Exim commerce grounded by high inland haulage costs

G. Srinivasan | Updated on March 12, 2018

Many more container terminals are needed to tap better the inland haulage space, currently dominated by foreign liners.

The country's export-import (exim) commerce has been increasingly stymied by the hefty domestic haulage costs of overseas shipping companies in the absence of a viable inland container cargo movement strategy.

According to market sources, if a foreign shipping cargo company picks up export consignments from New Delhi to, say, Mombasa, it bills the exporter the inland haulage charges from New Delhi to Mumbai, over and above the charges of ocean freight from Mumbai to Mombasa through a single, consolidated invoice.

It is the same story for consignments imported from Mombasa to any place in India's hinterland by any Indian importer for trading or for export after value addition.

The cost of services claimed by shipping companies covers placement of empty containers from empty yards to stuffing points, providing labour for all loading, carting and stuffing cargo, forklift and other equipment, movement of loaded containers from Container Freight Station (CFS) to loading port.

Taxation troubles

As the spate of services claimed by the shipping companies stems from inland haulage of exim goods, the income-tax authorities too chipped in to take away a piece of the transportation cost income.

So, when the tax liability was slapped on a Belgium-incorporated shipping company early this year, the latter contested it in the Income-Tax Appellate Tribunal (ITAT) in Mumbai in April.

Citing the India-Belgium Tax Treaty, the IATA held that unless there is a specific change in the tax treaty which keeps the income from inland transportation in connection with international traffic outside the purview of Article 8 of the Tax Treaty, inland haulage charges would be deemed directly connected with operation of ship in international traffic. This meant the foreign shipping company's inland transportation income is not taxable in India.

Thus freed from any tax onus on income arising out of inland haulage of cargo to the hinterland, the shipping lines, according to sources, have used this tack to impose opportunity and repositioning cost of a container used (based either on container rental/hire or international freight cost) on the inland transportation cost.

These charges, no doubt, signify a profit margin of 56-78 per cent in the export cargo, while in the case of import cargo the profit margin is unduly large, even up to 100 per cent, for the foreign liners. Exporters argue that instead of using a foreign shipping line container, domestic containers can be used till the CFS close to sea-port, and the goods meant for export could then be loaded into the container of the foreign shipping line.

This way the cost of inland haulage would be considerably minimised as the re-positioning cost of containers of the shipping lines can be saved.

It is also reckoned that if rail transport is used for 30 per cent of exim containers and if the domestic containers of Concor are used to replace shipping line containers from abroad, it could fulfil 48 per cent of inland haulage of exim cargo.

Rail transport

But for this to happen, the CFS and Container Train Operators would have to invest massively in building domestic containers to meet demand. This way, the growth of the domestic container business would be assured, generating adequate income which, in turn, would justify tax authorities taking a chunk of the tax proceeds at a time when overseas shipping lines take the entire cake.

Asked about the inordinate transaction costs to trade and industry due to foreign liners straddling the inland haulage space, the Commerce Secretary, Dr Rahul Khullar, conceded that the charges levied by the shipping lines are “huge”. Such measures as moving towards developing a port like Cargo Transhipment Terminal at Vallarpadam, where a mother-ship berths, offloads and goes away, would help, he said, adding that these containers are not necessarily destined for Vallarpadam as they are put back in ships to different ports within the country. He said that “if the county develops this model, where there are two or three top quality places to ensure turnaround time for containers is much faster, that is the way to do it”.

Analysts too contend that a growing economy and intense exim trade have together exacted heavy pressures on the country's limited container terminals at existing ports which need a thorough facelift and augmented domestic capacity creation at the earliest.

Published on October 23, 2011

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