Mutibillion-peso economic losses annually due to illicit trade in the Philippine shipping industry

Mutibillion-peso economic losses annually due to illicit trade in the shipping industry
Cecilio Arillo - December 20, 2018 https://businessmirror.com.ph/mutibillion-peso-economic-losses-annually-...

ACTING on persistent reports of multibillion-peso economic losses as a result of warrantless fees and other charges collected by unscrupulous agents of international shipping lines, Trade Secretary Ramon M. Lopez has called the Bureau of Internal Revenue (BIR) to look into their tax liabilities.

Lopez also asked the Philippine Competition Commission (PCC) and the Insurance Commission to conduct a separate probe to determine their legal liabilities and apply the law accordingly to protect port stakeholders and other entities against these violators.

Lopez acted on the complaints of port stakeholders and the joint report by Dr. Enrico Basilio, chairman of the joint committees on Transport and Logistics of Export Development Council (EDC) and Mr. Michael Raeuber, CEO of the Royal Cargo Group of Cos. and former president of the European Chamber of Commerce in the Philippines (ECCP), that destination fees and surcharges imposed by international shipping lines and their local agents cost the Philippine economy an estimated $2 billion to $5 billion in losses annually.

Their report, entitled “Potentially Avoidable International Shipping Cost and Other Charges,” is backed by various port stakeholders who were present during the public hearing conducted by the House Committee on Transportation on January 17, 2018, which tackled the container deposits and related charges imposed and collected by agents of international shipping lines.

Based on a series of forums and a survey conducted last year, only 39 percent of the total amount paid to international shipping lines, while the so-called destination charges levied on Philippine importers accounted for only 61 percent of freight cost accounts for an average of only 25 percent of the total amount paid to international shipping lines and the so-called origin charges levied to Philippine exporters by the carriers accounted for 75 percent.

Such huge losses undermined the country’s export competitiveness by increasing the cost of importing raw materials and intermediate goods. The hardest hit by these costs are the small exporters and importers because big importers and exporters can negotiate for better rates and terms with international shipping lines.

This illicit practice does not only damage the competitiveness of domestic producers by increasing the cost of imported raw materials and intermediate products but also results to higher inflation as charges and surcharges are passed on domestic consumers who pay higher prices for imported products.

Rep. Cesar Sarmiento, chairman of the House Committee on Transport, said that with these claims and result of the report, the next hearing will be conducted jointly with the House Committee on Economic Affairs to find the best solution for the situation.

Goods are brought to and from the Philippines through the services of shipping lines, more specifically foreign shipping lines. These foreign shipping lines have their respective agents in the Philippines to manage their local operations. It is through these Philippine agents that parties, more specifically importers and customs brokers, deal with regarding the use of their containers to move imported and local goods.

Under the prevailing illicit practice, shipping line agents, before they allow an importer or broker to pull out their containers from the Bureau of Customs for delivery to the importer’s warehouse, will obligate a customs broker or importer to post cash bond ranging from P5,000 to P20,000 per container (the amount varies depending on the shipping line) as deposits, which ostensibly serve as security for the return of containers to the shipping lines.

In my previous columns, I took the position that any and all domestic practices of these foreign shipping lines and their Philippine agents must be scrutinized by concerned Philippine authorities as these entities are basically engaged in common carriage operation, which is in the nature of public service and ought to be regulated for the greater protection of Philippine consumers and the economy.

For so long a time, no one in the Philippine government lifted a finger to scrutinize this matter on container deposit collection, which has been abused and continuously abused by some Philippine agents of these foreign shipping lines to the grave prejudice of importers, customs brokers and other port stakeholders.

The abuses come in different forms. These include unreasonable delay in returning container deposits to the port stakeholders (mostly importers and brokers) who paid the same; automatic deduction without giving the depositor (importer or customs broker) a chance to contest before deduction is imposed; and, worse, the failure to return container deposits.

Once a container is returned to the shipping lines, they or their agents must return, without delay, the container deposits.

A specific example of this was the case of MOF, an agent of Hanjin Shipping Line Co. Ltd. in the Philippines, which collected container deposits in the amount of P107.7 million from several importers and customs brokers. For unknown reason/s, MOF failed to return the container deposits to the parties that paid this aggregate amount.

In 2016, with the bankruptcy of Hanjin Shipping (its principal), MOF filed a petition for voluntary liquidation which was granted by a court. Because of this voluntary liquidation, MOF’s creditors whose unpaid claims aggregated to more than P158 million, including the P103-million unreturned container deposits, were paid only with the remaining more or less P5-million assets of MOF divided proportionately among them, and thus exposed the irregularity.

Had there been a watchful regulatory agency, this matter of container deposits could have been avoided.