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Cabotage Law in Sea Transportation

What Does Cabotage Mean?

Cabotage Law in Sea Transportation is the transporting of goods and passengers between ports in a country by a foreign flagged vessel.

What is Cabotage Restriction Meaning?

Some countries don’t allow foreign-flagged vessels to transport goods between ports of the country.  This describes as the Cabotage Law in Sea Transportation.

Why Cabotage Law was Implemented?

The law was implemented mainly to protect the national maritime service and to maximize national security.

Sometimes domestic maritime may not be strong enough to compete with foreign maritime services. So, letting both foreign and domestic vessel operators compete together will push the domestic service providers out of the game. 

Obviously, these domestic players may not be able to compete in international maritime services. Hence governments keep such laws to make sure that they can have services like feeder vessel operations in national water.

And there are both advantages and disadvantages in the law. Using the cabotage wisely, a country can gain in the international market.

Advantages and Disadvantages of cabotage law.

Some developing countries make strong their supply chain by cabotage rules, while some face challenges in their supply chain with the same.

By exposing domestic maritime services to international services can improve the quality of the maritime services and reduce freight rates through competition. At the same time, Due to huge competition, uplifting the law can destroy the domestic players who are not strong enough to compete with international players.

For small countries, domestic cargo volume could be very less. Competing a lot of players for a small amount of cargo is not beneficial for shipping lines, especially for the national level feeder operators. This is due to the per-unit profit from cargo becoming very less, as the operational cost of the feeder operator becomes high.

Also, the freight rate becomes low due to high competition. For big countries, restricting competition with cabotage law leads to less efficient and costly transportation. Countries with a big coastline can gain by letting international shipping lines and national level feeder operators compete for domestic cargo.

With cabotage regulations, liners have to hire feeder vessels or flag state vessels of the particular country to move goods. This could lead to a delay in the cargo movements, increasing total transport cost as well as increasing the inefficiency.

Thus, if a nation has a considerable amount of a vessel fleet, protecting the national fleet gets priority where uplifting the cabotage regulation becomes questionable. At the same time, if the national flagged fleet is small to handle the volume under cabotage, it is ideal to uplift the regulation.

Some countries attract new businesses, improve the efficiency among ports with competition by uplifting the cabotage law.

India is one of the best examples. By holding control over maritime service up to some extent with the cabotage law, countries can restrict the cash flow to other countries too.

In another way, a small country with few ports can become a hub country instead of having a hub port by increasing the connectivity and efficiency by uplifting the cabotage regulation.

What is the Jones  Act?

The Jones Act or the United States Merchant Marine Act-1920 speaks on the U.S cabotage law. As per the act, goods transport between US ports should be US-flagged vessels, the vessel should be built in the US.

Further, the vessel crew should be US citizens, and vessels should own by a US citizen. If the vessel uses steel for her repairs, the total weight of the steel should be less than 10% of the vessel weight.

So, the Jones act consider as a very prohibitive cabotage law.

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