Logistics

Plan to regulate shipping freight would be ‘counter-productive’, says industry body

P Manoj Mumbai | Updated on December 02, 2020 Published on December 02, 2020

Cites potential revenue loss to exchequer and competitive disadvantage for India to argue for scrapping the plan

Shipping freight rates should be excluded from the purview of the new Merchant Shipping Bill, a lobby group for global container shipping lines have said, while arguing that enforcing the rule after it is passed by Parliament would turn out to be “counter-productive” for India’s export-import (EXIM) trade.

“It interferes with a commercial agreement between a shipping line and its customer, which are governed by market forces,” Sunil Vaswani, Executive Director, Container Shipping Lines Association (India) or CSLA told BusinessLine.

The CSLA represents global carriers such as Maersk Line, MSC and CMA-CGM, among others.

Regulating shipping freight is a key part of the new Merchant Shipping Bill, drafted by the government to replace the existing Merchant Shipping Act. The Bill seeks to make it mandatory for service provider/shipping line to specify the all-inclusive freight on the Bill of Lading (B/L) or any other transport document. Service providers would be barred from levying any charges other than the all-inclusive freight specified on the B/L or any other transport document.

Beginning the early 1990s, the land-side costs were separated from the ocean freight costs to introduce transparency in ocean freight rates.

With the Draft Merchant Shipping Bill proposing to consolidate all these charges into an all-inclusive freight, it would “create less transparency than more”, the CSLA said.

The carriers have also highlighted the potential revenue loss to the exchequer and the “competitive disadvantage” it will bring to India’s EXIM trade to argue for dropping the plan.

GST loss

The enactment of the new law, according to the CSLA, would result in a loss to the government exchequer of about ₹3,424 crore in GST annually.

Currently, export freight out of India is not subject to GST while import freight is subject to 5 per cent GST. Other local charges for terminal handling, documentation, container cleaning and repair, other miscellaneous charges, inland haulage, etc attract 18 per cent GST.

“Once all these charges get included in the all-inclusive freight, the government will stand to lose the 18 per cent GST that is currently being charged on these items,” Vaswani said.

Trade impact

“Indian exporters and importers will have a competitive disadvantage due to individual confidential contracts with the shipping lines being made public which could be visible to their competitors since the B/L/documents pass through multiple agencies. This will give an opportunity to competition both within India and even in other countries who compete with Indian suppliers, such as China, South Korea and South East Asian countries,” Vaswani stated.

About 40 per cent of exports and 80 per cent of imports would thus be affected. “These businesses could then be lost to other countries,” CSLA argued.

Consolidation of freight and other charges into a single all-inclusive freight would also result in non-compliance with international commercial (INCO) terms and be “prejudicial against the shipping lines by barring them from charging for value-added services”, according to carriers.

Besides, not all charges are known at the time of the release of the B/L. There are several incidental charges which are only applicable subject to the happening of an incident, for instance, container detention charges, container repair charges, etc.

“How would it be possible for the line to ascertain these beforehand and include them in the all-inclusive freight on the B/L?” the CSLA asked.

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Published on December 02, 2020
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