Undercurrents in shipping industry

Undercurrents in shipping industry
21/07/2020 https://www.hellenicshippingnews.com/undercurrents-in-shipping-industry/

As the nation starts to recover from the aftermath of the coronavirus (Covid-19) pandemic and the movement control order, shipping lines and shippers are clashing over what seems to be inherent problems in the industry.

They are at loggerheads over issues involving billions of ringgit in the form of security deposits on containers and also on landside charges, which is now some 60% higher as compared to 2016 rates.

The shippers, comprising importers, exporters and freight forwarders, do not see eye to eye with the shipping lines, particularly on the extra cash they have to fork out to get their businesses running.

The Malaysia National Shippers’ Council (MNSC) and the Federation of Malaysian Freight Forwarders (FMFF) have been trading barbs with Shipping Association Malaysia (SAM) on these issues.

MNSC represents the importers, exporters, producers and manufacturers while SAM represents the shipping lines.

Since 2016, Port Klang has at least 2 million 20-foot equivalent units (TEUs) of imports and with an average deposit of RM1,000 per container, the deposits alone would be around RM2bil annually.

MNSC has brought up the issue to Bank Negara, on the basis if shipping lines had the licences to collect the deposits.

The deposit rates are supposed to be in the range of RM300 to RM1,000, depending on the types of containers. They could be dry/reefer containers, or open top/specials and the sizes of the containers, whether they are 20-foot or 40-foot. But shippers have said that the deposits have doubled to as high as RM2,000, with most averaging at RM1,000.

MNSC president Datuk Dr Andy Seo told StarBiz that the last thing the industry wanted was a repeat of the 2017 South Korean Hanjin Shipping issue. Hanjin was declared bankrupt, resulting in many Malaysian companies losing all their deposits.

“We cannot let something like this happen again. Just in Port Klang alone, import is more than 1 million TEUs. You can count the value that has been flowing out of the country. Where they park the money, we want to know too, ” said Seo.

To be fair, SAM clarified that the deposits were collected to ensure the containers were returned to the shipping lines in as-is conditions. There were rampant practices in the past where containers were returned filled with rubbish and damaged, which forced shipping lines to fork out their own funds for cleaning and repair works.

For perspective, the price of a brand new 20-foot container is US$2,000 (RM8,525) while a 40-foot container is US$3,500 (RM14,920).

The deposits were collected via cheques, or at least it should have been only until March 1, as the Port Klang Authority (PKA) had issued a circular on Feb 21 to introduce three schemes to replace the collection of cheque deposits, namely the non-cheque deposit (NCD), iCARGO+ and the container ledger account (CLA).

MNSC and FMFF called out shipping lines that have been disregarding the new schemes but SAM has defended its members, saying that the schemes were merely recommendations by the Transport Ministry and the PKA as a way forward in resolving the issue of security deposit collection but not a gazetted law.

Another issue is on the landside charges and fees related to containers by SAM’s members, which have received brickbats over the exorbitant rates, with MNSC even claiming that shipping lines were allegedly profiteering.

Landside charges include container seal charge, delivery order fee, carrier electronic data interchange fee, terminal handling charges, demurrage charges, detention charges, agency recovery fees and Telex release fees.

On average, shippers now have to pay around RM2,130 per container for imports. Back in 2016, it was only some RM1,330 while in 2013, the average was about RM650.

In other words, there has been a more than three-fold increase in a span of seven years.

Responding to claims of exorbitant charges, SAM told a press conference recently that the charges were part of the evolution of the pricing model, and a desperate attempt by carriers to mitigate their continued losses.

Its chairman Ooi Lean Hin said this has been an established pricing model for some years, and SAM believed that importers and exporters would have included the charges into their free on board (FOB) and cost, insurance and freight (CIF) pricings.

Ooi said this is due to the inability to stabilise the volatility of ocean freight rates as a result of the highly competitive nature of the industry.

“We are, unfortunately, operating in a highly sensitive freight market. We are in an industry that is already facing many challenges and it is going through a prolonged period of oversupply and overcapacity.

“The picture they are painting is we are a cartel. We’re not. Every country has its antitrust law and we operate in an open and free market, ” said Ooi, adding that SAM failed to understand how carriers could be profiteering when they continue to report huge losses since 2016, especially so during the pandemic.

Ultimately, MNSC and FMFF are calling for the shipping sector to be regulated further, particularly on the charges imposed by shipping lines. It is something which SAM was against. It said that the industry itself is ultra competitive and tied to a lot of regulatory requirements imposed by the International Maritime Organisation.

Seo said it was time for the government to intervene and set up Malaysia Maritime Commission to regulate service providers, arbitrary charges and unfair practices in the maritime transport sector.

He said the existing laws and legislations in Malaysia such as the Carriage of Goods by Sea Act 1950, the Merchant Shipping Ordinance 1952 and the Bill of Lading Act 1855 and the existing regulation for maritime transportation such as the Marine Department did not have provision or oversight to safeguard shippers against landslide logistics charges
Source: The Star