India: Will the government’s move to regulate shipping freight work?

By proposing that service providers specify an all-inclusive freight rate which removes the possibility of levying surcharges and enhances transparency, the Centre has backed a long-standing demand from exporters and importers to regulate shipping freight, particularly those collected by container carriers.

Exporters and importers have always been at loggerheads with the carriers and freight forwarders for levying a slew of surcharges on top of the ocean freight, which they say lacks transparency and often adds up to more than the quoted sea freight rate, effectively translating into hidden rate increases.

“A consolidated freight is a very good idea but with this I’m not sure whether we will be able to get a competitive freight rate,” said a Delhi-based agri-produce exporter.

The shipping lines, he feared, would start quoting higher rates — instead of, say, charging $1,000 they would add $300 in extra charges for the land-side costs or in surcharges and levy an all-inclusive freight of $1,300 by building the extra charges into the freight.

“With this, I don’t think there will be any kind of advantage in terms of reduction in logistics costs,” he held. “Some of the exporters don’t want to put the consolidated rate on the bill of lading (BL), the reason being that they want to play around with the freight or for some other reasons they don’t want to disclose the actual price of the product/goods,” the exporter said.

One way to resolve this issue, he suggested, would be by specifying in the BL that the importer would not have to pay anything extra to the shipping line at the destination or that he would have to pay certain specified charges. “But the consolidated freight will not be required,” he said.

Indian exporters and importers would be at a “competitive disadvantage” vis-à-vis other nations if their individual confidential contracts — a commercial agreement between a shipping line and its customer which is governed by market forces — were made public, said Sunil Vaswani, Executive Director, Container Shipping Lines Association (India) or CSLA, an industry lobby group.

“Disclosing the all-inclusive freight on the BL could put many commodity traders, exporters and importers in a difficult situation where surcharges, which have not been clearly defined, are disclosed on the BL, if the shippers and consignees agree,” the CSLA said to back its argument for scrapping the plan.

Carriers said not all incidental charges were known at the time of release of the BL but were only applicable subject to occurrences such as congestion, detention and repair of containers.

“For small and medium enterprises (accounting for 94 per cent of exporters and importers), putting the rate on the BL is not going to solve the problem of price transparency,” said Purnendu Shekhar, founder and CEO, Cogoport, which helps plan, book and manage shipments. Incidental charges could be levied regardless, he said.

He suggested that additional and conditional charges be defined very clearly before the start of a shipment to avoid any “surprises” later. “The shipping and logistics industries have in the past been very ‘innovative’ in coming out with charges without public discourse,” he said.

The solution to this, he added, was to break the total freight into three items: Origin charges, freight charges and destination charges “along with a clear list of possible additional charges”.

“The government should regulate these pricing formats, and not the prices themselves, so that the health of the industry is maintained. This allows the free market to exist, but also protects SMEs from industry power plays and lack of transparency,” Shekhar added.
Source: The Hindu Business Line

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