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Third Meeting

on

HARMONIZATION OF SCALES OF CHARGES

Ministry of Commerce

June 11, 2010

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Background Recap of Events

Secretary Ports & Shipping requested Secretary Commerce vide

letter dated 16th December, 2009 to look into the issues ofovercharging and other malpractices by various service providers.

Subsequently Secretary Commerce chaired 2 meetings on

Harmonization of Scale of Charges (HSC).

In the 1st meeting held on January 18, 2010, in which all stakeholders

from public and private sector were invited. Following decisionswere taken:-

1) The issue of in-action of SRAB was discussed and M/o Ports &

Shipping were requested to find out the reasons.

2) MoC will issue a directive that Ship Agents must refundsecurity deposit within 7 days

3) PIFFA should hold a meeting of Freight Forwarders and traders

to redress the grievances of the traders.

4) FPCCI to deliberate and analyze the issue of overcharging by

various service providers and give recommendations 2


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2nd meeting on the subject was held on February 26, 2010, in which

following decisions were taken:-

1) Since there was no evidence regarding existence of a Stay

Order, M/o Ports & Shipping will be requested to re-activate

SRAB.

2) Amendments in the licensing provisions may be made by FBR

to enable Collector Customs (Preventive) to take punitive actionagainst those Ship Agents who are involved in excessive

charging and other malpractices.

3) PSAA will fold a meeting with the representatives of the trade to

resolve the issues relating to shipping charges amicably.

Beside the above two meetings, 2 meetings in FPCCI, one meeting

in PSAA and one meeting in SBP were held. Mr. Babar Badat, Vice

Chairman FIATA held a meeting with Secretary Commerce in

Islamabad on 17th May.3


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Latest progress after the above-mentioned meetings

Issue No. 1: Re-activation of SRAB

Since it was abundantly clear that there was no evidence

regarding existence of Stay Order, Ministry of Ports & Shipping

was requested through a d.o. letter from Secretary Commerce on

3rd

March 2919 to re-activate SRAB.However, Ministry of Ports & Shipping vide letter dated 30th

April replied that SRAB cannot be re-activated at this stage as

issue is subjudice in the Sindh High Court. After examining the

issue thoroughly the Rules of Business of Ministry of Ports &

Shipping and the functions of DG, Ports & Shipping, the

Ministry of Commerce is of the view that it is the responsibility

of the Ministry of Ports & Shipping to re-activate SRAB and it

may be done as soon as possible.

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However the following point may also be considered by Ministry

of Ports & Shipping:-

79A is placed in Part III dealing with Coastal Shipping,

whereas Shipping Agents deal with International Shipping.

Therefore a new chapter dealing with Regulation of

International Shipping Practices may be introduced in

Merchant Shipping Ordinance through Merchant Shipping(Second Amendment) Ordinance, 2010 introducing

Licensing , Financial Responsibility, Suspension or

Revocation provisions in the same manner as has been done

in US Shipping Act of 1984.

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Issue No.2: Amendments in licensing provision to enable Collector

of Customs (Preventive) to take punitive action against those Ship

Agents who are involved in excessive chargingSecretary Commerce sent a d.o. letter to Chairman FBR on 4th April

2010 requesting to direct the concerned Officer to expedite

amendments on the relevant sections of the Customs Act 1969 on the

above lines. FBR responded on 8th April that proposed legal changes

in the Customs Rules will be considered during the finalization of

budgetary and fiscal changes in the year 2010-11.

It may be mentioned here that the Federal Tax Ombudsman on a

complaint No.462-K/2009, dated 6th July 2009 by M/s. Malik Paper

Mart, Karachi vs Secretary Revenue Board has already recommendedon 12-01-2010 that FBR may actively consider proposing effective

remedial measures in the Finance Bill 2010-11.

F BR may apprise the meeting of the latest position regarding

proposed amendments in the Customs Rules 1969.

