The Directorate General of Shipping, under the Ministry of Ports, Shipping, and Waterways, has drafted a notification on Regulations for Vessel Sharing Agreements (VSAs) in accordance with Section 54 of the Competition Act, 2002. This draft aims to promote fair competition, enhance transparency, and improve representation of Indian shipping lines and Non-Vessel Operating Common Carriers (NVOCCs) in global container trade, while balancing the interests of all maritime stakeholders.
To ensure the regulation is comprehensive, the Directorate seeks comments, suggestions, and inputs from stakeholders and the public. The draft addresses market challenges such as fair space allocation, prevention of anti-competitive practices, and inclusion of Indian-flag vessels. The industry feedback will help refine this regulation to foster a fairer, competitive shipping environment.
The proposal for enhancing vessel-sharing agreements (VSAs) in India could have significant global and national benefits, particularly for the shipping and logistics industry. These agreements allow shipping companies to pool resources, optimizing vessel usage, improving efficiency, and reducing costs without violating competition laws. In the context of global trade, VSAs have been endorsed by regulatory bodies such as the European Union through the Consortia Block Exemption Regulation (CBER), which facilitates such collaborations while ensuring fair competition.
Global Perspective and Benefits
Globally, vessel-sharing has been recognized as a key tool for improving operational efficiency. It allows shipping carriers to collaborate on the same routes by sharing vessels, which in turn maximizes fleet utilization, increases service frequencies, and extends port coverage. For instance, the CBER in the EU encourages vessel-sharing while maintaining strict guidelines to prevent anti-competitive practices. The agreements do not involve price-fixing, allowing individual shipping companies to set their prices independently, which helps maintain a competitive marketplace. Furthermore, these consortia play a vital role in reducing emissions by promoting the use of larger vessels that can transport goods more efficiently, cutting down on CO2 emissions per container
Benefits for India
For India, adopting a robust legal framework for VSAs could have multiple advantages. By allowing shipping companies to collaborate, India can improve its logistical efficiency, which is critical for maintaining competitiveness in international trade. For a country that relies heavily on both exports and imports, optimizing shipping routes through VSAs can significantly reduce transportation costs, enhance service reliability, and boost port connectivity. This could help Indian exporters access more markets, particularly smaller and remote ports, while making imports more cost-effective.
Additionally, VSAs can align with India’s sustainability goals. With environmental concerns becoming a priority, vessel-sharing can reduce emissions, making the shipping industry more eco-friendly. As India seeks to balance economic growth with environmental responsibility, VSAs provide an effective means of reducing the carbon footprint associated with shipping.
Impact on Ease of Doing Business
Implementing a framework for vessel-sharing agreements could also improve India’s “ease of doing business” ranking. By fostering a more competitive and efficient shipping market, VSAs can reduce shipping delays and improve the reliability of supply chains, factors that are crucial for businesses engaged in international trade. Moreover, as seen in global contexts, such agreements help mitigate risks associated with supply chain disruptions, such as those experienced during the COVID-19 pandemic, where vessel-sharing proved vital in maintaining trade flows despite logistical challenges
However, it is important to note potential risks. If not carefully regulated, there could be concerns about market dominance by a few large players. Ensuring that VSAs are monitored to prevent anti-competitive behavior, as is done in the EU, will be critical for India to reap the benefits of these agreements while protecting smaller players in the industry.
In conclusion, promoting vessel-sharing agreements in India could improve operational efficiency, reduce costs, align with sustainability goals, and enhance the ease of doing business. However, it will be essential to establish a robust legal framework to ensure fair competition and broad access to the benefits for all market participants.
What smaller players must do to protect themselves
Smaller players, such as Non-Vessel Operating Common Carriers (NVOCCs), local shipping lines, and small freight forwarders, can take several proactive steps to protect their interests under vessel-sharing agreements (VSAs). While these agreements are designed to improve operational efficiency, they may pose risks for smaller entities if not carefully managed. Here are some strategies that smaller players can adopt:
1. Leverage Collective Bargaining
Smaller shipping companies and NVOCCs should consider forming alliances or industry associations to pool their bargaining power. By uniting, they can negotiate better terms in vessel-sharing agreements, such as fair space allocation, transparent pricing, and priority access to shipping capacity. Industry associations also provide a platform to voice collective concerns to regulators, ensuring that their interests are represented during policy discussions.
