A budget proposal by Sri Lanka to ban container shipping lines from collecting terminal handling charges (THC) from customers is bound to have reverberations across the waters in India, where a similar trade practice has been a contentious issue between the lines and the shippers (exporters and importers) for many years.

"In order to prevent monopoly pricing in the shipping trade, no shipping line will be permitted to levy terminal handling and other charges in addition to freight and specified international charges for container cargo. Relevant prohibition will be made effective through amendments to the Finance Act, effective from January 2014," Mahinda Rajapaksa, President and finance minister of Sri Lanka, told the Sri Lankan Parliament in his 21 November budget speech.

Every year, about two million standard cargo containers are shipped into and out of India via the Colombo port, considered a trans-shipment hub in the region.

Expectedly, shippers in India have hailed the plan unveiled by the island nation to outlaw THC by reining in carriers, saying that at least one government in the Indian subcontinent has emboldened itself to introduce shipper-centric reforms.

In the late 1990s, the tariff regulator for the ports owned by the Indian government had tried to regulate THCs charged by the container carriers from customers. But the attempt had to be abandoned after the lines went to court and secured a stay against the regulator's move.
Sri Lanka's decision has nudged Indian shippers to renew demands on regulating the controversial charge collected by the shipping lines from the trade.

THC is a charge levied by the port and other service providers from the shipping lines, who, in turn, recover it from their customers.

While the THC levied by the Indian government-owned ports from the shipping lines are a notified tariff item regulated by the Tariff Authority for Major Ports, or TAMP, THC recovered by the shipping lines from the customers is not regulated by any agency. TAMP does not have powers to regulate THC collected by the shipping lines from their customers
THC is supposed to be a reimbursement of the actual amount paid by the shipping lines to the ports, terminals and other service providers. But in actual practice that is not the case, according to shippers.

Shippers say that THC is a substantial amount and sometimes exceeds 70-80% of the ocean freight. There is a big difference between what they are paying to the ports and what they are recovering from customers as THC.

Besides, exporters claim that the shipping lines are resorting to a so-called double-dipping by using THC to pass on the trade risk to the shippers.

Typically, the money paid by the shipping lines to the ports is a part of their operating costs and is factored in the freight rates.

Ocean freight includes cost of loading cargo containers onto ships and unloading containers from ships. Despite this, the expenses incurred for loading and unloading containers are recovered from shippers separately as THC, leading to double-dipping by the lines.

Exporters argue that the exorbitant THC charged by the lines contributes to high transaction costs, making India's exports uncompetitive in the global market.

THC is increased arbitrarily, often without consulting the exporters. The shipping lines have been hiking THC without disclosing the actual expenses incurred by them for the amount recovered. Overseas customers don't pay these charges as they are incurred within the country of export. Shippers have consistently favoured an all-inclusive cost without any of the extra charges and have sought government intervention to prohibit lines from collecting THC in India.

Sometime in 2007-08, India's shipping ministry drafted a legislation to introduce much-needed transparency in the functioning of various service providers in the maritime transport logistics chain dealing mainly with containerized cargo.

The shipping trade practices Bill sought to make it mandatory for service providers such as container carriers, forwarding agents, freight forwarders, cargo consolidators and other multi-modal transport operators providing warehousing services including container freight stations, inland container depots and services relating to stuffing and de-stuffing of cargo containers, to be registered in India to be able to do business.

These service providers would also be required to publish their rates, including the break-up of the various components of THC charged by the lines, and display it on their premises or on their website ahead of accepting shipments from customers. Such rates are now set by the service providers themselves, which India's exporters and importers say are arbitrary.

Container shipping lines are opposed to regulating THC and have refuted charges made by shippers that they were over-charging customers by recovering a higher THC than what they were paying to the port and terminals.

The draft Bill is gathering dust in the shipping ministry.

Rajapaksa looked at anti-competitive practices pragmatically without intervening in pricing (shipping rates are not regulated globally) but proposed a mechanism to ensure fair trading practices from which all stake-holders of the supply chain and consumers in particular would benefit. The reforms proposed in the Sri Lankan budget will ensure transparency and eliminate unethical and unfair trade practices followed by service providers in the container shipping trade.

India can take a cue from Lanka's decision.