Reforms in shipping economy will bring in transparency and accountability to shipping lines and serv
Tuesday, 17 December 2013 00:01
Will bring in clarity to lines invoicing and increase profits
Unethical parties will be exposed
Exporters will be competitive and consumers will benefit
Will provide greater strength for a shipping hub as a transparent location to do business
A recent article that appeared in the news seems to confuse the public and tries justifying a non-market driven policy and an unethical practice. The article appeared on Monday 2 December 2013 in the Daily FT under the heading “Shipping lines raise concern over 2014 budget move on THC, say set back on hub aspiration”.
I wish to respond to the unnamed author or the shipping line who wrote the article as it attempts to distort public opinion by manipulating real facts by bringing in 18th century principles to justify a mechanism that was used to siphon exporter/importer dollars by a few who manipulated the market.
I am a past chairman who served the Sri Lanka Shippers’ Council and was a member of many committees including the mediation committee appointed for the second time by the then Secretary of the Ministry Thosapala Hewage to bring in a resolution to THC and surcharges, but which failed due to the stubbornness of the members that represented the shipping lines to come up with a transparent solution.
It is more than clear to me that a few were benefiting from unlawful collections from the exporters and importers and did not want to part with these earnings. I believe the public of this country needs to know the truth.
One should note the following facts in response to the article:
It is the shippers (exporters/importers) that sought redress from the Supreme Court by way of a fundamental rights petition in 2007, praying for
To stay the proposed increase of THC to $ 155 from $ 115 for TEU.
Requesting for a proper legal authority to look into matters which are considered anti-competitive in the shipping industry.
The service providers requested the Supreme Court to not to allow leave to proceed, citing that shipping lines would not call at Colombo.
The then Chief Justice Sarath N. Silva was of the view that exporters would not come before the highest court in the country wasting their time if there was no grievance. It was also noted that the country did not have a proper modern legal environment to resolve such disputes. Accordingly he appointed the Director of Merchant Shipping to chair a committee comprising of a representative each from the shippers and shipping lines to resolve the matter. The case was kept open until a solution was reached.
The mediation committee failed to address the grievances of exporters, as a unilateral and an unethical mechanism was used secretly by an interested party to manipulate a document without consulting the petitioners themselves but used one person from petitioners to sign a document in their favour secretly.
The so called agreed document does not even have a witness signed from either party (petitioner and the respondent).
Realising this one-sided attempt to legitimise a grievance, the then secretary to the Ministry of Ports Thosapala Hewage re-appointed a new mediation committee, but due to various reasons unknown to us after three or four meetings the respondents who were supposed to bring solutions never made an attempt to do so.
The article says that the Supreme Court has given a decision legalising THC from 1 July 2008, which is a false statement.
The laws can be only created by Parliament, the supreme body of the people, and it is the interpretation of such laws under the constitution the Supreme Court will give judgment. It is the President’s in his budget speech in 2010 who first indicated that he will bring anticompetitive laws. In the 2014 Budget, after looking into these complaints for three years he has proposed a new set of legislation to bring in accountability and transparency and an authority with powers to eliminate anticompetitive practices.
With respect to freight, a party paying a freight contract is not concerned on the internal workings of a shipping line or a freight forwarder, irrespective of the cost occurring at the CFS, port terminal, in the harbour basin area, on the voyage, or at a transhipment port. The cost occurring to the shipping line at hinterland, alongside ship/yard, on the ship should be a part of the all-inclusive freight rate which will be driven by market forces.
It is an absolute myth, that land-based costs occurred by the line, should be separated out. The best example lies in transhipment ports including Colombo. When an Indian shipper uses Colombo port as a transhipment port to ship goods to UK, $ 37 (per TEU) is the land-based cost in Colombo, it can be even less on confidential volume contracts. Similarly, a Sri Lankan shipper exporting to Melbourne via Singapore is also faced with a land-based cost when goods are transhipped in Singapore (port handling costs). The freight rate in such shipments always includes the land based operation cost in the transhipment port. The question arises if the land based costs in transhipment ports can included in the freight how can one justify that origin land based cost of an importer/exporter cannot be included in the all-inclusive freight. The myth is busted here itself.