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Issue No. 4: Freight Forwarder Charges Meeting held in SBP,

Karachi

A meeting was held in the Exchange Policy Department, State Bankof Pakistan on 8th March, 2010 to resolve the issues relating to

freight forwarding charges. No consensus could be reached,

therefore all stakeholders were requested to send comments in

writing. After obtaining written comments from all stakeholders,

SBP has issued FE Circular No.02 on April 14, replacing FE

Circular No. 6 of 2006.

However the issuance of new circular has not resolved the issue.

Rather it has become more complicated. SBP in a letter to MoC onApril 26 has informed that PHMA, PAF etc have rejected the FE

Circular No: 2 of 2010 and are agitating against SBP, through

electronic & print media. SBP has proposed MoC to review the

matter in Consultation with concerned stakeholders. Besides, some

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stakeholders have filed a writ petition in Sindh High Court against

FE Circular 2 of 2010, making MoC, SBP & FIA as Respondent.

First hearing was held on 12th

May 2010, Mr. Jawaid Mansoor,Executive Secretary NTTFC who attended the proceedings has

informed that he has been asked to submit comments on para 14

(concerning MoC letter to FIA dated 13th Feb 2010 ). The

comments have been submitted to Sindh High Court.

Legal Position

On the request of Freight Forwarders, SBP had issued FE Circular

No. 06 of 2006. Traders agitated against this Circular, which was

replaced by Circular 02 of 2010. The new Circular is not

acceptable to PHMA and PAF. SBP should resolve the issue as perrules & procedure governing the issuance of FE Circulars.

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Way Forward

The purpose of holding meeting in SBP has not been served. The

issue regarding freight forwarding charges was not considered.The issue concerning overcharging and other malpractices by

Freight Forwarders cannot be resolved in the absence of a

Regulatory Mechanism for Freight Forwarders.

Therefore the issue regarding Regulatory Mechanism of Freight

Forwarders needs to be resolved.

Regulatory Mechanism for Freight Forwarders

Functions of Freight Forwarders

The freight forwarder is the entity which moves goods from pointof origin to overseas point of destination and ensures that

internationally traded merchandise arrives in good time, safe

condition and at the most economical cost. Specifically, freight

forwarding firms arrange transportation from shippers factories or

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wharehouse to ports, packing or consolidation of cargo if

necessary according to the customers needs, documentation,

customs clearance, shipping (land, sea and air or combinationthereof), unpacking or deconsolidation if required and delivery at

customer designated location(s).

Licensing Authority

Freight Forwarders were licensed by Collector of Customs.However, through Finance Bill, 2007-8, following amendments

were made in Section 207 of the Customs Act 1969.

Presently all the Freight Forwarders are licensed by the Customs

which is unnecessary in certain cases. The scope of licensing in

case of Freight Forwarders is, therefore, proposed to be restrictedto the Freight Forwarders who actually transact customs related

business.

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Even the above amendments do not take Freight Forwarders out of

the purview of Customs, because Freight Forwarders still perform

their duties inter-alia as Customs Clearance Agents. The decision

taken in the meeting at FBR on 17th May 2007 that MoC is the

most appropriate Ministry to regulate the business of Freight

Forwarding Industry does not have any rationale because of

following reasons:-

a) It was a unilateral decision taken by FBR in a meeting in which

MoC was not invited.

b) The Rules of Business of MoC do not have any provision for

regulating Freight Forwarders.

Committee constituted to regulate Freight Forwarders performanceDirector General of Trade Organization, notified the Committee

under the chairmanship of Additional Secretary Commerce II on

23rd October, 2008 to regulate freight forwarders performance in

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pursuance of the approved Certification Rules and Code of

Conduct for Certified Members of Pakistan International Freight

Forwarders Association (PIFFA). Only one meeting of theCommittee was held on 29thNovember, 2008 at Karachi. In this

meeting PIFFAs Legal Counsel raised the issue that the

Committee does not have any legal validity to regulate the

Freight Forwarders. Therefore the meeting remained

inconclusive and no minutes of the meeting were issued.

