A Draconian Rule:

We are in an information age, with World Wide Web, the clouds to store & share data, messengers, blogs, twitters and many more. However, the poor consignee cannot take delivery of his legitimate cargo from the shipping line, if the Original Bills Of Ladings (that too three original sets) get stuck in the Bank or may be for some other genuine reason. It is understandable that the speed of paper movement can match neither the speed of the web nor the speed of the faster vessels of today. A vessel sails from Colombo to Tuticorin or Chittagong to Haldia in a few hours, not days.  However, the shipping line shall not release cargo to the consignee, unless he gets a Bank Guarantee (BG) from consignee, some times as high as 200% of the landed value of goods. This BG shall be in addition to the Letters of Indemnity (LOI) from both shipper and consignee.
 
In addition to the hardships caused to the consignee, it ultimately makes our imports into India costly & slow. This affects our export competitiveness and the pocket of the little consumer. However, there are parties who immensely benefit from this process: namely the Bank, the Insurance companies & the Shipping Line. The Bank sits on the consignee's security money for the BG & benefits from the charges. The Shipping Line gets demurrage for the delays in obtaining the BG. This is interesting to note here that practically all shipping lines are MNCs who care more for the money than the spirits of fair business. There is also a third party who benefits indirectly: the Insurance Company of the shipping line. They could range from P & I clubs who cover their risks by paying premiums to other Insurance companies to direct Insurance companies. These so-called clubs & Insurance companies are run by western lawyers, who work hard to make money with impunity with little regard to justice & fairness. A rule is a rule as long as it purports their interest, irrespective of its fairness.
 
Little wonder that LOIs are considered invalid and BLs are considered almost sacrosanct with no room for dilution. I do not intend to delve into the judgment in the past to either validate or invalidate this unfair law, however, I can say with absolute certainty, that we can change this in India to benefit our trade.
 
As a counter to the unseen lawyers with their self-serving schemes from the western hemisphere, Indian DG can validate the LOI of the consignee. The shipping line shall of course get the LOI from shipper and validate it. For validating, all that the DG shipping needs is a photocopy of the OBL authenticated by the consignee himself and the LOI. If the information is matching, DG can put a stamp on the LOI asking the shipping line to honour it. The charge for doing this could be fixed at Rs 2500/ per LOI. This job again can be outsourced to some private company to do on behalf of the DG. This will add revenue to the DG's coffer and save time & money to the Indian importer.

INDIA'S SMART FLAG:

The evils of Unionism and thoughtless tax regimes of the West was the harbinger of 'Flags Of Convenience'.  If Panama & Liberia were strategically right for US, the governments in Europe opted for off shoring. We need to appreciate the fact of military implication, considering how the German U-Boats had targeted the merchant fleet so successfully and almost brought the Allies to their knees in the first World War, and how in the second World War, the merchant fleet of the Allies, specially American and British,  was engaged in carrying vital & strategic supplies. As far as India goes, we have imported the worst forms of the evils of the west, be its tax regime or the freehand to the Unions by Nehru's Fabian Socialism that he learnt in England. I also agree that we cannot shrug off this evil baggage so easily, by bringing in revolutionary tax reforms in shipping or better Labour Laws, in our current political climate. 

 

India's national tonnage shall continue to decline, despite the Tonnage Tax, because the scourge of the Trade Unions and a plethora of indirect taxes like service taxes, Fringe benefit tax, personal taxes on the seafarers, the Octroi, and so on. The government of India will not be interested to offshore considering no tax or apparent strategic benefit. However, if something similar to Laloo's railway magic could be played on Indian Shipping, the Government will not only sit on cash-mountain, much bigger than that created by the Railways, but also be a strong maritime player internationally, in addition to the strategic military strength in times of conflict or war.

 

Our Ministry of Shipping needs to create a SEZ for shipping in a place like the Andaman. Make it a zero tax heaven for ship owning & follow the footsteps of Panama. Make IRS a convenient tool to assist in the strategy. Opening of a shipping company & opening a multi-currency Bank account should be done in six hours. There should be no auditory or RBI supervision on ship owning activities, like Dubai. Create a one-window facility, consisting of Flag Office, Registration, and other mandatory certifications in this SEZ in the matter of one day. Increase representation of the Flag office all over the world through the Indian Embassies and franchising IRS through the same desk in the Embassies. Dilute the government stakes in the IRS & use it as a magic tool. Consolidate & sharpen the Cabotage laws and offer incentives for Indian flags carrying Indian goods. Make bunkers supplied to such ships, tax free irrespective of home or foreign run. Disband Union agendas in this SEZ and make it easier for Graduates from any faculty or Engineers to join as officers or Engineers with minimal training & stringency, in line with IMO's stipulations. Make it open for all Under Graduates to get a CDC with bare minimum training to work as crew on board. There will be a beeline of funds and expertise to India. The country's poor maritime skeleton will metamorphose into a World Giant and far surprise others, giving them no time to mime or resist. This could lead to inflow of funds into the sector beyond the Ministry's imagination or guess. The criticism of attracting old tonnages and an emergence of an inferior maritime work-force, does not hold much water, considering the current poor records of Indian ships in foreign shores and the dependability & strength of the Phillipines Officers and crew, who receive much less training and go through much less a stringent system like ours. We could call the 'Smart Flag' in stead of 'Flag of Convenience'.

