Government goes after 'intermediaries' to cut logistics costs for EXIM trade

Intermediaries in the supply chain are staring at a bleak future with the government drafting new rules seeking to regulate their pricing in a bid to cut logistics costs for exporters and importers.

A Standard Operating Procedure (SOP) targeting the non-vessel owning common carriers (NVOCCs), freight forwarders and consolidators is being finalised.

The SOP seeks to standardise the plethora of local charges levied by these intermediaries into 10-12 heads and to levy these charges as per cost without adding any margins/profits. The intermediaries will be allowed to earn profit only on the freight head. There is also a thinking to check intermediaries from earning margins/money even on the freight component, a government official briefed on the plan said.

To add to the woes, the government is also pushing the Association of Multimodal Transport Operators of India (AMTOI) to undertake an internal audit of all its members for the last three years and to refund the local charges collected from customers.

“That’s (refund) not going to happen,” says Shantanu Bhadkamkar, President, AMTOI. “We as an association won’t be able to do it. For the past, there is no law. So, the association can’t do anything about the past. Future, we can work on. And, unless we have the status of self-regulating organisations, we won’t be able to implement it”, he stated.

Bhadkamkar said that the answer for one extreme - somebody doing wrong - cannot be another extreme.

“There has to be a balanced view. It was a distortion that was happening and it’s happening even today - the exporter who controls the freight becomes the beneficiary. So, the exporter gets all the incentives because he controls the cargo at origin whereas at the destination, the importer ends up compensating the exporter at the origin”.

Concerns

The Indian exporters, according to Bhadkamkar, gets a negative freight today, they don’t pay freight for less than container load (LCL) shipments, but gets paid for giving cargo. And this distortion is happening not just in India, it’s happening globally, he said adding that AMTOI was in favour of removing the distortions.

“If you put people to extreme, it will only lead to chaos and litigation. Asking for three years refund is not going to happen. If they refuse, what will you do. At the most, you can drive Indian freight forwarders, consolidators and NVOCCS out of business. In the process, you help shipping lines, all foreign shipping lines, become powerful and Indian freight forwarders, consolidators and NVOCCs will perish. That is the only thing that can be achieved out of it. Today, three shipping lines and three consortia control everything, they will dominate the market and become cartels,” he asserted.

The government’s move will not reduce the logistics costs.

Cost concern

The cost will only increase because India’s exporters/importers don’t know the global freight market and won’t be able to negotiate.

Bhadkamkar said any law/new rule have to be applied prospectively and not retrospectively.

“If you try to terrorise people by asking for refund of three years money, people will fight with every ability at their disposal or they will close shop and they will not pay. Three-years refund, no matter what happens, is unimplementable,” he said.

Attempt at regulation

AMTOI reckons that the government’s attempt to regulate the intermediaries will not serve the purpose.

“Logistics costs will come down by better infrastructure, better processes and innovation. You can’t talk about free market economy and do this simultaneously. Regulations increase cost of doing business. Regulations are justified only while dealing with monopoly, oligopoly and dominant market position, not for dealing with a highly fragmented industry with thousands of players operating. In such a situation, the market takes its own level, people have a choice to select forwarders, they can go to the most suitable and the cheapest, it’s a free market economy” he said.

“We don’t agree that freight forwarders, consolidators and NVOCCs are beneficiaries. In fact, we are the victims of the situation and not perpetrators. We are not criminals, and this is a case of victims being prosecuted,” he said.

AMTOI doesn’t agree with the government’s definition of intermediaries.

“It is inconsistent with the UN Convention on Rotterdam Rules. We have objections to being called intermediaries because we have the primary contract with the customer,” Bhadkamkar added.

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