Shipping ministry: The exceptional performer

By GovernanceToday
In Infrastructure
December 11, 2015
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india-shippingThe NDA government has delivered on yet another front and this time the accomplishment was made in international shipping that had remained neglected during the previous regime. After a long interval, International Shipping regulators have revised the ‘high-risk area’ boundary in the Indian Ocean and have shifted it away from the India’s western coastline. Both the Shipping ministry and External Affairs ministry has played a pivotal role in this decision that is likely to boost country’s maritime trade many folds.

The move would also potentially lower the insurance and operating costs of Indian shipping companies as new regulations will be brought to effect from December 1st. The previous boundaries were in fact covering almost entire western coastline of India bringing it under the limits of the High Risk Area and it had triggered a 300-fold jump in ship insurance costs, which gave a rise to high transaction cost of commodities shipped to Indian ports.

As a matter of fact, about 90 per cent by volume and 70 per cent by value of the country’s international trade takes place through ocean transportation. The country’s major ports play a key role in facilitating external trade, which accounts for 40 per cent of country’s Gross Domestic Product (GDP). Since NDA has taken over the regime and Nitin Gadkari has assumed the role of union Shipping minister, the port sector has seen a phenomenal growth. Twelve of our major ports and three state-run companies have turned profitable and within this financial year, the Shipping industry will see a profit of around Rs 4,500 crore. Three PSUs, Dredging Corporation of India, SCI and Cochin Ship Yard are likely to report a profit of Rs 850 crore, the biggest chunk of the net surplus.

This impressive balance sheet is a result of collective efforts put in by Indian shipping regulators and defence forces. Both of these agencies were lobbying to redraw the eastern limit of the High Risk Area since 2012 as piracy in international waters has dropped substantially in recent years. It was at its lowest in 2014 for last twelve years.

indian-ocean-port

Indian Ocean is a crucial part of global trade route

The High Risk Area was extended in 2010 beyond the earlier boundary of 65 degrees East longitude to up to 78 degrees East, stretching right up to the territorial waters on India’s western shores. Consequently, London’s joint war committee (JWC), which assesses insurance risks, extended the war zone in December 2010 about 900 miles east as the hijacking range grew.

The decision was taken after pirate attacks started taking place further from the Somali coast and closer to India than in the past as pirates deployed long-range ships to attack and hold ships for ransom. The expansion of the area effectively brought the whole of the Indian Ocean, almost up to the coast of India, into a so-called exclusion zone, raising shipping costs. The extension meant that this area was excluded from the annual war risk cover, and underwriters demanded additional premiums from ship owners to provide a cover for the area.

A ship with appropriate war risk insurance is covered for risks encountered throughout the course of its normal operations. In addition to deployment of Indian naval ships in the Gulf of Aden since October 2008 for anti-piracy patrols, robust action by the Indian Navy and Indian Coast Guard led to the arrest of 120 pirates from four pirate ships between January 2011 and March 2011.

Affirmative action and increased surveillance contributed towards the decline of piracy incidents in the East Arabian Sea, with the last pirate activity in the region reported in March 2012. With the revision of the High Risk Area, some of India’s maritime security concerns such as floating armouries and proliferation of private security are also likely to be addressed. In addition, Indian ship owners are likely to be benefitted significantly on the account of savings on insurance and associated operating costs.

Indian ship owners had paid around $125 million to $130 million in addition to the existing war risk premium during the last financial year. To be sure, some of the portion of this additional war risk premium will remain, but substantial portion of the premium will go way with the downwards reduction.

The reorganizing of the boundary will also help avoiding the clash of fishermen and merchant vessels as fishermen can now go deeper into the seas. All types of vessels were hugging to the Indian coast owing to expansion of this area. With the latest downwards division, it will be easy for defence forces to check attacks from terrorist via coastal route as there will be lesser congestion after December with revised boundaries coming into play.

Vinit Goenka | (The writer is a Member of IT Task Force in the Ministries of Shipping, Road Transport & Highways, and former National Co-Convener for the BJP’s IT Cell)