
What constitutes Maritime Cabotage?
Cabotage laws are framed in a way that helps keep employment opportunities available for domestic workers. They also exist for economic purposes. These laws not just cover freight and passengers. But also dredging, towing, laying of submarine cables, seismic research and so on. Maritime cabotage can be broadly classified into three categories:
- Involving the transport of passengers and cargo
- Handling of the cargo, such as storage, warehousing, and customs.
- Pilotage, shore-based operations.
When it comes to trade agreements, cabotage can be also classified as Petit and Grand Cabotage. Petit Cabotage is when the transports of goods take place between two ports on the same coastline. Grand Cabotage is the transport of goods that takes place between two ports on two different coastlines. All in the same country.
When talking about maritime cabotage, it may also be useful to know about maritime delimitation. It is possible that the two countries might fall under the same maritime zone or have overlapping maritime territories. This is very similar to disputes between countries with controversial borders. Such issues are not to be confused with cabotage.
An overview of Cabotage Container laws around the world
The way cabotage laws are framed doesn’t just influence the trade interests. It also influences the sustainability of the environment, and the carbon footprint the movement of goods leave.
The basis of cabotage laws comprises of the following requirements or restrictions for the foreign ships:
- Shipbuilding and repair must be done in a domestic shipyard.
- The ship needs to be registered and documented in the cabotage country.
- The ship must be partially or wholly owned by a citizen of the cabotage country.
- The crew working on the ship need to be locals of the region.
All these rules can vary according to the needs and interests of the different countries. The USA is one of the nations with the strictest rules to avoid cabotage in their ports. Almost no foreign ships can participate in cabotage. Similarly, Indonesia has also set out some stringent laws after some violation from foreign ships and ships need to be registered as “Indonesian Sea Carriage Companies” and the foreign ownership is limited to 49%.
India’s rules on cabotage may seem a bit relaxed. As foreign-flagged vessels can operate on local ports when a domestic ship is not available. China also has some strict cabotage laws. They are gradually relaxing where foreign-flagged but locally-owned ships are involved in domestic shipping. But there are also known cases of foreign-owned ships being moved around illegally. Hong-Kong, a region partially under Chinese authority, can face a huge financial loss if China relaxes its cabotage laws. Something that would affect local Hong-Kong shipping companies. Australia’s domestic shipping laws don’t require the ship to be domestically built.
Brazil, Indonesia, Peru, Spain, Egypt, and the U.S. are the only countries that require ships to be domestically built.
Cabotage Container – A modern definition
More recently another use of the word “cabotage” has become used in the container industry, which could be explained as “empty container repositioning”.
In container logistics, an all-too-common problem is having the right containers at the right location at the right time. Something that very often involves moving empty containers from surplus to deficit locations. All container market participants (be it container liners, leasing companies or traders) face this issue. It is estimated that about every third container is being moved empty. Cabotage (or one-way cabotage) is an alternative to moving the boxes empty. It is done by providing the assets temporarily to a different company. This firm then uses the boxes for their own freight. The idea is, that the boxes will then be returned in a location where the container owner needs them again.
Container cabotage made easy
Unfortunately, for potential cabotage users and suppliers, the market is not very transparent and is inefficient. Finding partners, negotiating and administering contracts, tracking your containers, billing and invoicing etc. All of that is cumbersome and time-consuming. That’s why we at Container xChange aim to make this market more accessible and efficient.
xChange provides a neutral online platform where container users and suppliers can find, negotiate and execute one-way transactions. There is still a long road to travel – and too many containers are still moved empty. But we believe platforms such as xChange can support the transition to a more efficient cabotage market.
Mutual benefits of domestic repositioning of containers
The user usually gets granted a certain free period to use the container. They can thus keep the costs for their move at a minimum or optimally even eradicate them completely. The supplier, on the other hand, saves on the cost of repositioning plus improves his CO2 footprint.
Another common use of cabotage is container traders or leasing companies. They provide their new or second-hand containers to liners or NVOs. They do this in order to move the containers to their ultimate customers in the most cost-efficient way possible. Oftentimes in such cases, the target destinations are highly specific with only limited inbound and outbound cargo. That makes it very attractive for the user to use such 3rd party equipment.
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