Dr John Joseph, Chairman, Central Board of Indirect Taxes and Customs (CBIC), took the bull by the horns last week by directing Custom houses to allow a section of importers to pay terminal handling charges (THC) directly to terminals bypassing shipping lines. THC has been a bone of contention for India’s importers and exporters and Joseph’s move has the potential to disrupt India’s trade logistics. Excerpts from an interview:
What was the reason to limit the new mechanism to DPD and AEO clients?
The reason to limit the facility of payment of THC directly to the DPD and AEO clients has already been answered in your (other) question where you have stated “wouldn’t it be much easier for terminals to deal with some 18 big shipping lines who have Pre-Deposit (PD) accounts under the existing arrangement rather than manage thousands of accounts with attendant payment risks (under the new arrangement)?”.
The DPD and AEO clients number about 2,000, which will be a manageable number for the terminals to handle. Any new initiative to succeed should have a calibrated approach and both the importers as well as the terminals will be able to manage this in a better way before the facility is extended to all importers at JNPT.
What will be the cost benefit/savings accruing to the importers from this exercise?
The DPD percentage has gone up to 56 per cent, and hence, all these boxes coming to JNPT will be cleared at the terminal itself. They might either take it to their own warehouses or the warehouses provided by the CFS; but without paying the terminal charges, they will not be able to get it cleared. The direct payment of THC to the terminals will save costs manifold as the shipping lines are charging them two to three times more as handling charges compared to what the terminals actually charge. So, the impact of this decision will be very major as it will save a minimum of ₹5,000 per container.
The new mechanism would require DPD/AEO clients to open PD accounts with terminals. But, if the DPD and AEO clients don’t have adequate balance in the PD account, the terminal will not give delivery. Then, they have to pay ground rent to the terminal which is very high compared to the CFS charges…
If any importer is getting a benefit of almost ₹5,000 per box, I don’t think he will find it difficult to open a PD account with the terminal and keep the necessary amount of credit for clearance of the containers as and when he requires. Otherwise, it will simply be a bad financial decision to pay more for want of opening a PD account.
What if they don’t pay after taking delivery because in the existing arrangement, the PD account of lines is automatically debited by the terminal when they render a service.
I don’t think the intention is to allow importers to take away the containers without paying the terminal handling charges. In the current circumstances, the shipping lines also do not allow the containers to be handed over to the importers till their charges are paid. Then only the delivery orders are issued. If the shipping line extends a credit and the terminal did not extend a credit, then it is for the importer to decide which is the best option. The logic behind the current decision is to enable the importer to avail the best possible option and optimum means to take the containers from the terminals. It neither directs nor forces anybody to compulsorily take this route. It only aims at allowing the importer to take delivery of his goods by paying less amount to the lines by way of THC.
Is the new arrangement a move to make more customers join the DPD and AEO programmes by offering them direct payment facility with the enticement of avoiding paying extra THC?
It is for the customers and the importers to (decide to) join the DPD and AEO programmes as these offer many facilities which help improve the cash flow and result in huge savings in cost and time for the manufactures/delivery of goods. It is in their interest to join these programmes which are actively pursued by the Indian Customs. The THC payment directly to the terminal, currently is not available for less than container load (LCL) imports. The idea is to raise the DPD and AEO programmes to almost 70-80 per cent so that time and cost for the importers are reduced by more than 70 per cent. This will also help improve the ‘Ease of Doing Business’ ranking so that India becomes more competitive and attracts investments from abroad.
Are you planning to extend the direct payment facility to Direct Port Entry (DPE) for export customers as well? If so, by when?
We are already planning to extend the direct THC payment facility to direct port entry for export customers as well and it will be happening in a week’s time. This will greatly reduce the cost for exporters and they will be more competitive in the international market.
Why is DPD not being pushed aggressively at other big private ports such as Mundra, Pipavav, and Krishnapatnam?
I propose to issue directions to the officers in charge of these ports to pursue this in right earnest so that it will be available to importers across the country. As far as Ease of Doing Business of both trade and other stakeholders are concerned, we propose to come out with a single window system to enable trade to have seamless interaction in a digital way, with Customs and the partner government agencies, financial institutions, terminals, shipping lines and other logistic stake-holders which will help them approach one portal and get the entire solution.