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Thursday Nov 07, 2024
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The Joint Apparel Association (JAAF) yesterday issued the following statement in response to multiple false information published in its statement published in the Daily FT on 10 April 2023 titled “Ceylon Freight and Logistics Association hails Govt. for new Gazette.”
The Joint Apparel Association Forum the largest industrial export sector strongly rejects the claims made by a group of consolidators on revoking the competition Gazette no. 2041/10/2017 by another gazette by the Hon. Minister of Ports, Shipping an Aviation without any detailed analysis or consulting the office of the President, which initiated the same in 2013 via the Finance Ministry as a national budget proposal. The JAAF is of the opinion that the statement released by the service providers who heavily depend on the derived demand created by the apparel industry and other exporters along with the importers of Sri Lanka is clearly making false claims to mislead and earn extra revenue by unbundling freight once again.
The beginning of the CEYFFA statement says that the hub status of the Port of Colombo is being seriously challenged with the regulations introduced in 2013. The false statement starts with this blatant and inaccurate information, we would like to respond to it with statistics from SLPA for the readers to understand the mischievous effort to distort facts saying port was losing because of the regulation of 2013. Colombo Port since 2013 has been ranked from the world’s 30th position to 22nd position by year 2018. All the major shipping lines continue to call Colombo using it as the regional transshipment hub and had increased ship calls until the pandemic hit which resulted in new supply chain developments including capacity constraints in Colombo due to ECT not being ready on time.
In fact, 2018 Colombo was recorded as the fastest growing port in the world by reputed Alpha liner rankings, which we are happy to provide a link to the readers https://www.porttechnology.org/news/colombo_ranked_fastest_growing_port_worldwide/. Sri Lanka’s Logistics Performance (earlier perception) Index of the World Bank since 2010 has jumped positively to the 94th position by 2018 from 137 in 2010. This makes it clear the facts are being distorted for self-interest saying hub status lost because of the competition gazette.
JAAF would further clarify that subsequently many articles pointed out that Colombo’s biggest challenge to growth was the capacity restrictions on deep draught terminals. Shipping lines such as Maersk and MSC, the world’s number one and two container carriers wrote to late Minister Mangala Samaraweera in 2017 that the biggest impediment for growth was that shipping was not fully liberalized in Sri Lanka and had an ownership cap of 40% of their key business segment of freight management and collection as the business owners’ interest. (JAAF has letters of proof and some of them were published in newspapers by the shipping giants themselves).
The second misleading statement is to say that there was no dialogue held on this matter. This is a false statement once again, since 1997, President Chandrika Kumaratunga onwards, had over fifty meetings and consultations which were held with different ministers and authorities before the Finance Ministry took action in 2013. Current JCT Chairman Ranjith Maligaspe who was the then President’s Secretary will confirm that the first meetings were held as far back as from 1997. The agents not only dismissed his or then Finance Secretary’s request for the freight to be all inclusive as the fair-trading commission had done an investigation and given a recommendation to the Government to bring in all-inclusive rates that were there up to March 1997. The agents not only disregarded but kept on threatening the Government that ships will not come if anti-competition regulation were introduced and kept on adding new surcharges on top of freight and ended up with over 30 line items added to none contracting parties, by 2013 and held them to ransom by not releasing documents without payment of surcharges. The irony is ship arrivals too increased in Colombo post 2013 as the capacity was enhanced with CICT coming into operations, the numbers are available to anyone via SLPA or Central Bank statistics, and it is only now we see a reduction of ship arrivals due to capacity constraints.
Falsehood number three
The Gazette 2041/10/2017 has never been challenged in courts even once. In fact, Minister Mahinda Samarasinghe as the then Minister of Shipping was instrumental in strengthening the original Gazette issued by President Mahinda Rajapaksa but has also gone on record on saying at the CASA AGM held in 2017/2018 that he will not revoke the same at any cost. Subsequently Finance Minister Ravi Karunanayake was approached by the agents, and he dismissed the request to break up freight once again and proved that the agents were trying to make extra revenue through surcharges. The number of meetings agents had with every minister to revoke this competition law failed up until the current minister took office. For CEYFFA to take a position that there was no dialog nor consultation is totally false.