It is recommended that either Customs or M/o Ports &

Shipping may regulate the FreightForwarders.

Issue No.5: Recommendations of the meetings held in

FPCCI:

Report dated 22nd March sent to MoC by FPCCI, contained

following recommendations:-

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1. Since the Bill of Lading (B/L) is an evidence of the title of the

goods and the holder of the same is the owner of the

consignment, the Ship Agents/Shipping Lines should not havethe right to stop the delivery of the consignments.

2. All charges being charged by the Ship Agents, Freight

Forwarders and Terminal Operators should be part of the

freight.

3. For one service of handling containers, the trade is paying thecost thrice i.e. in the name of Terminal Handling Charges (THC)

to the Ship Agents, Terminal Service Charges (TSC) to the

Terminal Operators and Wharfage to the Port Authorities. The

THC which is being paid to Ship Agents should be part of thefreight, TSC being paid to Terminal Operators be paid by the

Shippers/Consignees being full and final payment to handle the

cargo by the Terminal Operators and the cost of Wharfage

should be withdrawn by the Port Authorities.

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4. The various charges being collected by the Ship Agents, should

be part of the freight as Ship Agent represent the Ship Owner

who pay the Agency Fee which covers the remuneration of the

Ship Agents.

5. The charges being collected by the Freight Forwarders should

also be part of the freight as Freight Forwarders represent the

Shipping Lines who pays the Fees which covers the

remuneration of the Freight Forwarders.6. Various Charges collected by Terminal Operators should be

included in the TSC already being paid by the

Shippers/Consignee.

7. Shipping Rates Advisory Board (SRAB) be reactivated.

8. Office of Director General (Ports & Shipping) be strengthenedand given the mandate to ensure transparency.

9. Powers should be given to Customs to regulate the Ship Agents

where they are registered.

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10. Freight Forwarders should be registered with State Bank of

Pakistan to regulate all the remittances like in Sri Lanka.

MoC circulated the report to all stakeholders for comments, on 3rd

April, 2010. The comments received from various stake holders

are summarized below:

Item No. 1 Since the Bill of Lading (BL) is an evidence of the

title of the goods and the holder of the same is the owner of the

consignment, the Ship Agents/Shipping Lines should not have the

right to stop the delivery of the consignments.

Comments:

i) Pakistan Knitwear and Sweater Exporters Association(PAKSEA):

Shipping lines should issue the Bill of Lading as per land law of

Pakistan (Rule 11, Chapter XII of the State Bank of Pakistan F.E.

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Manual 2002) and should have no right to stop delivery of the

consignment.

ii) Pakistan Apparel Forum (PAF)Same as above

iii) NTTFC

In case the freight has been prepaid, the Ship Agents/Shipping

Lines should issue the delivery order for the consignment on

production of the Bill of Lading.iv) PIFFA

If Bill of Lading is claused, freight and destination charges

prepaid then freight forwarder would not charge delivery order

charges to consignee.

v) Pakistan National Shipping Corporation (PNSC)

The recommendations do not take best practices and ground

realities into consideration and are not acceptable.

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vi) Pakistan Stevedores Conference:

Delivery orders are issued against surrender of Original Bill of

Lading only. Delivery order is not withheld if all dues and chargeshave been paid and formalities completed.

vii) Gwadar Port Authority:

Agree with the recommendations.

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Item No.2 All charges being charged by Ship Agents, Freight

Forwarders and Terminal Operators should be part of freight.

i) PAKSEA

Freight should include all charges. No other charges may be

claimed from exporter or importer.

ii) Pakistan Apparel Forum:

Same as by PAKSEA.

iii) Gwadar Port Authority:Amount charged by various agencies should be merged in the

main charges and there should not be duplication or double

charging.

iv) NTTFC

According to the present international shipping practices,

payments for the services provided locally have to be made to

Ship Agents, Freight Forwarders and Terminal Operators and

these are not part of the freight.

