Indian terminal pricing regulations challenge carrier freight contracts

Indian terminal pricing regulations challenge carrier freight contracts

Customs officials at India’s Jawaharlal Nehru Port Trust have set Feb. 5 as the deadline for enforcement of a new procedure allowing shippers to settle terminal handling charges on direct port delivery shipments directly with terminal operators. Photo credit: Shutterstock.com.

As Indian officials increasingly target potential transparency gaps in logistics costs, terminal handling charges (THC) appear to have become a flashpoint in container line-cargo owner relationships.

The latest pounding from regulators is a check on the pricing practices followed by carriers for CY-to-CY — container yard-to-container yard — shipments. 

Officials argue while a CY-to-CY contract typically puts the onus on the carrier to meet THC costs at both ends — at the ports of loading and discharge — shippers or consignees often incur such charges on top of ocean freight, thus undermining the logistics cost efficiency. 

Officials are now gearing up to crack down on the incidence of additional THC collections. According to industry sources, a broader standard operating procedure (SOP) currently under stakeholder consultations will spell out clear guidelines to prevent carriers from collecting THC on goods contracted under a CY-to-CY mode.

While carrier officials contacted by JOC.com declined to comment on the latest regulatory move, the predominance of CY-to-CY carriage could make any charges even more controversial and leave shipper groups in a stronger negotiating position.

Many of the carrier surcharges have long been under the government review lens, following complaints from importers and exporters, but it was only after setting up a dedicated logistics wing within the Ministry of Commerce in 2018 that government-level interventions to fix such issues began seeing greater urgency.

Various shipper associations — most notably the Federation of Indian Export Organizations (FIEO) — have brought to the fore wide variances in the scale of THC applied by terminal stakeholders within a port and among various ports within a region. However, with a well-laid-out SOP in place, officials are hoping to streamline THC rates and even out the impact of cost variances for cargo owners.

Carriers could be wary of changes

Surcharges and ancillaries arguably make up a significant portion of carrier revenue earnings and, as such, it remains to be seen whether carrier groups will lead their members to follow the SOP guidelines when they’re implemented. 

Reflecting a sense of concern, the Container Shipping Lines Association of India (CSLA) in a recent filing sought certain structural changes in the draft SOP document. But officials ruled out reworking the proposal in any manner that could potentially erode the larger government goal of achieving transparency into logistics costs.

“In a CY-CY system, the freight paid includes both the vessel handling charges and the terminal handling charges and hence, recovery of THC from the shipper/consignee in addition to the freight is unsustainable and untenable,” a ministry official said, countering CSLA’s arguments.

Meanwhile, Customs at Jawaharlal Nehru Port Trust (JNPT) issued a supplementary trade notice setting Feb. 5 as the deadline for enforcement of a new procedure allowing shippers to settle THC on direct port delivery (DPD) shipments directly with terminal operators.

Bency Mathew can be contacted at bencyvmathew@gmail.com.