Misleading statement of the recent Supreme Court judgment by CEYFFA (Regulations vs tariff implementation)
It is shocking to see the interpretation of CEYFFA of the recent judgment of the Supreme Court, determination No SC. (SD) No. 1/2023to SC(SD) No. 5/2023 on a case filed by the JAAF and the export community citing violation of the constitution. The judgment has been twisted by these consolidators by giving a wrong interpretation as it was not a judgment against the Gazette 2041/10/17 but on a provision to amend the 1972 Shipping Act. The exporters went to SC on a subsequent new gazette 2302/24 of October 2022 published by the Hon Minister where the Minister tried to take powers by amending the act for him to introduce new tariffs on behalf of the service providers. The intention was to get powers to the minister to introduce new tariffs between service providers and service users. The 1972 Shipping Act does not allow such intervention as late minister Mr. P.B J Kalugalle knew the consequences of it. The Act only allows the minister to bring in “regulations” such as the gazette 2041/10/ 2017. The SC determined that the only way he could have done the new gazette, was by amending the 1972 Act with a 2/3 majority in parliament and that was the judgment given by the Supreme Court which was read out in parliament. Anyone with common sense would realise the misleading statement given by CEYFFA to manipulate the truth. The judgment made it clear the new gazette 2302/24 of October 2022 was illegal and with it the so-called tariffs between shipping agents and ship owners too (known as CASA tariffs) set by the minister is now illegal, where the minister does not have such powers under the Act. (A similar judgment was made in 2008/2009 when shipping lines took the container yard operators who were trying to fix a tariff through the minister and that judgment too is available too, and now shipping lines have no obligation towards the so-called CASA tariff published in 2017 after the SC determination this year.
Misinformation on INCOTERMS
The INCOTERMS, better known as the International Commercial Terms, are now taken also to justify the breakup of freight by CEYFFA. This too is a blatant effort to mis-inform President Wickremasinghe and the Government by false claims with respect to INCOTERMS. In fact, prior to this regulation the then Government (the treasury department) wanted clarification from the International Chamber of Commerce (ICC) in Paris to see if the new regulations of 2013 were in line with the ICC best practices before it was gazetted. Emily O’Connor, the Secretary General of the ICC Paris (former legal assistant to Condoleezza Rice- former US Secretary to the State Department) flew into Colombo to discuss the new regulations in 2012 and 2016. What did she say? We quote “it is indeed in line with the best practices of the ICC new rules for containerised cargo which encompasses FCA and CPT/CIP terms which we have recommended for container cargo!” JAAF requests interested parties to read them in the latest books since 2010 on ICC publications. We ask what more false propaganda these agents can publish to mislead policy makers.
Simply if one refers on to the book of INCOTERMS it says terms such as FOB and CFR/CIF should not be used in containerized cargo as conveniently service providers and buyers/sellers use them simply to pass the risk, liability, and costs to a non-contracting party in containerised cargo supply chain movements. As a result, the ICC recommendation is FCA or CPT or CIP which is 100% aligned to the regulation brought by the Government of Sri Lanka in 2013. In fact, ICC further strengthened Sri Lanka’s legal position in the next edition which they published in 2015 ” INCOTERMS Plus Transport” book for the use of transport companies instead of buyers and sellers itself where these new explanations are given. Emily O’Connor was also a guest speaker at the Colombo International Maritime Conference 2016 where she extensively spoke on the regulations itself and INCOTERMS, where President Ranil Wickremasinghe attended as chief guest as the then Prime Minister.
The next big faulty statement
There is a continuous lie that has been propagated that the gazette number 2041/17/10 prohibits the charging of Port Handling cost (PHC). Agents name it THC whereas ICC names it as Transport Handling Cost. It was always charged and collected by terminal operators from the party paying to the port for services rendered for ship handling (stevedoring) and in this case the shipowner is billed via the agent. The ship owner can collect all these operational costs via the all-inclusive freight rate and that is what happened all these years so that nobody can manipulate these charges as they wish and as a result market driven competitive freight was quoted to the contracting party. If the sellers to Sri Lanka (to our importers) negotiate the rate they pay full freight at origin to the delivery point which includes the Port Handling Cost and if the local importer negotiates, they pay the same via all-inclusive freight. These service providers may have forgotten how they tried to cheat the industry by initially calling this additional cost as FSC (Freight Surcharge Colombo) in 1997 and when the apparel exporters and the Shippers’ Council pointed to them to collect it from buyers who were paying freight, they changed the term name from FSC to THC and forced exporters to pay it and collected locally for freight contracts done in other countries. The JAAF has the history and circulars issued by the agents to prove all what we state. Subsequently the fair-trading commission which acted in the interest of the consumer also gave a judgment that freight should be all inclusive, which the agents did not adhere to.