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v) KPT

Wharfage charge may not be withdrawn.

vi) Karachi Customs Agents Association (KCAA):

All charges being recovered by various service providersshould be part of the freight.

vii) Pakistan Cotton Fashion Apparel Manufacturers

Association:

All charges may be included in the freight and must be

rationalized.viii) KICT

Do not agree with the recommendation.

ix) PNSC

Suggestion is not acceptable.x) PIFFA

As per international shipping and freight forwarding practices

origin and destination local charges are billed separately.

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xi) Port Qasim Authority:

The practice is prevalent the world over and merits careful

deliberations taking all stakeholders on board.xii) KPT

Wharfage charges may not be withdrawn.

xiii) Pakistan Stevedores Conference:

If all charges are paid by the shippers at the Port of loading -

e.g. Destination THC Pre-paid or CY/CFS shown on B/L then no charges would be applicable at destination.

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Item No. 3 For one service of handling containers, the trade is

paying the cost thrice i.e. in the name of Terminal Handling Charges

(THC) to the Ship Agents, Terminal Service Charges (TSC) to theTerminal Operators and Wharfage to the Port Authorities. The THC

which is being paid to Ship Agents should be part of the freight.

TSC being paid to Terminal Operators be paid by the

Shippers/Consignees being full and final payment to handle the

cargo by the Terminal Operators and the cost of Wharfage should be

withdrawn by the Port Authorities.

Comments:

i) PAKSEA

Terminal handling charges (THC) paid to the shipping lineshould be a part of the Freight and it should be charged once.

ii) Pakistan Apparel Forum :

Same as above

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iii) NTTFC

Payment of THC on import can be avoided if it is stated on the

Bill of Lading that THC has been pre-paid. The Terminal ServiceCharge (TSC) is levied by the Terminal Operators for services

provided in their premises of storage, Customs examination and

handling of containers. It is therefore not possible to eliminate these

charges or include them in sea freight. Wharfage is a charge paid to

Port Authorities. As Port Authorities provide no service in acontainer terminal, this charge should be eliminated.

iv) Gwadar Port Authority:

Agree with the recommendations.

v) Port Qasim Authority:

Wharfage is a charge levied by ports for construction and

maintenance of berths and allied services for placing of cargo and

does not relate with freight rates or THC. Additionally wharfage is

fractional charge as compared to freight charges and THC.

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and they paying it back to the Ship Agents in local currency.

Reasonableness of the charges is the issue that needs to be

examined.

iv) All Pakistan Paper Merchants Association (APPMA)

Ship Agents charges on the basis of scales recommended and

approved by PSAA. Ship Agents violate the rules and make

manipulation.

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Item No. 5 The charges being collected by the Freight Forwarders

should also be part of the freight as Freight Forwarders represent

the Shipping Lines who pays the Fees which covers theremuneration of the Freight Forwarders.

Comments:

i) NTTFC

Freight Forwarders are not the agents of Shipping Lines. The

services provided by them are additional to the sea transport,

freight for which is paid to Shipping Lines. Therefore, the freight

forwarding charges cannot be made part of sea freight.

Reasonableness of charges is the issue to be considered.

ii) PIFFAFreight Forwarder does not represent shipping lines and they

perform totally different set of functions and services against which

they charge fees for their remuneration.

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Item No.6 Various charges collected by Terminal Operators should

be included in the TSC already being paid by the

Shippers/consignee.

Comments:

i) PAKSEA

Terminal Operators collect various charges which should be

included in TSC.

ii) Pakistan Apparel ForumSame as above

iii) NTTFC

As different services are provided by Terminal Operators for

different consignments, it is not possible to make one charge

applicable to all.

iv) Port Qasim Authority

Separation of ocean freight rates from terminal charges has

increased the overall shipping charges. The practice

is prevalent the world over and merits careful deliberations 27


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taking all stakeholders on board.


