In a bid to decrease the logistical costs, Indian Customs directed the Terminals to allow both Container importers and exporters to make direct payment of the Terminal Handling Charges (“THC”) instead of doing it through the Shipping Lines/Container Operators (“CO”)i. The reason behind this is due to the difference in the THC’s being charged by the Terminals and the CO’s. While the Indian Customs may be entitled to direct the Terminals to facilitate the interests of the Exporters and Importers, we believe that they should have considered the process being followed and also have sought inputs from the CO. This article would touch on the possible ramifications arising out of the Customs Directive.
- The general practice is for the CO’s to effect shipment on Container Yard to Container Yard basis (“CY/CY”ii). However, allowing payment of the THC’s directly to the terminal would change the shipment terms to either Free Out (“FO”) for exports and Free In (“FI”) for imports.
- Exporter (FI):
- Storage Costs: The Exporter may directly contract with the CO for the carriage of his goods or may use the services of an intermediary (Freight Forwarder) to assist him. With respect to the CO, they would mention the name of the party who contracted with them as “Shipper”. The Bill of Lading contract, in a port to port shipment, comes only into effect once the containers have been loaded. Absent any agreement with the CO, any costs incurred for storage of containers inside the terminal due to either delay or cancellation of the intended vessels would have to be borne by the Exporters by themselves. We understand that this issue frequently crops up for containers loaded at Inland Container Depots and railed to the gateway ports, particularly when the rake arrives earlier or later than that scheduled necessitating additional storage costs.
- Claims: If the Terminal contracts with the CO (who in turn collects the THC from the exporter), the CO would be responsible for any losses arising from the cargo. However, in the case where the Shipper contracts directly with the Terminal, the CO would be entitled to direct the Terminal to deal with the Shipper for any issues arising prior to loading of the containers (as the period of responsibility would only incept after loading).
- Importer (FO):
- Title to cargo: In normal circumstances, the consignee would present the Original B/L to seek delivery of the cargo and make payment of the relevant charges (which would include the THC). If the consignee wishes to deal with the terminal by themselves, the CO would be at risk should they allow the containers to be discharged prior to the presentation of Original Bills of Ladingiii. Accordingly, it would be prudent for CO’s to insist that any direct payment of THC’s would only be applicable subject the Original Bills of Lading being either surrendered or presented prior to discharge. We believe that in the majority of the cases, negotiable Bills of Lading will not be available with the consignee prior to discharge of the containers as they would be still under negotiation.
- Off dock CFS: We understand that due to storage constraints at the port, containers are trucked to various off dock CFS and where the delivery is then taken by the consignee. We further understand that some shippers/consignees insist on the use of some specific off dock CFS due to various reasons such as an ongoing contract, geographical location, etc. The problem which would arise is that if the CO declares the off dock CFS, they remain liable to the CFS till such time the consignee comes forth to take delivery. If the consignee do not come forth to take delivery or abandon the cargo, the CFS would pursue the CO for recovery for all associated costs such as container storage, disposal costs etc. In normal circumstances, the CO would be able to negotiate with their regular CFS operator but in this case, given that it is a “one-off” contract, they may not have any bargaining power to deal with the claims pursued by the CFS. Accordingly, it would be best for any such arrangement (use of off dock CFS nominated by the shipper/consignee) to be agreed only if the consignee presents the Original Bills of Lading well in time to make such nominations.
- We understand that some CO have approached the Indian Courts for a stay against the customs order issued and relief has been granted by the Madras High Courtsiv.
- Whether the CO’s should accept shipments to be effected under CY/CY or FI or FO basis would depend on both the commercial viability and risks associated with the changes (and which have been highlighted above). We would recommend that the CO’s consider the same prior to accepting additional risks arising from the changes.
i. https://indiaseatradenews.com/terminal-handling-charges-govt-steps-in-to-resolve-dispute-over-levy a
ii. https://shippingandfreightresource.com/what-is-cy-cy-term-in-container-shipping/# .
iii. The CO has both a Common Law and Contractual duty to deliver the cargo to the holder of the Original Bills of Lading failing which they would be liable for the full value of the cargo as damages.