Article -78 Week 38 “Monkey see - Monkey do” & Our Maritime Cabotage Law

Article -78  Week 38

"Monkey see - Monkey do" & Our Maritime Cabotage Law

Paradoxically, Adam Smith, the vociferous proponent of Free Market Economy advocated the idea of Cabotage Law - the law that severely restricted foreign ships to call British shores. That's a humungous departure from his theory of free market. Jones Act of USA was more of a lobby stuff by the American shipping magnets, soon after the World War I. The fear of war-time necessity was fed in the public mind, by taking a leaf from the theory of Adam Smith. Then it went viral and continues till date. Interestingly the most vocal hardliners of this restrictive trade practice, like US, UK, Australia, and India have lost heavily on this lucrative trade and display a poor & declining market share in world shipping - even when you add their tonnage through FOC flags. And the liberal nations like Norway, the Netherlands, Germany, Greece and Japan have stamped their authority in the industry.  The hardliners used the insecurity of the World War II to reinforce the idea and till today the idea is pushed vociferously in countries like India much to the detriment to their home economy and particularly their shipping industry. Ironically, more than 75% of the logistical support to the US forces during Korean War & Vietnam War was provided by chartered vessels flying different flags and shadow-owned by many different nationalities.

As to why Adam Smith had this aberration or exception is very clear from the history of that period of later part of 18^th century. The Dutch beat the British hands down in trade and commerce. There was this prevalent concept of core nation exploiting the peripheries or colonies with shipping as the main tool to boost its national wealth. Even intra-Europe trade was considered a secondary perphery. The Dutch were superior, especially in this secondary periphery. It was not possible to compete with the Dutch, without severely restricting their ships to British shores and its colonies. Being a strong nationalist, Adam Smith propagated this idea to weaken the Dutch business and give a strong protection and subsidy to the British shipping.

However, after the World War II things changed. Colonies were freed. British, US, and other adherents to Cabotage Law suffered due to this restrictive Law. They had to shift to Panama, Liberia, and Isle of Mann etc. Their coastal shipping was monopolized by a few fat, incompetent, subsidized, and inward looking companies. The ship building industries in them had a pitiable fate and had to survive on expensive defense contracts. Where as the ship building yards in Germany, other Scandinavian countries, and Japan became global leaders. South Korea and China joined the party later. German, Dutch, Norwegian, Greek, and Japan became world leaders in the shipping industry. Later, Taiwan, South Korea, & Singapore joined the party. And the countries like US, UK, & Australia, etc stagnated or declined. They were forced to migrate their tonnage to FOC or off-shore locations. India being a third world nation with a sickly shipping industry, inherited from the colonial era, did not have the good fortune or capital to take the FOC route. And pitiable journey continues. 

Maritime Cabotage can best be explained this way. Permit a few domestic players on the coast. Tax them heavily on every possible way. Further cut their efficiency by red tapes, permits, and licenses etc. Set the Unions on them. Further escalate their costs by forcing them to pay bribes to government pain-points. Once in a while, dole out a few dollies so that they keep quiet. Then allow them to charge what they like to the home user. But competition will still be there from unexpected alternatives like roadways and the rails. Ultimately, the ROE will be lesser than their brethren in international waters with open flags. So, those already in the business have this false sense of protection from the government and shall keep themselves content with whatever ROE they manage. Sometimes, they would click a government deal and make a killing and go partying. But then that too is limited in scope and happens far too infrequently. They would lose all their appetite to scale up and compete. They would constantly look up to the government with folded hands for more dollies. They would sing the same song for the justification of Cabotage, as sung by Uncle Jones. After all, how can Uncle Jones be wrong? He is from the land of freedom and opportunity - the USA! Any attempt to justify India's Maritime Cabotage is nothing more than a "Monkey see - Monkey do" syndrome, of looking unquestionably with unthinking awe, at Jones Act of 1920 in USA.

