Cabotage – it’s global?

Cabotage – it’s global?

[DURBAN, 12 March 2020] The world has entered into an era of globalisation like never before, where goods from across the world can be made readily accessible right up to a consumer’s front door. This is possible thanks to the shipping and international trade industry. The World Shipping Council has reiterated the immense global influence of the shipping industry by stating:

“It connects countries, markets, businesses and people, allowing them to buy and sell goods on a scale not previously possible … The exchange of capital, goods and services across international borders is known as international trade and in many countries it represents a significant share of the nation's gross domestic product (GDP.).”[1]

A nation’s economic growth (calculated by its GDP) is greatly affected by the value of goods made within a country and the trade balance it maintains between both foreign imports and exports. In South Africa, for example, it has been estimated that between 80 and 90% of the country’s economy depends on sea borne trade and transportation. It is for this reason that nations worldwide invest not only in the promotion of international shipping, but also in the regulation of such activity within their geographical territories.

What is cabotage?

Cabotage has been defined as the transportation of goods (and/or passengers) between two places within the same country by a transport operator from another country. It traditionally applied only to the shipping sector. Over time, however, cabotage was extended to also cover the road, aviation and railway transportation sectors. In the shipping sector, it relates to the transportation of goods and/or passengers from one port to another along the coastline of a country on a vessel owned by a foreign entity.

Cabotage in Africa

Various countries have introduced cabotage laws regulating foreign merchant vessels calling at their ports in order to protect their domestic shipping industries. By implementing these types of laws, they alleviate foreign competition, increase national security and ensure extra safety when territorial waters get congested. Furthermore, these laws aid nations in preserving their domestically owned vessels and in promoting vessel ownership within the country.

In 1994 the Organisation of African Unity (OAU) created the first African Maritime Transport Charter[2] to promote cooperation between African countries and to develop a higher participation in the carriage of seaborne trade to and from Africa. This marked a great step in developing the African maritime sector which was in a very poor state. In 2002, the last chairperson of the OAU (then South African President Thabo Mbeki) disbanded the organisation and in its place, created the African Union (AU).

In 2010, the AU developed a Revised African Maritime Transport Charter[3] of which article 15 deals with Trans-African Cabotage. Trans-African Cabotage is defined in the charter as “the exercise of maritime transport and related activities between ports of Member States”.[4] The inclusion of these two articles by the AU promotes the development of private African participation and the establishment of national African shipping lines. Thus, article 15 provides:

1. “States Parties shall promote Cabotage and effective participation of private sector operators at national, regional and continental levels.
2. To this end, the establishment of national and regional maritime Cabotage shipping lines should be encouraged in order to promote intra­-African trade and facilitate the economic and socio­economic integration of the continent.”

Cabotage in South Africa

In June 2017 South Africa approved the Comprehensive Maritime Transport Policy (CMTP). The aims of the CMTP are to “facilitate growth and development of South Africa’s maritime transport system in support of socio-economic development of the country whilst contributing in international trade”[5].

The CMTP defines cabotage as “trade transit of a vessel along the coast (cabotage trading), from one port to another within the territorial limits of a single nation”. It then goes on (under section 107 of the CMTP) to recognise that the Revised African Maritime Transport Charter calls for the restriction of cabotage at a sub-regional, regional and continental level. Thus, the CMTP sets out the desired outcome of an effective and transformed coastal shipping and cabotage market by introducing eight CMTP policy statements. Two of these policy statements provide for the implementation of a cabotage regulatory framework for South African coastal waters. They state:

“(b) The Department will develop a cabotage regulatory framework, inclusive of licensing, restrictions and enforcement functions as well as a roadmap for implementation in the coastal shipping market, also considering other regulatory frameworks concerning movement of goods and conveyances, such as customs regulations.

(c) The Department at an appropriate time after the adoption of a cabotage regulatory framework and legislation referred to above shall introduce cabotage restrictions on coastal shipping as part of a long-term strategy to promote South African ship ownership to serve national and regional economy.”

Apart from the approval of the CMTP, the South African government launched an initiative in 2014 called “Operation Phakisa”. The initiative was designed to address the challenges South Africa has encountered in building its economic growth. Some of the areas identified as needing urgent attention were those of poverty, unemployment and inequality. A further area of importance identified was the unlocking of the economic potential of South Africa’s oceans. Thus, Operation Phakisa (Oceans Economy) was created, including the objective of supporting the South African Ship Register by promoting the practice that all cargo carried between ports on the South African coast be carried by South African registered vessels.

Consequences and impact of enforcing restricted cabotage: “The other side of the coin”

Although the rationale behind implementing cabotage laws worldwide has been to alleviate foreign competition; to preserve national security; to avoid shipping shortages in times of conflict; to promote private vessel ownership; to promote the creation of national fleets; and to protect local labour interests, the implementation of cabotage laws has not always had the desired impact. Studies have shown that cabotage laws have proven to be unsuccessful particularly in developing countries. More often than not, the reason for this failure has been due to a loose application of the cabotage restrictions.

An example of such a situation has occurred in Nigeria. The Nigerian cabotage laws came into force in 2004 through the Coastal and Inland Shipping (Cabotage) Act, 2003. Since its enactment, however, there has been a continuous reliance on cabotage waivers allowing non-compliant vessels a waiver of the cabotage requirements in Nigeria. Luisa Rodriguez, in her 2017 conference paper submitted to the United Nations Conference on Trade and Development, has noted that both South Africa and Nigeria are experiencing the same challenges as a result of a weak supply capacity and these cabotage waivers. She states:

“… countries like Nigeria or South Africa have encountered challenges in leveraging cabotage restrictions in order to build their supply-side capacity. Weak supply capacity has thus led, in practice, to widespread cabotage waivers overriding the proper implementation of cabotage regulations”[6].

Thus, the implementation of cabotage restrictions does not come without its challenges. It remains to be seen where South Africa stands on implementing cabotage restrictions along its coastal waters. As of July 2019, the local ship register (managed by the South African Maritime Safety Authority (SAMSA)) is sitting at a total of only five vessels. Yet it is estimated that South Africa depends on approximately 12 000 foreign registered vessels every year to transport about 96% of its exports worldwide, making Operation Phakisa all the more necessary. South Africa has been battling to attract ship registration for many years now and research conducted by SAMSA found that some of the major reasons for such difficulty are the high taxation and crew costs, as well as the reputation of the flag, and the bureaucracy of the State. South African policy makers will need to attack these areas going into the future if South Africa is to grow its local ship registry.

[1] http://www.worldshipping.org/about-the-industry/global-trade .

[2] https://www.peaceau.org/uploads/african-maritime-transport-en.pdf .

[3] https://www.peaceau.org/uploads/revised-african-maritime-transport-charter-en.pdf .

[4] Article 1 of the 2010 Revised African Maritime Transport Charter.

[5] https://www.transport.gov.za/documents/11623/44313/MaritimeTransportPolicyMay2017FINAL.pdf/4fc1b8b8-37d3-4ad0-8862-313a6637104c

[6] https://unctad.org/en/PublicationsLibrary/dtltlb2017d1_en.pdf