Mumbai/Bangalore: A covert pact between shipping firms and container freight stations, or CFS, is preventing India’s exporters from bargaining for the best deals, said people familiar with the situation.
A CFS handles cargo containers and provides warehousing facilities. To be cleared by the customs, cargo shipped in containers has to move through a CFS or an inland container depot, a CFS linked by rail.
“This has resulted in a cozy arrangement between shipping companies and CFS operators at the cost of India’s external trade,” said an executive at Bombay Custom House Agents Association, on condition that he wouldn’t be named.
Handling crisis: A file photo of Jawaharlal Nehru Port, India’s biggest container port. A move by the shipping ministry to check intermediary activities has been stalled due to stakeholder pressure. (Photo: Ashesh Shah/ Mint)
There are about 20 CFSs servicing Jawaharlal Nehru Port, India’s biggest container port in Navi Mumbai. But only one of them, run by Speedy Multimodes Ltd , is regulated by the Tariff Authority for Major Ports, or Tamp, the tariff regulator for the 11 Union government-owned big ports in the country.
The CFS that Speedy runs is owned by the port which has given it out to the private firm on a 30-year contract from 1 January 2006 to manage, maintain and operate the station.
The others are free to fix their own rates.
The capacity of the CFSs far exceeds demand for handling containers at the port. This has led to fierce competition among the operators.
CFS operators admit their ability to attract more containers depends, among other things, on their ability to “offer rebates to shipping lines to influence the nomination of a CFS where the cargo would be delivered.”
This was disclosed by a CFS operator in a submission to the tariff regulator in 2007.
“When the containers are taken to the CFS, they will squeeze you. CFS operators are milching India’s trade,” said an official at IndianSugar and General Engineering Co., or Isgec, based in Noida on the outskirts of India’s Capital. Isgec exports engineering goods to several customers across the globe.
The unregulated CFS operators servicing the Jawaharlal Nehru Port charge between Rs5,000 and Rs7,000 to handle containers, which is two to three times more than the rate Speedy charges.
In 2007, the Speedy CFS made an attempt to bring its rates—around Rs1,350 per container—closer to that charged by other operators. But the regulator shot down the proposed hike and even cut the charges by 15%.
Speedy has since obtained a legal stay on the regulator’s order from the Mumbai high court. A final order is awaited.
CFS operators, however, dismissed the charges of cartelization and price fixing.
“We compete in the open market for cargo and containers in a free and fair manner. The fierce competition ensures a proper price discovery mechanism to operate for the general benefit of the trade and all stake holders in the logistics business,” said a CFS operator in the port area, who did not want to be named.
Trade officials say shipping lines use their power of nomination to extract rebates from CFS operators. “Shipping lines are thus indifferent to the rates charged by a CFS. As a result, operators have flourished under these benign conditions,” said an importer who did not want to be named.
CFS operators who do not pay these “rebates” to the shipping lines lose out on cargo, such as the facility run by state-owned Container Corp. of India Ltd, or Concor, at Mulund in Mumbai.
“We have lost a lot of business because of the practice adopted by shipping lines of nominating CFS,” said a Concor official.
The shipping lines also levy an “amendment charge” from importers to allow CFS operators to move containers to their facilities from the ports’ container yards and vice versa. They charge up to $500 (Rs20,000) a container now, up from $100 earlier.
“Importers pay an ocean freight of roughly $900 for shipping cargo from overseas destinations. But they end up paying an amendment charge of $500 just for taking the container from the port to the CFS. This excludes the handling charges levied by CFS operators,” said an official at RM Creations Inc.
Shipping lines declined to comment.
Over the past six months, four companies—RM Creations, Universal Metals Inc., Steel Strategies Llc. and Atlantic Pacific Lines—have complained to the Mumbai customs department about shipping lines refusing to take their containers to the Mulund CFS that Concor operates.
“This problem is a hindrance to our business,” said an official at Mumbai-based importer Nirav Metals Pvt. Ltd.
When a company wants any material or goods in Mumbai city, the only way is through the Mulund CFS.
But since shipping lines refuse to take the cargo to the Mulund operator, container shipments have to be terminated at Jawaharlal Nehru Port.
The Mumbai customs commissioner has now called a meeting of all stakeholders on Tuesday to discuss the issue.
Significantly, CFSs are treated as infrastructure facilities and entitled to income-tax holidays. Meanwhile, a shipping ministry plan to regulate all the intermediaries in the trade through the Shipping Trade Practices Act has been delayed due to pressure from stakeholders, said a commerce ministry official.