China ends shipping levy stranglehold

PUBLISHED : Saturday, 22 April, 2006, 12:00am
UPDATED : Saturday, 22 April, 2006, 12:00am

Powerful ministry says lines must dump cartel-like system as handling fees are ruled part of freight rate

China's powerful Ministry of Communications has taken the unprecedented step of fingering international shipping lines for anti-competitive behaviour, saying their cartel-like application of terminal handling charges at mainland ports must change.

The long-awaited decision orders container shipping firms such as Hong Kong's Orient Overseas Container Line to change the lock-step manner in which they apply the levy - expected to add 35 billion yuan to Chinese exporters' transport costs this year - or face fines and, in some cases, legal action.

It takes particular exception to the way shipping conferences have applied the levy - 340 yuan for each 20-foot box - in every province outside Guangdong 'at the same time and the same level', not allowing their members to act independently and despite wide disparities in the cost of calling at various ports.

'Such a decision de facto limited the right of [exporters] to choose carriers freely,' the ministry said in a decision rendered on Tuesday after a 40-month investigation. 'It was not good for the normal price competition among liner companies and [it] disturbed the order of the international shipping market.'

Shipping conferences whose members ply Pacific, Asia-Europe and intra-Asia routes began applying the terminal handling charge - effectively a basket of costs shipping lines say they need to recover for calling at ports - on January 15, 2003, despite strong protests from China's exporting community.

The ministry's finding will turn the spotlight back on Hong Kong, where the lack of an anti-competition law has weakened both the government's will and its ability to settle the long-running dispute, despite clear evidence the levy has damaged competitiveness.

According to the Hong Kong Shippers Council, a fierce opponent of the levy, the local levy is the highest in the world, ranging from US$231 to $274 per 20-ft box depending on destination. In Guangdong, the charge ranges from US$45 to US$141 at all ports.

The ministry did not find the levy illegal, as exporters had hoped. But it concluded the handling charge is part of the freight contract, supporting exporters' claims that it should be paid by cargo buyers, or consignees.

'It is a very positive result, to say the least,' Cai Jiaxing, a vice-president of the China Shippers' Council, said yesterday.

'According to our interpretation, [the ministry] has made it very clear that the handling charge is part of the freight rate and cannot be separated.'

By including the charge in the freight contract, the ministry has paved the way for exporters to seek compensation through the courts against shipping lines' practice of withholding cargo belonging to parties that refuse to pay the levy.

'There will be many cases in the future,' Mr Cai said.

The ministry's demand that carriers be allowed to set independent handling charge levels opens the door to non-conference members such as the China Shipping Group dropping charges to capture market share, effectively breaking the cartel-like application of the levy.

The Hong Kong Liner Shipping Association declined to comment on the ministry's decision yesterday, saying it was a commercial decision between the individual carriers and the cargo owners.