Cabotage

Imagine a country requiring that only domestically registered airlines can fly passengers between two of its own cities, even if a foreign airline already has a plane sitting at one of those airports and could easily fly the route more cheaply. Cabotage applies almost exactly this restriction to shipping, reserving the right to carry cargo between two ports within the same country to domestically flagged vessels.

Under cabotage rules, a foreign-flagged ship, even one already in Indian waters delivering an international shipment, has historically not been freely permitted to also carry cargo directly between two Indian ports along the way, that coastal leg was reserved for Indian-flagged vessels, protecting the domestic shipping industry from foreign competition on purely domestic routes.

The policy rationale mirrors reservations seen elsewhere in Indian industrial policy, protecting a strategically important domestic capability, a national merchant shipping fleet, from being outcompeted entirely by larger, often cheaper foreign fleets, even at some cost to overall shipping efficiency and cost for Indian cargo owners moving goods between domestic ports.

India has progressively relaxed cabotage restrictions since 2018 for specific cargo categories and vessel types, particularly container transhipment cargo, allowing foreign vessels greater flexibility specifically to make Indian transhipment hubs more commercially viable, since overly strict cabotage rules were making it cheaper for shipping lines to route Indian cargo through foreign transhipment ports like Colombo or Singapore instead.

Whenever India's transhipment hub ambitions are discussed alongside cabotage reform, the two are directly connected, easing cabotage restrictions on transhipment-related cargo movement is specifically meant to make routing cargo through an Indian port, rather than a foreign one, commercially competitive again.