Another myth
We wish to correct another faulty statement where, we the importers and the exporters don’t pay any terminal handling fees directly to port for loading or unloading, it is the ship owner who pays, as per the liner term of the Institute of Chartered Shipbrokers. Shippers pay full freight if it is negotiated in Colombo and sellers pay the full payment if it is negotiated at the origin of export to delivery point in Colombo port container yard (CY) which is categorized as a liner port. The same applies with exports where all apparel buyers who pay the freight pay the port charges as part of full freight to the shipping lines and other transport handling costs to their nominated forwarder from a nominated pickup point. It is regrettable to note that these agents are trying to fool even the Central Bank authorities by trying to paint a wrong picture for them as well. However, we are happy to note that the Central Bank has defined freight as follows way back in 1996 for banking purposes. We quote,
“The Shipping agency charges were regulated formally by the Central Bank and now the finance ministry for banking purposes, for which freight calculations to banks have been advised as follows. Outward and inward containers and transshipment vessels discharging or loading on liner terms.
Section 4 note 4 Calculation (1996 exchange act) of commission for freight for outward remittance of forging exchange 4.1 Regulation specified freight as below, quote:
“The definition of freight for the purpose of charging agency commission should be “ Full freight adjusted for currency adjustment factor (CAF) with no deduction other than bunker surcharges (BAF). All other surcharges should be considered as part of full freight for determining full freight.”
Today internationally bunker too is part of freight calculation and is done so by most shipping lines and revised seasonally, the gazette number 2041/17/2017 has actually no difference to the Central Bank’s ruling on defining freight in 1996 with currency as the only variant. The only difference it says is the contracting party pays full freight, therefore JAAF dismisses the attempt to mislead and link to any foreign exchange matter that is highlighted. The agents also know very well that in air freight or air transportation charges are all inclusive including Government taxes per kg or per passenger ticket while operations are the same at airport as a seaport including ground handling, documents etc., only difference being the mode of transport. Importers of essential commodities have already expressed their dissatisfaction to the minister as they know better than anybody the cost that they incur and the impact of unbundling freight against the misinformation of CEYFFA saying nothing is going to change. Already a extra $ 25 has been announced for exporters and a much larger separate surcharge for importers by the Local agent for MSC lines.
The JAAF wishes to enlighten authorities about these facts, and we do possess the relevant letters and documents as proof to what we have responded to the misleading statement. We also notice that the CEYFFA seem to know better than the Governor of the Central Bank on export proceeds as the Governor has dismissed accusations of what these agents have pointed out on export proceeds repatriation.
We request his Excellency the President to reinstate the gazette 2017/10/2017 that has been a vital enabling regulation for competitiveness of both import and export sector for close to a decade. The immediate repercussion of the withdrawal has been in the increase of additional charges on imports which will directly impact on the cost of living for all basic imported essentials when the consumers of this country are already battling very high inflation. Furthermore, the competitiveness of the export industry is threatened and at a time when the country’s economic priorities are to boost exports and we see no rationale or logic in the decision taken to withdraw the gazette.
In 2022, Sri Lanka exported a total of $13 billion helping the cash trapped country, combined with imports the contribution is well over 40% to GDP and the claim that agents make a significant contribution is again a myth as studies have shown international logistics contribution is between 2-2.5 % of GDP, which include the larger share coming from terminal operators and the freight which is costs which are borne by both exporters and importers.
JAAF has always taken a “Country First” approach and is of the opinion that policy should be determined by looking after the interests of the 21 million citizens. Policies should not be driven by the narrow view of few service providers, particularly when all they do is increase the cost of imports and make our precious exports less competitive. It is high time that the shipping and logistics sector be fully liberalised by the authorities to see the true potential of 10% of GDP contribution by reducing the impact of middlemen in the system who continue to manipulate ship owners and cargo owners to squeeze every possible dollar out of them. This will serve the interests of the county and help the country realise its potential as a maritime hub.