2. Demand Transparency in Agreements
VSAs should be transparent, particularly regarding space allocation, pricing, and operational terms. Smaller players should push for clear terms on how available vessel space is distributed and monitored. This prevents larger players from hoarding capacity or setting unfair terms. They should advocate for clauses that mandate periodic reporting on space usage and fees to ensure fairness.
3. Invest in Digital Platforms
To compete effectively with larger players, smaller shipping lines and NVOCCs should embrace digital technologies that enhance operational efficiency. This includes investing in platforms for real-time cargo tracking, inventory management, and data analytics. By streamlining operations, smaller players can offer more competitive services and reduce costs, helping them stay relevant within vessel-sharing agreements.
4. Diversify Service Offerings
Rather than relying solely on space-sharing under VSAs, smaller players can differentiate themselves by offering specialized services. This might include providing niche routes, flexible scheduling, or high-quality customer service. NVOCCs can focus on offering end-to-end logistics solutions, such as warehousing, customs clearance, and inland transport, which can help retain customers and grow their market share.
5. Monitor Anti-Competitive Practices
Smaller players must stay vigilant about potential anti-competitive practices that may arise under VSAs, such as price-fixing, market exclusion, or discriminatory treatment. To safeguard their interests, they should closely monitor market behavior and report any unfair practices to relevant authorities like the Directorate General of Shipping or the Competition Commission of India. These agencies can enforce compliance and ensure the agreements promote competition.
6. Engage with Regulators
It is crucial for smaller players to actively engage with regulators during public consultations on VSA-related policies. Providing feedback and suggestions on draft regulations, such as the one proposed in India, can help shape a regulatory framework that ensures smaller players are not marginalized. By participating in these discussions, they can influence the creation of rules that safeguard their access to market opportunities.
7. Capitalize on the Indian Flag Vessel Requirement
The proposed notification mandates that 5% of the space under VSAs be allocated to Indian flag vessels and Indian NVOCCs. Smaller Indian players should capitalize on this rule to secure a minimum share of cargo space. This could also provide an opportunity to enhance their fleet capacity, improve service quality, and gain a competitive edge in the domestic market.
8. Build Strategic Partnerships
Smaller players can form partnerships with other industry stakeholders, such as port operators, freight forwarders, and technology providers. These alliances can help them offer integrated solutions, boost operational efficiency, and enhance their service offering, making them more competitive within the ecosystem of vessel-sharing agreements.
By adopting these strategies, smaller players can protect their interests in the evolving landscape of global shipping. The key lies in ensuring that vessel-sharing agreements promote inclusivity, allowing smaller companies to thrive while contributing to a more competitive and efficient market.
Focus Required On Key Issues:
- Promoting Fair Competition: Many industry stakeholders, including shipowners and cargo operators, emphasize the importance of ensuring fair competition through these regulations. The draft requires that a portion of container space in VSAs must be reserved for Indian flag vessels and non-vessel operating common carriers (NVOCCs), which is seen as a step toward boosting domestic participation and leveling the playing field in a market dominated by foreign carriers.
- Transparency and Monitoring: There are concerns about potential anti-competitive practices. The draft proposes stricter oversight, empowering the Directorate General of Shipping to monitor VSAs and ensure compliance with the conditions set in the regulations. This includes investigating cases of discriminatory practices and price manipulation, which stakeholders argue will promote transparency and accountability.
- Impact on Smaller Players: Smaller shipping companies and NVOCCs have raised concerns about their ability to compete with global giants in the space. The regulations are seen as a safeguard to ensure they get a fair share of business, which would otherwise be monopolized by large international carriers.
- Geopolitical and Market Volatility: Several public comments also highlight the need for Indian shipping to become more self-reliant, especially in the wake of global supply chain disruptions caused by geopolitical events, such as the pandemic and regional conflicts. Stakeholders view the regulations as an opportunity for Indian shipping firms to grow and invest in their fleets to mitigate over-reliance on foreign carriers.
Enclosed is a Questionnaire designed to facilitate structured feedback. We invite your responses and recommendations.
Please submit your responses by 08-October-2024 using the Google form link: https://forms.gle/JYzZpvApcHqUXcVd8, or send printed responses to shitesh.ranjan@gov.in