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Rath

Uncle Jone & Our Maritime Cabotage Law

Paradoxically, Adam Smith, the vociferous proponent of Free Market Economy advocated the idea of Cabotage Law - the law that severely restricted foreign ships to call British shores. That’s a humungous departure from his theory of free market. Jones Act of USA was more of a retribution to the British restrictions on US trading ships. Then it went viral and continues till date. Interestingly the most vocal hardliners of this restrictive trade practice, like US, UK, Australia, and India have lost heavily on this lucrative trade and display a poor market share in world shipping - even when you add their tonnage through FOC flags. And the liberal Scandinavian nations like Norway, the Netherlands, Greece and Germany have stamped their authority in the industry. The hardliners used the insecurity of the World War II to reinforce the idea and till today the idea is pushed vociferously in countries like India much to the detriment to their home economy and particularly their shipping industry. As to why Adam Smith had this aberration or exception is very clear from the history of that period of later part of 18th century. The Dutch beat the British hands down in trade and commerce. Since the excess grains could not be exported due to high export duty, the farmers were in a pitiable state. The general economy was in comparatively bad state. Adam Smith was a strong nationalist. He knew that the Dutch were great traders and prosperous. It was not possible to compete with them without restricting their ships to British shores and its colonies. However, after the World War II things changed. Colonies were freed. British, US, and other adherents to Cabotage Law suffered due to this restrictive Law. They had to shift to Panama, Liberia, and Isle of Mann etc. Their coastal shipping was monopolized by a few fat, incompetent, subsidized, and inward looking companies. The ship building industries in them had a similar fate and had to survive on expensive defense contracts. Where as the ship building yards in Germany, other Scandinavian countries, and Japan became global leaders. South Korea and China joined the party later. German, Dutch, Norwegian, Greek, and Japan became world leaders in the shipping industry. Later, Taiwan, South Korea, & Singapore joined the party. And the countries like US, UK, & Australia, etc stagnated or declined. They were forced to migrated their tonnage to FOC or off-shore locations. India being a developing nation with a sickly shipping industry, inherited from the colonial era, did not have the good fortune or capital to take the FOC route and still continues in its pitiable journey. Maritime Cabotage can best be explained this way. Permit a few domestic players on the coast. Tax them heavily on every possible way. Further cut their efficiency by red tapes, permits, and licenses etc. Set the Unions on them. Further escalate their costs by forcing them to pay bribes to government pain-points. Once in a while, dole out a few dollies so that they keep quiet. Then allow them to charge what they like to the home user. But competition will still be there from unexpected alternatives like roadways and the rails. Ultimately, the ROE will be lesser than their brethren in international waters with open flags. So, those already in the business have this false sense of protection from the government and shall keep themselves content with whatever ROE they manage. Sometimes, they would click a government deal and make a killing and go partying. But then that too is limited in scope and happens far too infrequently. They would lose all their appetite to scale up and compete. They would constantly look up to the government with folded hands for more dollies. They would sing the same song for the justification of Cabotage, as sung by Uncle Jones. After all, how can Uncle Jones be wrong? He is from the land of freedom and opportunity - the USA!

Article - 77 Week 37 We Need A Nw Rule Book

Article - 77  Week 37

We Need A New Rule Book

India has changed. The world looks at us with a curious mix of awe and frown : awe for what we have achieved or promise to achieve and frown for sticking to insane archaic rules and processes reminiscent of the pre-digital era. Let's discuss the export and import processes pertaining to declarations before the shipments arrive or depart our country. No country of India's might and stature does it this way any more. In today's world, every aspect of trade is highly specialized. There is a clear divide between the carrier and the owner of the cargo. The owner of goods is a clearly seen and visible entity and is fully responsible towards the ownership of his possessions. On the other hand, the carrier is the custodian of the goods until fulfillment of the contracts of carriage with the owner of the goods. 

However, in the sailing ship era, this was not the case. You could never see the entities behind the ownership of the goods. You could barely communicate with them. When a ship called upon a port, the government and its officials of this host country knew nothing about the owner of the goods. They saw the ship with the cargo and it's Master. The Master represented every thing. He could sell the cargo and do whatever he wanted to. He owned the cargo in proxy. Therefore, it was incumbent upon him to declare the cargo to its last ''t''. He had every reason and interest to declare wrongly either to avoid duty or artificially inflate the price of the cargo. He was a direct beneficiary of these extra revenues. Therefore, the Laws, especially the British Laws, were overtly punitive and suspicious to the carrier and his representative. Any small mistake in declarations was severely punished. At times the cargo along with the ship was confiscated. Those were the semi-dark ages and those were the dark rules. 

In this context, our laws stink of that era. The carrier is fully held responsible for omission of  an insignificant content in it's declarations and penalized disproportionate to the spirit of of the contents. Our Laws hold the carrier for all wrongs, while pretending that the receiver or shipper don't exist. In US, you have a declaration, before the cargo is loaded in the port of loading, eliminating the chance of wrong cargo coming into the country in the first place. But in our country, even banned or prohibited cargo sneaks in. And then the carrier is penalized with rule books, stinking of repressive rules and regulations of the British colonial era. In more pragmatic countries like Singapore, carrier makes no declarations at all. The receiver does this from the contents of the BL issued by the carrier. In India, essentially though the contents of the BL are considered paramount, but the duplications of the contents in many points makes this process utterly complex and prone to delays, corruption, and costly. In Malaysia, they have a simple online system where the data is shared by many departments. The officials are practical and don't have the interest or inclination to strictly match the "t'' to a "t'' or interpret the  rule books esoterically with many different versions like they do in our country.

We are crying for corruption to end. But unless our rule books are burnt and new-age rules are in place, this would be a tall demand. In fact the inertia is terrifying. It's widely believed that the old rules are kept preserved because it serves the officials to exercise unlimited power without accountability. And therefore fuel the juggernaut of corruption to thump on our progress for a long time. It's time, we look at the rule books in addition to this ugly beast of corruption and lethargy of governance.

Brgds
Capt Rath