Forwarder pushback forces India to rework regulatory reform

Amid pushback from freight intermediary groups, Indian transport leaders are considering redefining the boundaries of a regulatory platform they have been developing to provide a more transparent, competitive pricing environment for exporters.

At issue is a standard operating procedure (SOP) by which the government wanted to nurture direct ocean carrier-shipper relationships for freight payment — a move traditional freight forwarders warned would relegate them to the sidelines.

While a final SOP has yet to be circulated to stakeholders, industry sources involved with the process told that, modifications have been approved to put intermediaries on an “equal footing” with carriers when it comes to transactions with cargo owners.  Under a more inclusive mechanism, forwarders can raise a “foreign currency” freight invoice to the exporter, just as the exporter would receive from a carrier. The invoice would include only the basic freight rate and directly related charges, such as bunker and currency adjustments. Forwarders can then pay charges electronically directly to the carrier’s foreign currency account on behalf of the exporter.

For any brokerage markups and other additional services rendered, forwarders will need to put up a separate Indian currency invoice to the exporter, sources said.

The foreign currency model will, however, remain open only to full container load (FCL), or origin-destination, export cargo. For less-than-container load (LCL), or console, shipments, including those involving foreign transshipment, local currency transactions will continue, given the complexities in that trade.

More clarity is needed on how forwarders will deal with customers seeking or enjoying extended credit terms.

The government previously proposed that exporters make freight payment directly from an “exchange earners foreign currency account [EEFC]” to a foreign currency account of the carrier, leaving forwarders out of any contractual relationship with the cargo owner, which could have had other costly commercial repercussions.

Sensing such competitive pressures, the Federation of Freight Forwarders’ Association in India (FFFAI), the Association of Multimodal Transport Operators of India (AMTOI), and the Consolidators Association of India (CAI) have been pulling out all the stops in their efforts to convince the government that any regulatory measures to marginalize them would do no good to the industry. The latest government reconsideration of the SOP policy reflects those efforts.

Transparency driving reforms

The government is taking a long, open-minded approach on new regulations to avoid any potential negative impact on a transport industry already reeling under severe economic setbacks. Further, the latest move seems to be directed toward one area — isolate the line-haul component of export logistics costs from other potential intermediary costs, thereby providing a clear reflection of market trends in baseline freight pricing.

With rapidly evolving trade dynamics, the Indian government has lately accelerated logistics reforms and digitization to improve transparency and visibility through the supply chain, but the burden of implementation in a historically opaque industry remains a major challenge for stakeholders leading such efforts.