Sur-CHARGE!

Sur-CHARGE! Asian Shippers' Council take surcharge fight to Incoterms arena to protect small exporters.

By Eric Johnson

      The Asian Shippers' Council has been battling for years to weaken the leverage it says major shipping lines enjoy over small export shippers in Asia.
      The ASC ' and its constituent national councils ' have repeatedly sought to bring an end to liner conferences governing trade to, from and within Asia, often with little success. More recently, it has argued against the imposition of sea freight surcharges on the sellers of goods.
      Now the council has brought its fight to a new arena, one which governs the very lexicon shippers and carriers use to describe their shipments. In August 2009, the ASC filed a set of comments with the International Chamber of Commerce as the ICC updates its so-called Incoterms. The comments, made available to American Shipper in mid-April, urged the ICC to clear up the often-confusing terms of sea freight contracts and prevent carriers from, as the ASC alleges, taking advantage of small- and medium-sized exporters with little clout.
      Incoterms ' short for International Commercial Terms ' are standard trade definitions most commonly used in international sales contracts. The rules are devised and published by the ICC (which has actually copyrighted the term). The chamber is updating the terms, a process it dubs Incoterms 2010. It's the seventh such update since Incoterms were first introduced in 1936 and the first since 2000.
      The new edition is expected to enter into force on Jan. 1, 2011, provided it moves through ICC's various committees on schedule.
      The ASC was certainly not alone in submitting comments to the ICC. Frank Reynolds, the U.S. delegate to the ICC Incoterms Committee, told the industry Web site Trade Law News that 51 single-spaced pages of comments from 23 countries were submitted to the committee prior to it releasing its fourth draft of Incoterms 2010 in May.
      Peter Gatti, executive vice president of the National Industrial Transportation League, told American Shipper as far back as September 2009 that the update was shaping up to be a pivotal moment in the industry as a whole.
      But the update could be even more vital for Asian shippers, as their avenues of recourse appear to be running out. As American Shipper reported in November, export shippers in Asia are growing increasingly agitated that they occupy the bottom rung of the supply chain ladder (November American Shipper, pages 26-28, or online at www.AmericanShipper.com/links).
      It was no surprise, then, to see the ASC appeal to the ICC to resolve Asian shippers' complaints. In particular, the ASC wants the new set of Incoterms to more clearly define what constitutes a free on board (FOB) shipment so that ocean carriers aren't able to levy surcharges on the sellers of goods. Those levies can typically include terminal handling charges (THC), documentation fees, or even port congestion fees.
      In its comments, the ASC said it is seeking to have the ICC 'recognize and limit the usability of the term FOB and give due consideration to loading conditions in different ports and to make sure that buyers or sellers who are having unequal bargaining power would not force one party to use FOB instead of FCA (or free carrier, in which the seller of the goods is responsible for delivering the goods to a named destination). Proper guidance and more specific description on terms would give strength to regulatory bodies and government institutions with the necessary guidance to stop anticompetitive practices and to introduce laws to facilitate competitiveness in ocean transport pricing in the respective countries.'
      The ASC said the 2000 update did not fully clarify the FOB terms from the point of view of shippers, bearing in mind there are two parties in any transaction.
      'The Incoterms 2000 edition, whilst giving the due consideration to the term FOB, has left it without scrutinizing it for the further benefit of shippers,' the ASC wrote. 'As a result service providers ' especially shipping lines ' have interpreted it in an unfair manner to make extra revenue by misinterpreting and ignoring the ground conditions when this term is used ' especially in containerized cargo by various trading parties not knowing the loading conditions of ports.
      'Whilst the Incoterms highlights the discrepancies of FOB it has failed to limit the use of the term, leaving room for major variations and interpretations under common practices. At the same time, inequitably between buyers and sellers has also exposed the weaker party to be vulnerable against unfair practices when transport contracts are entered into for sea freight contracts. It is proven beyond doubt that when the term FOB is used, in most cases costs are duplicated and hidden in freight charges. The genuine attempt made by ICC through Incoterms 2000 by introducing the term FCA has failed to help shippers in a meaningful manner as buyers with more bargaining power have failed to identify the importance of this term and under the disguise of common practice force FOB contracts.'

