An economist said regulating shipping fees in the Philippines will likely disrupt the trade and affect the competitiveness of the country.
In his presentation at the Industry Forum on the Importance of International Shipping to Philippine Economic Development in Pasay City last week, UP professor emeritus Epictetus Patalinghug recommended instead alternative policies such as increasing the efficiency of seaports.
Patalinghug’s statement comes in the wake of government’s plan to regulate shipping fees.
Patalinghug’s study on international shipping and its role in the Philippine economy has shown there is no collusion in the industry and that the imposition of shipping fees and charges are following internationally acceptable standards.
Patalinghug considers the planned additional layer of regulation as detrimental to the industry.
In his study, Patalinghug said intense competition in the international shipping industry created an oversupply of vessels that led some shipping companies to impose origin and destination surcharges on top of basic freight rates to recover their losses.
But he noted the separation of surcharges from freight rate is allowed by international maritime treaties.
A proposed joint administrative order (JAO) has been drafted by Department of Finance, Department of Trade and Industry and the Department of Transportation regulating the application of local charges (origin and destination fees) imposed by international shipping lines, logistics service providers, customs brokers, cargo truck operators, terminal operators, and cargo yard operators.
The draft JAO specifies that no origin and destination surcharges other than freight shall be charged by international shipping lines, logistics service providers, customs brokers, cargo truck operators, terminal operators and cargo yard operators to Philippine consignees regardless of whether the cargo is freight prepaid or freight collect and to allow market forces to determine surcharges and other fees freely.
Patalinghug said the Association of International Shipping Lines (AISL) has questioned the legal authority of the Bureau of Customs (BOC) to regulate the imposition of charges by shipping lines while the World Shipping Council ( WSC) argued surcharges are generally intended to recover distinct and identifiable costs separate from basic transport service or to address rising or constantly fluctuating costs.
According to the study, the draft JAO has indicated at the outset that other economies, such as China, Indonesia and Vietnam have issued similar decrees or regulations to address similar problems.
“The justification for the practice of separating surcharge from freight rate is for the buyer to make sensible business decision by comparing ocean transportation costs from alternative sources or ports of origin, or from alternative carriers in a given port of origin,” Patalinghug said.
He noted the regulatory trend in international shipping is to promote deregulation and pro- competitive policies.
“ The proposal to regulate fees and charges of international shipping lines rests on the assumption that some shipping lines plying the intra-Asia routes impose excessive and questionable destination charges to the consignees. Granting (this) is true, the question to ask is how does this alleged practice arise in an industry that is considered competitive?,” he said.
Patalinghug said port efficiency is an important determinant of shipping costs.
“The participation of private companies in port operation and management of major Philippine ports is an appropriate policy towards improving port efficiency,” he said.
“Port efficiency is determined by port size and infrastructure, private sector participation, quality of both cargo-handling and logistics services, and appropriate public-policy environment. Port efficiency affects shipping costs. Inefficient ports have higher handling costs. Poor infrastructure accounts for more than 40 percent of transport costs,” he added.
Patalinghug cited a study where Manila ranked well below the global performers, such as Singapore and Shanghai, both in port productivity and port efficiency.
Patalinghug in his study recommended the following: publication by shpping companies of all-in freight charges, inclusive of all charges, but unbundling the basic freight rate from the itemized surcharges, for promote transparency and accountability; review the strategic national port development plan and prioritize the establishment of new and deep-sea ports to decongest the ports located in the Greater Capital Region; build regulatory capacity in a single agency (e.g. BOC or Maritime Industry Authority); refocus the thrust of the JAO from banning outright the imposition of surcharges by shipping lines to drafting monitoring rules and guidelines specifying the criteria and procedures to be followed by carriers when they impose surcharges; BOC should build immediately a staff capacity geared towards monitoring various surcharges imposed and; a government-to-government dialogue to address some trade distortions observed in inter-Asia trade.
The forum was organized by the Wallace Business Forum.