Bangalore: The Union shipping ministry has prepared a draft legislation aimed at greater transparency in container freight charges that would promote competition and lower costs without actually regulating prices, a senior official said.
The proposed legislation on shipping practices—to be soon sent to the cabinet for approval—attempts to introduce transparency in the operations of maritime transportation logistics services companies, a ministry official said on condition of anonymity.
Logistics costs account for 13-15% of GDP in India, compared with 6-8% in developed countries, according to a study by the World Bank.
The advent of container cargo in the 1980s has seen new services that include container freight stations, inland container depots, consolidators and freight forwarders. India ships over 7 million cargo containers a year.
There is, however, no mechanism to monitor the working of these service providers, or for cost effectiveness, transparency of tariffs, services and accountability, said an official at the commerce ministry, who did not want to be named.
The draft legislation says service providers will have to be registered in India to be able to do business in the country. They will also have to display their fees—including a breakdown of costs—either on their premises or websites.
“The charges levied by these service providers in the maritime transportation logistics chain are often arbitrary,” said an official at trade lobby group Federation of Indian Export Organizations, or Fieo. “Moreover, they are reluctant to share information regarding tariff structure.”
Facilitating better services: Jawaharlal Nehru Port in Mumbai. The draft legislation to be presented by shipping ministry says service providers will have to be registered in India to be able to do business in the country. They will also have to display their fees either on their premises or websites. Ashesh Shah / Mint
Shipping lines sometimes impose a number of surcharges—including currency adjustment factor, bunker adjustment factor, war surcharge, congestion surcharge—on short notice, upsetting cost sheets given to foreign buyers. This often ends in lower profits, said the Fieo official, who declined being named.
The proposed legislation, however, does not intend to regulate tariffs charged by service providers, the shipping ministry official said. “We are only trying to bring in transparency so that India’s trade benefits from the competition that comes by default,” he said. “Currently, the trade has no clue what the service providers are going to charge.”
Under the proposed legislation, once tariffs are published upfront, users will have a choice in picking their service providers. It requires service providers to publish their tariffs in a manner prescribed by the government. These then cannot be modified to the disadvantage of the service receiver without giving prior notice.
Not surprisingly, service providers such as freight forwarders, consolidators and shipping lines are opposing the move.
“The proposed legislation will harm us,” said an official with a European freight forwarding firm on condition of anonymity. “A few of the top global freight forwarders operating in India will meet soon to discuss ways to tackle this issue.”
Shipping firms say they are only too willing to publish land-side costs levied from customers but not the ocean freight rates and other supplementary charges. Land-side costs are the so-called terminal handling charges, or THCs, levied by ports on shipping firms, who recover it from customers.
While THCs levied by state-owned major ports are a notified tariff item regulated by the Tariff Authority for Major Ports, fees recovered by shipping lines from customers are not regulated by any agency.
Exporters and importers say THCs are hiked arbitrarily, unlike in countries such as the US and Australia. “The shipping lines raise THCs without disclosing the actual expenses incurred by them for the amount recovered,” said P.N. Suri, president of Northern India Shippers Association.
“The implementation of the shipping trade practices act would facilitate free and fair trade practices in the functioning of the maritime transport logistics,” the Fieo official said. Service providers who violate the proposed legislation could be slapped with a fine of up to Rs10 lakh.
It also provides for the setting up of an authority to probe complaints. An appellate authority will also be established to resolve disputes over the orders of the designated authority.