Glimpses of Incoterms 2010

The shipping industry can expect 'substantial changes' when the International Chamber of Commerce releases its Incoterms 2010 update, said Frank Reynolds, U.S. delegate to the ICC's Incoterms Committee.       'There will be fewer rules than the 13 in Incoterms 2000, and several are brand new,' Reynolds said in a note in mid-May about the progress of the update.       The rules are devised and published by the ICC and are meant to standardize trade definitions. But the update process is closely guarded, with Reynolds one of only two people in the United States to have seen the latest draft, which was approved May 6 by the ICC's Commercial Law and Practice Commission.       'The last step in this process is consideration by the ICC Executive Board, which is scheduled to meet on Sept. 16-17,' he wrote. 'If all goes as planned, Incoterms 2010 will become a reality upon their approval.'       The new rules would then go into effect Jan. 1, 2011.          'They will be much more user-friendly, particularly for non-lawyers,' Reynolds said. 'Specific changes will facilitate use in U.S. domestic trade. And consistency will be far greater than previous versions.'

      The shippers' council has long argued specifically against carriers' ability to assess terminal handling charges on export shippers, rather than the ultimate owner of the goods. ASC Chairman John Lu said the carriers are able to do this because they have leverage over small export shippers, as opposed to large import shippers, who often have leverage over carriers.
      'Carriers charge costs such as THC and many other non-transparent charges from shippers without any rational explanations,' the ASC wrote, adding that rational for such charges should be clearly delineated in the Incoterms update 'without keeping any space for loopholes.'
      In its comments, the council stressed that the new set of Incoterms should match the realities of modern transport contracts.
      'Given the varied circumstances and technology of loading containers to the ship, the control of goods and what is paid to a transport agent/carrier should be based on the identity of the party who controls and negotiates the transport contract/document,' the ASC wrote. The bill of lading 'is the legal document for the status and ownership of the goods and transfer of carriage responsibility at a point of loading or unloading of containers.
      'This aspect has to be highlighted by the ICC in terms such as FOB so that the buyer and the seller will be only allowed FOB terms if goods are handed over alongside ship's rail and nullify the validity of any other condition to use the term FOB. This condition will force the party to either use the term FCA or clearly identify the cost separation at as per (the bill of lading).'
      The ASC noted most large buyers tend to consolidate shipments from many countries and ports into one contract with transport companies. In doing so, they sometimes 'ignore the guidance of Incoterms and just stick to the term FOB/CFR which makes the suppliers vulnerable for surcharges and for ad-hoc forced payments by transport agents.'
      CFR refers to contracts where the seller pays for transportation to the origin port and is responsible for the goods until it crosses the ship's rail.
      More than an update on the issue of FOB, the ASC said it seeks a radical overhaul of the industry's nomenclature as it relates to containerized shipping.
      'Since the late 1960s, particular difficulties have arisen in maritime trade where containerization (which occurs when the goods are prepared and stowed in containers before the arrival of the ship) has made the traditional FOB point wholly inappropriate,' the council said. 'It bears repeating that FOB, CFR and CIF (cost, insurance and freight, which is similar to CFR, but also includes a stipulation that the seller procure insurance on behalf of the buyer) are appropriate only when there is delivery to the carrier by handing over the goods to the ship ' specifically across the ship's rail ' which simply does not take place when the goods are containerized.
      'When containerization takes place, the goods are either collected at the seller's premises (a common practice when homogenous cargo is stowed by the seller in containers constituting a full load, i.e. full containerload) or delivered to a cargo terminal where the goods are stowed in containers for later lifting on board the container vessel (the normal case when heterogeneous goods do not constitute a full load, i.e., less-than-containerload). The parties may think the difference really does not matter and may believe that things will sort themselves out in any case. This is incorrect.'
      Whether the ICC agrees with the Asian Shippers' Council remains to be seen. The update process is being conducted under tight wraps, though it is expected to be delivered on schedule. Either way, this won't be the last the industry hears about Incoterms in 2010.