Removal of terminal handing: Freight forwarders’ perspective

Thursday, 19 December 2013 00:00 -     - {{hitsCtrl.values.hits}}

The announcement of the removal of terminal handling and other charges by the President at the Budget speech 2014 has raised concerns and mixed feelings among the shipping community and the trade associations, both here and abroad. This move is apparently proposed to counter anti-competitive practices in the shipping trade. We have seen several press releases by trade associations, both for and against this move. It is however very unfortunate that some accuse all freight and logistics providers, branding them as unscrupulous due to the misgivings of a few. As in any industry, there are the bad eggs. This situation has been exploited by a few operators both in the liner shipping and the freight/logistics industry and not the whole industry in general. The Sri Lanka Logistics and Freight Forwarders Association (SLFFA) has been in the industry for over 30 years, contributing to almost 60% of the logistics industry in Sri Lanka through its membership of leading forwarding companies, and we wish to state that none of the SLFFA members are involved in such unethical practices as we are bound by a Code of Conduct and the Standard Trading Conditions, which disapproves such unethical practices.     Freight forwarders’ special role Freight forwarders play a special role when it comes to less than container loads (LCL) traded by both small or large scale traders, importers, manufacturers and exporters who import finished goods or raw material for consumption or manufacturing, as shipping lines do not accept LCL cargo but they only deal with full container loads. Freight forwarders fill in this vacuum but are compelled to collect cargo adequate to fill a container to ensure that they cover the cost but at most occasions owing to the pressure of the need to have the consolidation service set sail as scheduled, freight forwarders ship the containers even in the event they cannot fill the container which may result at an eventual loss. Freight forwarders also play a key role when the traders require specialised and value added services where cargo is to be moved to/from an inland/remote location, using inter-modal transportation, which could be a combination of sea and air, or sea and road, or sea and rail transportation. In addition they also provide custom brokerage, transport, warehousing services, PO management, EDI updating as well as many other logistic related services as a one stop shop. They have to retain resources to carry out these functions and coordinating the operations not to mention the high risks involved in securing the goods of high value where insurance is required at high premiums. In the case of LCL (Less than a Container Load) the local forwarder does a lot of work that is not seen and recognised. LCL cargo arrives in consolidated containers, mixed with other LCL cargo, that are destined to Colombo or sometimes to other destinations. The freight forwarder is involved in the whole process from origin to arrival at the destination port and ensures its prompt de stuffing and release of cargo. It also involves timely filing of manifest and other services related to notification to customers, etc., where there is a need to deploy resources. The freight forwarder also incurs cost as terminal handling charges levied by the lines, de-stuffing of the container as well as repositioning of the empty container. For these services the freight forwarder charges a deconsolidation charge which is also termed as LCL THC and an amount of US$ 12.50/cbm has been a standard charge that has been recovered since the time the lines discontinued offering LCL services many years ago. While this recovery could cover all costs the freight forwarders incur in providing LCL service, they also run the risk of a loss in case of under-utilised containers are shipped to keep to customer’s requirements and service commitments, which have no bearing to the end user. There is a definite cost to provide LCL services and hence if there is no clarity as to how these destination land based charges, not related to the shipping of goods from a foreign port to a destination port can be recovered, there won’t be any interest for the local freight forwarders to handle such consolidated LCL containers, and this will directly affect both the small/large scale traders/manufacturers who depend on importing of loose cargo or less than container loads. In the same manner, the exporters who ship under FOB terms too (where the buyer pays the freight) will get affected since no collection can be made by the consolidator to recover their consolidation cost.       Favourable freight terms In the case of FCLs, the reason why an exporter choose a freight forwarder to handle their freight at port of origin could be the favourable freight terms they are offered by the freight forwarder as against that of a shipping line, or for additional/value added services offered by the freight forwarder, including credit. As in the case of LCL, here again the freight forwarder is involved in the whole process from origin to destination, coordinating with the corresponding freight forwarder at load port, follow up for documents, prepare accurately and report manifests to relevant points at Customs and SLPA within specified time line to avoid penalties. This service is provided for a fee of US$ 30 per shipment (Delivery Order Fee), which is levied to the consignee, irrespective of the size of the shipment. If this collection is not recoverable the freight forwarder will lose their interest in handling CIF FCL containers, and the traders will have to deal directly with the shipping lines, and as a result, the trader will lose the personalised service they enjoyed through the freight forwarder. There is no doubt we need to safeguard exports, exporters and the import traders. The logistics/freight industry too will progress only if the traders do well.       Better option to  counter overcharging SLFFA feels there is a better option to counter the overcharging issue in the trade. The Director General of Merchant Shipping (DMS) is the licensing authority for both shipping agents and freight forwarders. He could introduce guidelines on the local charges that are allowed, after holding discussions with the relevant industry stake holders and justifying the same. He needs to be empowered and armed with more staff to police the industry, and to take appropriate action against the culprits who goes beyond his guidelines. SLFFA in fact had a few discussions with the DMS on these lines, and was in the process of preparing a paper for study by the DMS, when the Government announced the removal of terminal handling and other charges. SLFFA now awaits more clarity on the said Budget statement and a discussion to address its concerns with the Ministry of Finance. (The writer is Chairman of the Sri Lanka Logistics & Freight Forwarders Association.)

Recent columns