India seeks to fix lack of transparency in transaction cost of EXIM trade
The Directorate General of Shipping issued a circular last week that carriers and their agents have agreed not to collect some 25 different charges primarily concerned with imports
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India’s exporters and importers have for long grappled with the extra charges levied by container shipping lines and their agents in different ways.
So, it came as a surprise when India’s maritime administration, the Directorate General of Shipping (DGS), issued a circular last week that carriers and their agents have finally agreed not to collect some 25 different charges primarily concerned with imports.
Pressure was building up on India’s shipping ministry after a Rajya Sabha panel questioned the government over the lack of transparency and reasonableness in the various charges levied by the shipping lines and their agents in export-import (EXIM) trade.
The Prime Minister’s Office (PMO) waded into the issue and asked the finance ministry to look into it. The finance ministry, in turn, asked the shipping ministry to find a solution.
The shipping ministry then formed a committee led by a deputy DGS and comprising representatives from stake-holders in the maritime sector to identify and examine the grievances of the trade and submit its recommendations.
The panel discussed some 58 extra charges levied by shipping lines/agents on import shipments alone, of which there was consensus not to levy 25 different extra charges including the winter season charges, terminal handling charges (THC) and inland haulage charges (IHC); the rest were either not accepted or were yet to be discussed.
The committee is yet to examine the extra charges on the export side.
The eventual outcome of the committee recommendations is that any charge that is not shown in the bill of lading cannot be charged or recovered.
A bill of lading is a document issued by a carrier or his agent to acknowledge receipt of a shipment of cargo.
But the question that is uppermost in the minds of exporters and importers is whether the consensus among the stakeholders and the recommendations of the committee are binding without legal backing.
Still, what gives hope is the support of the Container Shipping Lines Association (CSLA), a key constituent, to the committee’s recommendations. CSLA is a lobby representing container shipping lines operating in India.
On 7 September, DGS issued a circular acknowledging the consensus that led to the unanimous recommendations and reiterating an advice to the carriers/agents not to collect these 25 different extra charges involved in the transportation of EXIM goods as a “good/best practice”.
Two of the 25 charges mentioned in the DGS advisory—THC and IHC—cannot be scrapped because it is a part and parcel of the container trade globally, says shipping executives.
THC is a charge levied by the port and terminals from the shipping lines, which, in turn, recover it from their customers.
While the THC levied by the government-owned ports on the shipping lines are a notified tariff item regulated by the Tariff Authority for Major Ports, or TAMP, THC recovered by the shipping lines from the customers is not regulated by any agency. TAMP does not have powers to regulate THC collected by the shipping lines from their customers.
THC is supposed to be a reimbursement of the actual amount paid by the shipping lines to the ports and terminals. But in actual practice, that is not the case, according to shippers (cargo owners).
Shippers say THC is a substantial amount and sometimes exceeds 70-80% of the ocean freight. There is a big difference between what they are paying to the ports and what they are recovering from customers as THC.
Besides, exporters claim that the shipping lines are resorting to a so-called double-dipping by using THC to pass on the trade risk to the shippers.
Typically, the money paid by the shipping lines to the ports is a part of their operating costs and is factored in the freight rates.
Ocean freight includes the cost of loading cargo containers onto ships and unloading containers from ships. Despite this, the expenses incurred for loading and unloading containers are recovered from shippers separately as THC, leading to double-dipping by the lines.
Exporters argue that the exorbitant THC charged by the lines contributes to high transaction costs, making India’s exports uncompetitive in the global market.
THC is increased arbitrarily, often without consulting the exporters. The shipping lines have been hiking THC without disclosing the actual expenses incurred by them for the amount recovered. Overseas customers don’t pay these charges as they are incurred within the country of export. Shippers have consistently favoured an all-inclusive cost without any of the extra charges and have sought government intervention to prohibit lines from collecting THC in India. Container shipping lines are against regulating THC and have refuted charges by shippers that they were over-charging customers by recovering a higher THC than what they were paying to the port and terminals.
IHC is the cost involved in carting the cargo container from the ports to customers inland by road or rail.
“Both THC and IHC are globally accepted pricing practices. It has to be charged. Obviously, these cannot be scrapped. But if the DGS wanted this to be reflected in the bill of lading, that’s a different issue,” says shipping industry veteran Sabyasachi Hajara, a former chairman and managing director of state-owned Shipping Corp. of India Ltd.
The problem of extra charges has more to do with agents and freight forwarders than with the carriers, according to experts. For container lines having local agents, the agents levy the extra charges which don’t even go to the lines; they go to the agents’ kitty.
What the shipping ministry can insist on, according to Hajara, is that any charge that is proposed to be levied by the lines has to be registered with some agency such as the Federal Maritime Commission (FMC) in the US.
It has to be transparent and be available for anyone to see.
In the US, nobody can complain because shipping service providers have to file their rates with the FMC, which has to include every charge and that is available for the exporters and importers to see.
P. Manoj looks at trends in the shipping industry.