The Hindu Business Line : Shippers pitch for better liner regulation

One of the most critical issues facing the international liner shipping today is whether it will continue to operate in a situation that permits prices and surcharges to be collectively and unilaterally set by shipping lines organised into cartels known as conferences or, in the alternative, will it be determined by free interplay of market forces, preferably on one-to-one basis between the individual ocean carrier and its customers.

The Tripartite Shippers' Group (TSG), representing shippers from major trading nations, firmly believes that the current system allowing carriers unfettered freedom to dictate services, capacity and freight should be immediately abandoned in favour of a new arrangement that values efficiency through competition and encourages customer-friendly relationship.

Leave it to market

Despite European Liner Affairs Association's (ELAA) several attempts to preserve the vestige of price fixing through proposals for the establishment of information exchanges on carrier costs, volumes and market shares, it is felt that the market is the better judge to decide how commercial relationships happen.

The rationale of the ELAA proposals is best understood if one examines the recent announcement by its Asian counterpart, the Asian Shipowners' Forum. The Forum is calling for the retention of the anti-trust immunity as a means of protecting the welfare of its members rather than that of the customers they serve.

Fortunately, the European Commission, it appears, recognises the changes in global supply chains and supply chain management system requiring dismantling of the protectionist regulations of the past. TSG, therefore, has congratulated the EC for its stand and ability not to be misled into conceding demands aimed at perpetuating the old principles having no relevance in today's dynamic environment of world trade.

At a time when the Western world, led by the EU, is strongly advocating repeal of anti-trust immunity for liner conferences, the demand of Asian shipowners for its retention may appear strange.

The Asia situation

But not exactly. In Asia, the regulatory protection for shippers is largely missing and Asian shippers are victims of the onslaught of monopolistic practices of liner conferences. The Asian Shippers' Council, covering the five geographical regions of the China area, the Indian subcontinent, North-East and South-East Asia as also Oceania and representing 18 shippers' councils in these regions, therefore, not only welcomes and applauds the EU initiative but also looks to it to take a decisive role in repealing the process.

The European Shippers Council believes that those ocean carriers which demonstrate an understanding of the need for change and are able to adapt to this changing commercial and regulatory environment will have the real competitive advantage.

The Indian Scene

In December 2005, the Secretary to the Ministry of Shipping held a meeting of shipping lines, shippers and the various stakeholders to discuss a model Shipping Trade Practices Act to provide a legal framework to usher in fair trade practices and to monitor the activities of maritime transportation logistics service providers. Subsequently, the Draft Shipping Trade Practices Act was prepared and put up on the Ministry's web site inviting suggestions and comments.

Several views came to the fore. For example, according to some shipowners, the proposed Act will overlap 8-10 existing laws. But the shippers' bodies disputed this, pointing out that existing laws were sector specific and dealt largely with their operational aspects. These Acts do not cover the functional aspects such as consultation mechanism and/or grievance redress, which is the thrust area of proposed legislation.

Another issue is an alternative dispute resolution mechanism. The failure in the implementation of the recommendations of the Task Force and the orders of TAMP is an example of failure of any alternative dispute settlement mechanism.

While the government has made it clear that it has no plans to create an FMC-type (Federal Maritime Commission of the US) organisation, every attempt will be made to vest the legal mechanism with teeth, the ultimate objective being to protect trade from unscrupulous elements. As for arbitration, the government has refrained from making any provision in view of the earlier bad experience.

Other issues

Issues such as that all ancillary charges shall be mandated by the Competition Commissioner and the possibility of such levies being absorbed in the basic freight and thus becoming non-transparent too have evoked sharp reactions from various shippers' bodies.

The shippers' bodies have drawn the attention of the Shipping Ministry to several instances — in 1993, when the principals reduced the commission of the local agent who introduced documentation charges to cover their earning loss, and in 2003 when acute congestion caused mainly by unsatisfactory performance by service providers hit NSICT — where the absence of regulatory powers reduced the government to a mute spectator even as the trade was fleeced.

The examples of the recent THC (terminal handling charges) Investigation Conclusions in China as well as developments in Indonesia, where the government enforced a reduction in the THC as applicable to Indonesian ports have also been cited to drive home the urgency to put in place a proper regulatory mechanism in maritime transportation in India.

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