defines the actual navigation
along a nation's coast, but in the shipping industry
, "cabotage" has a much bigger meaning.
Specifically, many countries involved in international trade find it necessary (or profitable) to protect domestic businesses by creating cabotage laws. Such laws are typically designed to eliminate foreign competition in the arena of trade; by restricting the shipping (and in some rare instances, railroad) companies who are eligible to transport goods between two cities in the same country, governments can promote their own transportation industry.
The United States has a very textbook system of cabotage laws, often referred to as the Jones Act. For example: If you were a manufacturer of textiles in Los Angeles, and you had a substantial market in Alaska, the most sensible way to transport your goods is by ship - probably on a containership. Though it might be cheaper for you to book space on a foreign-flag vessel, U.S. cabotage laws would require you to hire an American shipping company (such as Sea-Land, American President Lines, or Matson).
Many fundamentalists disagree with cabotage laws, as they discourage international competition. Yet, such legislation is commonplace - and even necessary for the sustenance of the shipbuilding and shipping industries in countries like the United States. In fact, without the Jones Act, American shipbuilders would be building nothing but U.S. Navy vessels - as foreign shipyards are able to build ships much more cheaply than American yards.