New law may put extra burden on shipping sector

Service providers of the Indian shipping industry may have to cough up Rs 5,500 crore if the government clears the Shipping Trade Practices Act (STPA) in the forthcoming Budget session.

The ministry of shipping has given its in-principle approval for the proposed Shipping Trade Practices Act, a legislative measure to tighten the control over shipping industry intermediaries. The draft Act, prepared by the ministry, prescribes a registration fee of Rs 50,000 and bank guarantee to the tune of Rs 5,00,000 for all intermediaries.

According to preliminary industry estimates, over 100,000 shipping intermediaries will have to register themselves to comply STPA. This will translate into an inflow of Rs 5,500 crore into government coffers.

Airlines, shipping lines, shipping agents, freight forwarders, terminal operators, container freight stations (CFSs) operators, inland container depots (ICDs) operators, Container Corporation of India Ltd (CONCOR), cargo consolidators, transporters, stevedores and shippers will be covered by the proposed Act.

Surcharges such as currency adjust factor (CAF), bunker adjustment factor (BAF), container detention charges (CDC) and other documentation charges normally imposed by airlines, shipping lines and railway operators on top of freight charges will come under the scanner of this Act.

According to shipping lines, in view of the stringent penal clauses provided in the Act for violation of norms, all shipping lines will absorb other ancillary charges into basic freight leading to a substantial increase in the freight rates.

The industry is divided over the proposed legislation even as the ministry of shipping has invited comments on the draft STPA.

The Bombay Chamber of Commerce and Industry has said the proposed legislation overlaps 10 Acts including Multimodal Transport of Goods Act, Major Port Trust Act, Bill of Lading Act, the Contract Act, the Customs Act, Carriage of Goods by Sea Act, the Law of Agency and Competition Act.

"It needs to be clarified whether the provisions of the proposed Act will supersede the existing ones," the Bombay Chamber said. Industry observers pointed out that the new legislation would add to the transaction costs which would eventually get passed on to the trade, directly or indirectly.

"The Act will increase the cost of shipping, thereby, pushing up the cost of cargo itself," a senior executive of shipping company said. Shippers said STPA ensures consultative mechanism among the players for better transparency of service and costs.

"At present, there is no mechanism to even monitor the workings of the new set of intermediaries such as freight forwarders, break-bulk agents, consolidators and terminal operators. This Act will monitor cost effectiveness, transparency of services and costs ensuring accountability," an executive from Western India Shipper Association (WISA) said.