Regulation Shipping

Published on March 23rd, 2017


DG Shipping Probing Cartelization Charges Against VSAs Among Box Carriers

The Directorate General of Shipping or DGS, India’s maritime administration, has deferred a recommendation to the government on renewing exemption granted to Vessel Sharing Agreements (VSAs) among global container lines from the country’s anti-trust law by another year, the fourth such renewal since 2013, till it concludes a probe into the effect of such pacts on freight rates including cartelization amidst complaints from shippers’ groups.

The delay in renewing the annual exemption – which was due from 1 March – has irked container lines no end.

VSAs allow carriers to share space on each other’s vessels, consolidate duplicative services and share port terminals to improve productivity and lower costs. These agreements are operational only; member lines market services under their own brands, competing on price, reliability, specialized services, equipment and commodity expertise using VSAs to scale their overall operations to market demand.

“VSA’s were given exemption under India’s Competition Act for three years in a row now. But, this year, the director general of shipping said she is not going to give the proposal for renewal. It was to be renewed from 1 March. She’s refused to recommend a renewal saying the carriers are charging very high rates”, said an executive with a global container line based in Europe.

Malini Shankar, the director general of shipping, assumed office on 19 December last year.

About 90% of container services operating into and out of India are working on vessel sharing agreements amongst carriers, according to the Container Shipping Lines Association (CSLA), an industry lobby group.

The Competition Commission of India (CCI) will sign off on the exemption only on the recommendation of the DG Shipping.

“Only when DG Shipping recommends, will the proposal go to the CCI for renewal. CCI has no objections. Oversight of the VSAs is being done by the DG Shipping. We are filing our returns with the Indian Register of Shipping (IRS) who reports to DG Shipping on the matter. As far as we know, there are no complaints regarding the working of VSAs. The DG Shipping is still saying ‘no, no there is cartelization because your charges are too high’. The DG Shipping is now talking of what is high and what is low. it’s a perception not based on facts. That’s also a clear case of the regulator, which has no statutory mandate on rates, entering into business decisions by usurping into our domain,” the executive mentioned earlier, said.

The Directorate General of Shipping confirmed that extending the exemption given to VSAs by another year was yet to be decided.

“Initially, we wanted to defer the decision to extend the exemption. Later, we decided to recommend that it should be extended for an interim period of three months”, a DG Shipping official said.

“We are conducting some enquiries and investigations. We are investigating whether there is any effect on rates due to VSAs, any kind of cartelisation, whether it is really beneficial or whether there is some kind of price rigging. If it has benefitted Indian shippers and EXIM trade, we have to establish it. There are numerous complaints from the shippers’ groups against the shipping lines that they are charging very high rates. The ultimate beneficiary of VSAs is the shippers and if the shippers are not happy, then there is no meaning in granting an extension,” the DG Shipping official added.

This is the second run in between the carriers and India’s maritime administration in the past few months.

In September 2016, the DG Shipping issued an advisory asking carriers and their agents to stop collecting some 25 different extra charges levied on top of the base freight rates on ocean shipments as part of a broader plan to cut logistics costs and ensure transparency in the transaction costs of India’s EXIM trade. CSLA, the carriers lobby, though, said it had not agreed to drop six of the 25 key charges including IHC and THC, as claimed by the DG Shipping.

THC is paid by the lines to the terminals where they call for loading and unloading cargo. The lines recover the THC from the shippers/trade (exporters and importers).

After consulting the stakeholders in the wake of objections raised by the lines, the DG Shipping issued a clarificatory advisory which again failed to resolve the issue.

“ln case of Direct Port Delivery (DPD) contracts, importers shall pay Inland Haulage Charges or IHC directly to the rail operator or port operators as the case may be and in such cases, shipping lines shall not levy lHC,” Vatsalya Saxena, deputy director general of shipping wrote in the clarificatory advisory.

“ln case of Direct Port Delivery (DPD) contracts, importers shall pay (Terminal Handling Charges or THC) directly to the port operators and in such cases, shipping lines shall not levy lHC (wrongly written instead of THC),” Saxena wrote in the 26 December advisory.

DPD essentially means import containers are delivered directly to pre-approved clients at the port itself instead of waiting in a CFS located outside for clearance, which reduces cargo dwell times and cost for shippers.

In most countries, importers take delivery of the containers at the container yard itself after paying customs duty. But in India, due to customs procedures and space constraints at ports, customs clearance happens at CFS which are off-dock customs-bonded facilities licensed by the Customs and located in the vicinity of ports.

“If importers/shippers take delivery of the boxes at the port itself, the question of lines collecting IHC from importers/shippers does not arise. However, if the shippers/importers take delivery of the boxes at the inland container depots (ICDs), the lines would be left with no choice but to collect the IHC because they incur costs in hauling the boxes to the ICD which has to be recovered from the shippers/importers”, the carrier executive stated.

But, the THC has to be levied, for both exports and imports, whether DPD or non-DPD.

“Irrespective of whether it is exports or imports and whether DPD or not, the THC that lines pay to the terminal operators has to be recovered from the trade/shippers/importers,” the executive said.

ShareFacebooktwitterlinkedin  FollowFacebooktwitterlinkedin

About the Author

Comments are closed.

Back to Top ↑