The author also tries to bring in 18th century ship operation methods by trying to bring in the ships’ hook era, to confuse the modern container terminal operation and trying to deliberately avoid liability and responsibility by confusing the reader about the CY and the terminal where even the Paris-based International Chamber of Commerce (ICC) has highlighted this new development in container operations.
The Sri Lankan Government adapted, Hague & Hague Visby Rules on top of the common law, in the best interest of the country and its public. In short, a precedence of a disputed case on the liability of the shipping line is available to the pundits to their own research and to know the international interpretation of such a case, especially in a liner in/liner out port, where cargo loading, unloading and stacking is the responsibility of the ship. For this reason the port of Colombo bills the ship for navigation and cargo handling (stevedoring). That is why it is not charged to the shippers’ wharfage as a statutory charge as the shipper is not responsible to do so when containerised cargo is used in the customary manner in a port as guided by the International Chamber of Commerce in Paris.
THC was the beginning of the manipulation of freight rates in 1997 in Sri Lanka for exports. Now THC and surcharges have become the staple food of freight forwarders. In my opinion the very same attempt by lines to increase revenue has boomeranged on them as many freight forwarders and local agents in Sri Lanka and in Asia have joined the wagon to distort the market-driven freight rate fully. Now the lines themselves are losing the freight revenue, exporters and importers are losing competitiveness and governments are losing foreign exchange and revenue all to satisfy few. It should also be remembered in 1997 this unfair charge was introduced as a Freight Surcharge (FSC) and when shippers stated that any freight surcharge should be paid by the person paying the freight which should be included in an all-inclusive rate, the terminology was then changed to THC by the circular no 35/97 of 21 April 1997 issued by Ceylon Association for Ships Agents (CASA), which also stated that the amount of THC would be the same as FSC. If this was done in Europe they would have paid dearly for such arbitrary acts by the EU competition laws. Subsequently the Fair Trading Commission of Sri Lanka on 30 March 1998 gave a ruling in favour of shippers sighting that so called THC should be a part of freight, but due to lack of authority (now being created by the President) this ruling too could not be implemented and lines kept on increasing the so called THC charge of exporters without any consolation either with shippers or even notifying the Government.
The author has said that other countries have destination THCs. The best example is the United States as recently pointed out by other articles. Almost all major lines have delivery costs called Delivery Duty Charges (DDC) in US dollars that is included in the freight and shown as a zero rated cost in service contracts and shown in as all inclusive freight services. Any shipper can negotiate all inclusive rates if you are shipping to the US. This again neutralises the argument that land-based costs should be separated when delivery is taken on the basis from point A to B including in multi modal transport services.
Finally, the author himself has accepted that any charge could be included in the freight and the market will set the correct price. He indeed unknowingly has spoken the correct thing on behalf of us.
Ironically the very same persons who talk of a consultative process had failed for sixteen years to consult and have a dialog with shippers (their clients) or for that matter the Government when unilateral charges/surcharges were imposed at their will under protest from the trade. Whilst hiding behind a free market banner and a so called international practice and rejecting regulatory and competition laws they did succeed to hide the facts for a long time. They must be now reminded that wrong practices done internationally cannot be tolerated when a nation identifies its faults, which is why globally national laws takes precedence in the contexts of a situation.
I salute the vision and the courage of the President and the officials of the Government for not getting confused anymore on false and unethical propaganda, and for taking the corrective action. It is a small number of individuals and companies who have benefited from this fraudulent market manipulation.
The Government has brought in infrastructure reforms, huge tax benefits for the shipping lines and service providers along with an accountable, transparent pricing mechanism to strengthen the market economy. These are the essence of a good hub port.
Thirty years of war has deprived us of many things including a legal environment that need to suit the 21st century maritime economy. Sadly the author has missed all this, as they attempt to protect their territory and illegal revenues.
Sri Lanka now has all what it needs to be an efficient, transparent hub, not what the author tries to portray to scare government policy.
(The writer is a past chairman of the Sri Lanka Shippers’ Council (SLSC), Association of Shippers’ Councils of Bangladesh, India, Pakistan & Sri Lanka (ASCOBIPS), and an advisor to the Asian Shippers’ Council)