Indian regulatory measures around the competitiveness of shipping costs captured many headlines in the past year and look set to dominate the industry’s agenda through 2020, as the pace of government intervention gathers more steam.
Terminal handling charges (THC) that a shipper or merchant pays while sending goods in and out of the port has become the latest target for government scrutiny, leaving a sense of concern for ocean carriers already reeling from the combined effects of weakening demand and falling freight rates.
The larger part of controversy surrounding THC collected by carriers along with ocean freight charges arguably arises because of varied rates from terminal to terminal even within a port itself, and the local freight community – spearheaded by the Federation of Indian Export Organisations (FIEO) – has been pushing the government to create a more transparent, standardised pricing environment.
Heeding those calls, Indian officials tasked with logistics reforms are working towards a standard operating procedure (SOP) for the shipping industry, which broadly requires carriers to isolate THC and other ancillary costs from the basic ocean freight and redefine their bills of lading accordingly. In line with this move, a customs advisory has already been issued allowing all ports and terminals to collect THC directly from importers and exporters.
“Petitions have been received regarding the quantum of such [THC], the mismatch of such charges at the same port and terminal from one service provider to another, about whom these charges are to be paid to, lack of transparency in such charges, etc.,” a draft SOP provision said.
“Many importers have represented to the department that shipping lines are collecting THC, which are at variance with what the shipping lines have paid as THC to the ports/terminals,” the commissioner of customs office at Jawaharlal Nehru Port Trust (Nhava Sheva) said in an advisory issued to the trade. “This results in lack of transparency in these charges.”
While cargo owners and consumers have reasons to rejoice at the evolving changes, shipping lines argue that regulatory controls over pricing undermine the competitive dynamics of supply chains in a free and open market.
Locking horns with the government, the Container Shipping Lines Association (CSLA), which represents foreign carriers serving Indian ports, has called the government interference – by putting questions into THC collections – a trade disruptor and a blot on established international shipping practices.
“It is noteworthy that the shipping lines are currently taking care of a lot of transactions in line with established, time-tested practices followed around the world through contracts between shipping lines and their customers. By moving the way THC is collected, [it] will necessarily disrupt the way business is carried out in a free market without factoring in the risks and investments involved. Needless to say, the shipping lines are taking efforts towards making logistics cost-effective and easy for our customers,” Sunil Vaswani, executive director of CSLA, said.
According to CSLA, there ought to be an acknowledgement by policymakers that THC represents a composite of logistics services rendered to the merchant and, as such, the cost applied should not be viewed in isolation. “The THC is a free market cost that should be left to the customer to decide upon. Through fair process of acquiring quotes from different shipping lines, customers can reserve their rights to reject higher costs and choose the best suited ones as per the services they get.”
With THC being a key component of every contract of carriage, the long-term effect of cost disintermediation or delinking could translate into many facets of the transportation industry, according to industry leaders. “Because those variables are very important in pricing the transportation service, shipping lines may have to rework their strategy,” a trade representative said.
The government has also been looking into shipper concerns about many other shipping surcharges that they say are unjustified. A dedicated logistics wing established at India’s Ministry of Commerce has added a greater sense of urgency to fixing some of these issues. But it is perhaps too soon to tell how things will play out for the merchants in a historically fragmented market that is still in the early stages of maturing into a more integrated mode.