Shippers cry foul as Sri Lanka government reneges on all-in rate rule

Shippers in Sri Lanka have raised serious concerns over government action to deregulate export/import freight pricing, ending all-in rates and bringing back surcharges.

Thanks to a legal framework enacted in 2013 and re-approved in 2017, since January 2014, exporters/importers needed to pay just an “all-in” freight rate and this antitrust legal immunity has been cancelled.
 

It is in line with a wave of policy reforms under way in Sri Lanka, arguably to reinvigorate foreign exchange flows after the island economy plunged into a deep crisis.

“This legislation has helped [defend] importers and exporters from anti-competitive practices carried out by service providers for several years,” the Sri Lanka Shippers’ Council said.

“The rescinding has created a ripple effect that will lead to Sri Lanka’s imports and exports becoming more expensive, due to unethical surcharging, thereby becoming uncompetitive and, in turn, leading to the loss of global market share.”

The council argued that, as the government aims to accelerate exports in a bid to turn around the struggling economy, any transport cost increases would only deter potential global buyers, in addition to jeopardising existing clients.

It said Sri Lanka had been proud of its all-in rates and shippers have called on other countries to copy the model.

Generally, shipper concerns tied to freight surcharges have stemmed from a lack of clarity and transparency.  For example, the most controversial of all, terminal handling charges, typically vary from terminal to terminal even within the same port.

In December 2013, the then Sri Lankan president, Mahinda Rajapaksa, proclaimed that “in order to prevent the monopoly of 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 containerised cargo”.

In recent years, in order to scale down logistics costs, Indian policymakers have also attempted to introduce various regulatory measures to separate all shore-side charges from the basic ocean freight, to prevent irrational pricing by carriers.  But this effort has met with strong pushback from carrier groups, thus yielding little success thus far, according to industry sources.

Anecdotally, there is a view that surcharges and ancillaries account for a major portion of carriers’ revenue, which explains the resistance to regulations. However, the Container Shipping Lines Association in India earlier noted that THCs include a raft of operational costs incurred by them, adding “it is a free-market cost that should be left to the customer to decide upon”.