Separation of ocean freight rates from terminal charges has

increased the overall shipping charges. The practice

is prevalent the world over and merits careful deliberations

taking all stakeholders on board.

v) Pakistan Stevedores Conference:

Terminal Services Charges are charges levied by the terminalon account of R&D fee and other services rendered by the

terminal, therefore the above services cannot be part of freight.

vi) KICT

KICT is working on amalgamating and reducing the number of

chargeable heads to provide reasonable clarity to prospective users

of the terminals.

vii) Security Packers

Terminal Operators are charging tariff in US dollars. They

should charge in Pak Rupees. Similarly Shipping Lines are 28


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charging Container Rent at very high rate in US Dollar. They

should charge in Pak Rupees.

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Item No.7 SRAB be re-activated

Comments:

i) Karachi Customs Agents Association (KCAA)

SRAB may be re-activated.

ii) NTTFC

SRAB is required to be re-activated

iii) M/o Ports & Shipping

SRAB cannot be activated at present as the issue is subjudice inSindh High Court.


A Regulatory Board under office of DG (P&S) may be

constituted to rationalize charges levied by shipping lines/ship

agents/freight forwarders and terminal operators.

v) KICT

Do not support this proposal.

vi) PNSC

A tariff regulatory authority with no conflict of interest and duly30


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backed by force of law will be only solution to weed out the

unscrupulous operators from supply chain.

vii) SBP

As per section 79 of Chapter 5 Part-III of Merchants Shipping

Ordinance 2001, Federal Govt. may fix the rates.

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Item No.8 Office of DG (Ports & Shipping) be strengthened and

given mandate to ensure transparency.

Comments:

i) NTTFC

Pakistan Merchant Shipping (Amendment) Ordinance 2002

provides necessary mandate to Director General (Ports & Shipping)

to issue license to Non-vessel Operating Carriers and Cargo

Consolidator, which are the Freight Forwarders, and cancel theregistration, forefeit security or impose penalty of fines as may be

prescribed. Only the will is required to implement the mandate.

ii) KCAA

Office of DG (Ports & Shipping) be strengthened and given

mandate to ensure transparency.

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Item No.9 Powers should be given to Customs to regulate Ship

Agents where they are registered.

Comments

i) FBR

Shipping Agents are licensed by Customs. Proposed legal

changes in Customs Rules will be considered during the

finalization of budgetary and fiscal changes for the year 2010-11.

ii) KCAACustoms may be given powers to regulate Ship Agents.

iii) NTTFC

Customs already have the powers to regulate Ship Agents as far

as the Customs matters are concerned. Directorate General of Ports

& Shipping may also register them under Pakistan Merchant

Shipping (Amendment) Ordinance, 2002 to penalize them in case

of any misdemeanor.


Ship Agents are licensed by Customs. It may be examined 33


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whether FBR has any legal mandate to take action against Ship

Agents, who are involved in excessive charging, delay in refund of

security deposit or other malpractices.

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Item No. 10 Freight Forwarders should be registered with SBP to

regulate all remittances like Sri Lanka.

Comments:i) NTTFC

The proper organization to register Freight Forwarders is the

Directorate General Ports & Shipping. Rules may be prepared and

notified for licensing the freight forwarders. Foreign exchange

remittances are already regulated by State Bank of Pakistan.ii) Port Qasim Authority

PQA endorses the proposal.

iii) PIFFA

The Chairman PIFFA himself and on behalf of Executive

Committee have already recommended in favour of regulatory

authority for freight forwarding industry.

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iv) Pakistan Cotton Fashion Apparel Manufacturers

Association

Performance of Freight Forwarders may be regulated and they

may be asked to furnish security.

v) DTO, Ministry of Commerce

Any dispute of Freight Forwarders has to be settled by FBR or

Customs (Preventive) Department and not by MoC.

vi) SBPFreight Forwarders are not being regulated /monitored by any

agency.

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Thank You

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