 

Reported by
Capt Rath, CEO, Maxicon Container Line
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Shedding Old Skin

A foreign ship calls an Indian Port. The ordeal of the Master & crew starts unfolding. First is the doling out of cartons of cigarettes (Nothing less than B&H or 555 will do) and bottle or at times bottles of branded Scotch (Minimum equivalent of Black Label) to the Pilot. As soon as the gangway hits the quay, a hungry pack of Government officials clamber up the steps, seeking the shortest possible route to the Master's cabin. The most deadly ones are of course the Customs. They could number from a minimum of five to as many as twenty if there are not many victims around the Harbour. The Master and crew shudder at this merciless pack of wolves.  Some of them, with their cunning & greedy eyes would scan through the declared documents at a measured easy pace, smacking of absolute belligerence & confidence. The ship's agent just helplessly fidgets around in this poignant atmosphere, about to explode any time. The Master gets more & more nervous, while lining up the cartons of cigarettes, bottles of whisky, & cartons of beers to appease the hungry beasts. At the same time, the beer cans keep popping with each tweak and the contents vanish at a surprising efficacy, along with the fast disappearing mounds of sandwiches. Then the errors found are declared with cold demeanors & concealed threats. The Master tries his best to haggle with his best face forward, but the beads of sweat and the wavering shaky voice, only confirms the inevitability of succumbing to the fat demands. The pack-head has become an avid mind reader, through years of experience, & ups his demand by his new discovery of some omissions of 'full stop's or 'comma's in the presented documents. As soon as the demands are met, the Customs leave the place with their booties & the Master collapses on to his chair, feeling drained and dry. However, not for very long. The other packs like the Immigration, different departments in the Port, the Health & Quarantine, Port State Control, Plant quarantine, Dock Labour Safety, Pollution Board and a myriad other smaller authorities, go on the rampage of loot from the Master till he is mentally and literally stripped of dignity and content. At times, the loots could include the poor crew's food & provisions and medicines, if the Master runs out of alcohol & cigarettes. This is how a foreign vessel is typically welcomed to our country. 

 

While negotiating for vessels for charter, many owners, including many Asian owners, refuse to let out their vessel if she has to call any Indian Port. When they do, there is a special rider clause in the charter party to compensate the owners against such extraordinary expenses, is addition to a hefty lump sum towards regular entertainment & miscellaneous expenses. There are also other reasons like difficulty in crew signing-on & off, sending cash (US$) to Master, and delays of sending spare parts to ships (when the spare part crosses state borders – entry tax etc is levied and its held up). I know of one ship being stuck up in Vizag for one month, because the spare part landed in Kolkata airport and was sent by road, only to be caught up on the Orissa border for 23 days. The amount of hand greasing was more than 3 times the actual cost of the spare part. Not to mention the inordinate delay of 23 days and vessel staying off-hired for nearly a month. This too affects our image.

 

Having articulated the above ugly face of India, we need to understand that the real people perpetrating these sully & corrupt acts can neither prevent nor stop this. A few may display exemplary displays of honesty & integrity to behave otherwise: But their numerically rare & sporadic actions will be swamped by the collective manifestation of this malaise. It is a system problem, not people problem. If people like you or me, were in a similar system and under similar circumstances, would commit the same acts, be it by compulsion, choice or as a part of the collective insanity for our own selfish needs.

 

However, this malaise can be turned on its head in a very short time span to generate a pile of cash for the government and at the same time bring sparkles of pride and some legitimate bonus in the hands of the goverment officials, be they state or central.. 

 

This job of different officials could be delegated to one person in the Customs department. He should take a checklist of all departments & conduct this. Only in case non-conformance, the respective department could be called aboard. Over a period, this process could be made into an on-line data system, where the data could be shared by all departments, with their levels of access being defined by their functions. For example: The Pollution Board Official needs to know the ROB bunkers and entries on garbage or slop entries – not the cargo values. The making and maintenance of the system, could be out-sourced for a pittance

 

As a solution package, the tariff for official coordination per vessel could be fixed at 10 to 15 cents per GT. If this averages to about 1000$ per vessel call, the annual revenue could touch above 600 crores in Rupees, by just a rough estimate. Please remember that much more than this amount is being siphoned off the system by palm greasing of different officials, and the ship's agents exaggerating these under-the-table amounts to the ship owners, simply because you cannot get official receipts for these black-acts. However, a part of above collections could be given away to various officials as a bonus too.  The ship owner will be more than happy to pay this amount, because this amount is much less than what he actually pays and assure him efficiency. This will bring smiles to the Revenue department, the various other government officials (with their legitimate bonuses), & the industry in general.

