French container shipping line CMA CGM’s move to levy a surcharge for hauling cargo through the piracy-ridden Gulf of Aden is seen as a back door attempt to raise extra resources at a time when freight rates have fallen off the cliff.
CMA CGM imposed the surcharge of $23 (Rs1,122) per standard container with effect from 1 January. Indian container cargo bound for the West and coming from the West has to necessarily transit the Gulf of Aden.
Indian exporters, already struggling with slower demand, have opposed the surcharge. For one, the levy raises India’s already high transaction costs on external trade. The French firm has a significant share of India’s container market. Exporters and importers (shippers) raised this issue during a meeting called by the Union commerce ministry last week.
The world’s third biggest container shipping firm has defended the latest in a slew of surcharges that shipping lines collect from customers. The Aden Gulf surcharge, it said, was meant to cover high insurance and other security-related costs of transiting through the prime trade route. Maintaining high speed while crossing the Gulf of Aden and moving in convoys guarded by warships are some measures that the firm has adopted to ensure the security of its ships sailing through the troubled waters off Somalia.
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But shippers don’t buy this argument. They say that piracy risks are covered by insurance, a cost element that is included in freight rates quoted to customers. As such, the surcharge amounted to double dipping (charging twice), as were other such surcharges on account of fluctuations in ship fuel prices, congestion at ports and currency fluctuations that lines typically levy on customers over and above the base freight rate.
The war of words between the shippers and shipping lines comes amid reports that some container shipping firms have started carrying cargo containers from Asia (read Far East) to Europe at zero freight rates, with customers only paying for fuel and other surcharges. The phenomenon of zero dollar freight rate, though, is yet to reach India.
It would seem that new surcharges such as the Aden Gulf surcharge are the only route left for shipping lines to generate revenue, if not exactly profit.
The shippers have always made it clear that they preferred an all-inclusive freight rate rather than deal with a number of surcharges, which, they claim, lacks transparency.
It would be sensible on the part of container shipping firms to charge clients a freight rate that actually realistically covers costs, rather than inventing and collecting new surcharges to make up for rock-bottom freight rates in a desperate fight for market share.
If one shipping line is allowed to get away with such a surcharge, then everyone else will follow, the shippers have told the government. In this context, they have reminded the government of the need to accelerate framing of the proposed Shipping Trade Practices Act, a Bill for which has been in the making for the last five years, to rein in service providers in the maritime transport logistics chain.
Under the proposed Act, for which a cabinet note was prepared, service providers will have to register with a government-appointed agency, publish their rates, including the break-downs, and display them on their premises or on their websites.
The proposed legislation is not intended to regulate rates levied by the service providers, but aimed at introducing transparency in their operations so that shippers could benefit from competition, according to the shipping ministry.
The delay on the part of the ministry in following up on the work already done on the draft Bill has surprised many. A government-appointed group headed by the country’s maritime regulator is now being asked to revisit some provisions of the draft Bill to examine their efficacy in the wake of concerns expressed by the service providers. The ministry had taken comments from all stakeholders and other ministries/departments ahead of drafting the cabinet note.
It now looks certain that the proposed legislation will be delayed until a new government is in place. Unless the next government at the Centre bows to industry pressure and dilutes the provisions of the Bill, or puts it in cold storage forever.
P. Manoj is Mint’s resident shipping expert and writes on issues related to shipping and logistics every other Friday.
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