NEW DELHI: India’s shipping market, worth a freight bill of $57 billion annually, could soon be out of bounds for global fleet owners after the government scrapped a key tender condition that tilts the scale in favour of local shipowners.
In a public tender, an Indian ship has the so-called right of first refusal to match the lowest rate quoted by a foreign-flag ship and take the contract, according to the rules set by the director general of shipping, India’s maritime regulator, in 2004 to extend cargo support and develop the local shipping industry. This is subject to the condition that the difference in the bid price between the Indian-flag vessel exercising the right of first refusal and the lowest rate quoted by the foreign flag vessel shall be limited to 10%.
The right of first refusal is not available to India-registered ships if the difference in bid price is more than 10%. The director general of shipping scrapped this requirement last week for tenders to finalize a so-called contract of affreightment (CoA) and channel deepening works at ports using dredgers. A CoA is a long-term contract under which a shipowner agrees to transport a specified quantity of cargo at a specified rate per tonne between the designated loading and discharge ports during a specified period.
The change will help local fleet owners get assured business. In the earlier rule, local fleet owners were at risk of losing business if their price quotation did not come in the 10% range of the lowest foreign bid. Now, they can quote any price and still enjoy the privilege of the right of first refusal. The downside of such an arrangement is that global fleet owners will have no incentive to participate in tenders as the process would be rendered meaningless. Secondly, the rate discovery mechanism—the purpose of all open, competitive bidding—will suffer as local fleet owners could be tempted to indulge in cartelization.