 

Capt PS Rath

CEO, Maxicon Container Line.

Singapore

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BILL OF LADING CAN CLEANSE OUR SYSTEM:

The most overlooked, though vital element in a Bill Of Lading (BL) is its centrality of the Credibility of the issuer. This however, mostly is camouflaged by the most academic interpretation: evidence of receipt of goods & the power of its negotiability. The system followed in India is almost fully market-driven, much to my liking. The shipper decides the credibility of the issuer of the BL for his cargo, before he makes his buying decision. In practice however, there are several serious failures & frauds due to this open and no-strings-attached use of BL. We hear frequently, the repudiation of legitimate claims, cargo just being abandoned by the Issuer of the BL after receipt of the freight, and in some instances cargo being sold or plain stolen. It creates a lot of bad blood between the buyer and the seller, in addition to the financial pains caused to many innocent ones in any of these transaction chains. This continues to damage the creditability of the improving business-environment image of India. Why does this happen? We have an impressive number of freight forwarders, freight brokers, LCL consolidators, NVOCCs, in addition to the myriad multi-national & a handful of national shipping lines. All it takes is just a telephone, a chair & table and one man with half-baked knowledge of the complexity of the transport chains to set up & run a freight forwarding company in India. Even I know of individuals, having no offices, conducting their daily businesses just on a mobile phone on the go. Thousands of these one-man-band companies print & use BLs with impunity. Having said that, this reveals the entrepreneurial power of a typical Indian mind, displaying the potential to excel with scanty resources in a tough a business terrain. This needs to be applauded and encouraged to create wealth for them as well as the nation. In order to this, the abuse of the centrality of the BLs, needs to be managed well, while making sure that, the entrepreneur is guided and cheered in his efforts. Even though it looks a tough ask, we can achieve this objective very quickly and at the same time create plenty of surplus funds in the coffer of the government. This fund can be judiciously invested to transform our lethargic & toothless maritime legal & justice system to a lean, mean fighting machine.
 
Let me be very candid that I love our system in India, despite its serious flaws, more than what they practice in China or USA for that matter. This is simply because our system is largely free & devoid of meddling with regulations, except a negligible tinkering to distort the dynamics by the senseless & directionless Multi Modal Transport Act by the bureocracy. In China, they have broadly categorised the industry into Freight-forwarding, NVOCC, & Liner Trade. It is compulsory to register in MOC (Ministry Of Communications) before you can issue BLs. The companies need to make a refundable deposit of Security with MOC. The process takes long and needs greasing too. However, once registered the shippers can check this information on line. The result is good. The government sits on a huge pile of security cash, because the companies cannot withdraw until they are in business. Without exception they are. The system runs neat, even though a very few do flout the rules of not registering and doing business in low scale. The drawbacks are red tapes, delays & of stifling of competition by foreign companies in China. For example, it becomes impracticably difficult to set up a shipping agency business in China by an Indian company, though you can set up a freight forwarding company with relative ease. Therefore, you do not see any Indian Shipping Agent in China, even indirectly using the corridors of Hong Kong or Singapore. On the contrary, you have innumerable Chinese companies doing unhindered shipping agency business in India, both directly and indirectly through their corridors of Hong Kong, Taiwan, & Singapore. This appears to be a constriction of Indian business interest in China and free hand to Chinese business in India. However, this will tell on China, because they increase their costs of doing business by stifling competition & forcing scarcity.
 
All that DG Shipping in India needs to do is to categorize the Chinese way. Then sub categorize the Indian way : Freight Forwarding 'A', 'B', 'C', from deposits ranging from  as low as Rs 25k to Rs 250k (Depending on the maximum liability the company wants to guarantee on its BL), similar for NVOCCs, & a higher deposit for Liner Shipping. The grading would help the shippers know the extent of liability protection with each BL. Publish the registered ones on line, where customers could check & verify. Government can guarantee the users of the BLs against claims in line with the Security Funds held & gradation awarded. A small amount of the funds could be set aside for premium to an Insurance company, against defaults. Any default will result in cancellation of the BL, a deterring penalty  & forfeiture of the deposit. The small deposits do not create a problem for a small start up business. Make this registration a very simple procedure and ensuring issue of Registration in 3 working days. A small annual fee can be collected with the ease of an on line system to keep the registration live. Even this job can be out-sourced to a private company to manage. This process not only shall make the government stashed with funds to invest further in an efficient & speedy maritime legal & justice infrastructure, this will also clean up the system from bottom up, without hurting the enterprising &  hard-working Indian.
 
Reported by
Capt Rath, CEO, Maxicon Container Line
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