Govt looks at checking shipping cartelisation

Provision will be part of the proposed Shipping Trade Practices Act

The government plans to put in place a mechanism for regulating the restrictive trade practices in the shipping sector, especially the ones which impact containerised trade. The enabling provision for the mechanism would be part of the proposed Shipping Trade Practices Act.

The Ministry of Shipping that has drafted the Bill has circulated a Cabinet note for comments of other ministries.

Shipping Secretary K Mohandas told Business Standard that the enabling section had been added to the draft following consultations with the stake holders. “A final decision is yet to be taken. Since the shipping industry is recovering from the downturn, we do not want to put restrictions on them,” he said.

Shipping professionals agree that there is an element of cartelisation in the industry. Shipping lines operate in consortia and share vessels which restricts competition putting cargo movers at a disadvantage. It occurs when shipping companies come together based on the assessment of demand and tariffs. Accordingly, the slot space is reduced on the vessel.

“An invisible scarcity in the availability of the space is created which pushes the price northwards gradually,” said Piyush Sinha, executive member, Federation of Freight Forwarders Association of India. A freight forwarder acts as a middle man between the exporter and the shipping line acting like an agent. He buys space on the ship in bulk at a lower price and keeps a certain margin on the price he offers to the exporter.

Though there will be an enabling provision in the Bill, the government will spell out the specific regulations later. The Bill, after coming into force, will require all service providers to make their tariff public. Before a container is exported, a terminal handling charge is levied on it which varies from terminal to terminal. If the cargo is being moved by road then an inland haulage charge is levied. There is also a custom home agent charge.

The freight forwarder charges the bill of lading (B/L) to the exporter. It is the official document prepared by the carrier duly accepting the goods for shipment containing information like item, quantity, value, vessel details, date, port, consigner, consignee etc. In case the exporter wants to pay after goods are offloaded, the freight forwarder is paid for transportation and documentation as well.

Containerised cargo, at about 6.89 million twenty equivalent units (TEUs), roughly constitutes 18 per cent of the total cargo handled at the major ports in India. “The shippers face multiplicity of charges and there is no fixed rule. The bill is one step forward in putting some system in place to the way the tariffs function in containerised trade,” said R S Deora, president, Federation of Indian Exporters.

The Bill requires all maritime transportation logistics service providers to register themselves with the competent authority along with a bank guarantee of at least Rs 10 lakh and insurance cover renewable every year.

The total container traffic handled in 2009-10 was 6.89 million TEUs.