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He has also re-established market forces to stop non-disclosure of profits, avoiding duties and taxes payable to the State by preventing the breakage of freight and introducing domestic surcharges which are not manifested as inward/outward freight in most cases. One would know that Sri Lankan law only provides freight to be remitted out excluding bunker (BAF) and Currency Adjustment Factor (CAF).
Corrupt practice
I have had the privilege of working for reputed shipping agencies before I moved to the manufacturing and the export industry. Such corrupt practices were not followed when shipping lines, its agents and forwarders were working on all-inclusive rates back then. However, with the free market concept and the lack of national guidelines in the liner shipping import and export trade, many agents and subsequently freight forwarders commenced using ‘THC’ and other non-manifested costs to compensate for the lower freight rates that were brought on by market foresees.
Such illegal charges collected from importers and exporters were never declared to principles or manifested, hence it became a goldmine to set up forwarding agencies and service providers, as the charges collected outweighed the freight that was prevailing in the market, which was pocketed out by a few who controlled the liner and freight forwarding industry while our importers and exporters were struggling to compete in international markets.
Misleading the authorities
The Sri Lanka Ports Authority works on published tariffs and with volume rebate available with each liner and bill on full service for a ship and not on piecemeal basis. There is no tariff item in the Sri Lanka Ports Authority as ‘THC’ since containerisation was introduced. They have stevedoring cost to the ship, which is part of the operation in freight movement from point of acceptance to point of delivery as stipulated by the bill of lading as any professional would and should know; this in Colombo is known as ‘liner in liner out charge’ for containerised cargo.
Misleading the authorities for many years, the flood gates were opened in mid 1990s to show that ‘THC’ was a statutory charge of the SLPA, and questioned the shippers why they were requesting the abolishment of THC.
If one tries to dig into this reality, you would see that there is no receipt issued by SLPA under its tariff itemised for US$ 148 as a statutory full payment as THC. The payments for SLPA is carried out as explained for a full service provided for a ship, which includes navigation, stevedoring, etc. as the services used by the ship and given discounts on transhipment contracts agreed by the service provider and the terminal operator, which is usually confidential.
When Sri Lanka moved out of being a liner market to a freight forwarders market, this condition only got aggravated, as from an all-inclusive freight rates the market was turned upside down by separation of freight and other surcharges which amount to about 44 such surcharges now being quoted by various agencies and service providers for imports and exports.
Surcharge virus
The principals and ship owners must look into this carefully, as surcharges have spread like viruses, in many cases exceeding the freight rate substantially. Some forwarders have dived in and multiplied to create more and more sub agencies of the mother agencies, which are sometimes a subsidiary of the local shipping agent acting for the ship owner, with the intention of collecting surcharges not once, but many times by nominating small consignments (LCLs) through networked sub agency business.
The best example is goods that are coming from India as imports are ‘0’ freighted or ‘minus’ freighted. There are no freight charges shown on cost and freight (CFR) shipments from India in many cases. Therefore, what happens is, the Sri Lankan importer has already paid CFR price to seller in India. If it is ‘0’ or ‘minus’ rated, there will be no tax collected at the Customs Department for the freight component in Sri Lanka.
While the actual freight from India to Sri Lanka will not exceed US$ 100-200 for a 20’ container, depending on the origin, the local agent collects US$ 400-600 from the Sri Lankan importer as surcharges before releasing the delivery order.
The money collected is partly, 50%, remitted back to India including sometimes a rebate for the Indian seller under the guise of freight, for giving cargo to the forwarder (known as minus freight), which accounts for freight being collected twice, from the Sri Lankan importer.
Importers are shown a benefit as they do not pay duties on freight, but they add all surcharges and pass it on to the consumer and manufacturer who are processing for exports, the end result being that the consumer is paying more for imports and exporter losing competitiveness.
Transparency and
good ethics
The responsibility of the principals and ship owners is to establish transparency and good ethics to work with their direct clients, the exporters and the importers with an understanding, so that they could walk into a company and request for increases in freight given by the market conditions. They should initiate full freight, nothing but full freight as consolidated all inclusive prices as pronounced by the President.
Thankfully the Government has seen this, where on one side unscrupulous agents and forwarders play out the ship owners by negotiating lower freight and adding surcharges to pocket out for themselves. This unethical act is not restricted to freight only, but even storage at yards is being manipulated by some. On the other side of all this is at the cost of the importer, exporters, domestic consumer, domestic manufacturers and Government revenue.
The new requirement outlined in the Budget, while not interfering in the pricing, has called for a consolidated pricing in the interest of both the ship owner and the shipper, to eliminate anticompetitive practices as commonly known which is adopted by the agents and forwarders.
The Sri Lanka Association of Vessel Operators (SLAVO) must understand and support the Government and inform their international shipping lines and principals the real fact of the matter, as we see is a small group trying to mislead even without highlighting the Government’s incentive of reducing the tax component from 28% to 12% for shipping and shipping related services. They seem to be coming forward to protect their hidden agendas and highlight that such unethical collection of charges are actually international practices.
Most appropriate
action taken
The President and the Government have been very quick and smart to identify this malpractice and have taken the most appropriate action to regularise a system that would really help all parties in the business, the exporter, liner industry and the buyers. He has spotted that Sri Lankan macroeconomic fundamentals and best practices in shipping cannot be left to a handful of agents and sub agents to hold the importer and exporter of Sri Lanka to ransom in order to profit by manipulating the market.
As a person who has been on both sides of the industry, I salute the right judgment of the President and the endurance of a few honest people and associations who sought justice for a number of decades on behalf of shippers and consumers of Mother Lanka.
(The writer is the Vice Chairman of the Sri Lanka Shippers Council and a member of the JAAF Logistics Committee.)
