PRESS RELEASE: 04th January 2013
Problems Faced by the Seafood Industry
According to provisional figures for the half year April-September of 2012-13, there has been a decline in India’s marine products export, compared to the same period in 2011-12. Exports of marine products have registered a decline of 6.91% in quantity and 16.60% in US$ earnings. The industry is passing through a tough phase right now. Just a few months back, we had been celebrating the conclusion of our most successful fiscal, surpassing all previous export records and the US$ 3.5 billion mark. Though the current setback could be attributed to some unforeseen developments in the international scene, the impact has been devastating.
Some of the issues which require the immediate attention of and redressal by the concerned authorities are:
1. Increase in Reefer base rates
All the shipping lines operating from Indian coasts have unilaterally announced an increase of US$1500.00 in freezer container freight rates irrespective of the size of the container and port of destination.
All ocean freight carriers carrying goods to US ports are required to file their tariff rates with Federal Maritime Commission (FMC). However, these rates are not the actual tariff collected from the shippers. They will vary from shipper to shipper based on a special contract signed between individual shipper and the freight carrier. All other shippers will be subject to the open tariff rate filed with FMC. The tariff rates between the contracted rate and the open tariff rate for US East Coast may be as high as US$1500.00 or more. The lack of effective legislation for fixing the freight rates to specific destinations have contributed to this unhealthy practice of bargaining for the freight rates by the shippers.
Nevertheless, the freight carriers have neither discussed the increase with the shippers nor published their prior intention to increase the rates. Application of an across the board increase of US$1500.00 for all destinations and sizes of containers clearly indicates that the increase has been applied without proper methodology, justification or without supportive documentation. Apart from the FMC filed tariff, they have the option of further increasing the rates through such mechanisms as BAF (Bunker Adjustment Factor), CAF (Currency Adjustment Factor), GRI (General Rate Increase), PSS (Peak Season Surcharge) and CS (Congestion Surcharge).
It is truly amazing that this service provider (freight carriers) and their agents (Shipping Services Provider) who are operating from India with a license applied for and granted by the Government of India are allowed to be totally beyond any control measures of the Indian Government and can continue to operate with impunity and fix the scale of rates according to their whims and fancies.
Seafood shippers exporting low value seafood to destinations to East Asia and the Middle East will be put to serious problems as they will not be able to compete with their competitors who are not subject to this unilateral increase. . Many exporters have now started resorting to transhipment of through foreign ports to overcome the high freight charges they are asked to pay in Chennai, Cochin, Mumbai, etc. Even though it may take a couple of extra weeks in transit compared to direct service from Indian ports, exporters choose the indirect route as the savings on freight charges are enormous. The savings become all the more significant with increase in the size of cargo.
The freight rate to UAE for a 40’ reefer container (18000kgs) from Cochin is US$1700.00. An increase of US$1500.00 (88.32%) will increase the price of the product by Rs.4.60/kg which is more the profit that the shipper would make on the product. To East Asia and China (24000kgs), the increase will be Rs.3.44/kg. If the product is Ribbonfish, the freight increase will simply close the market for Indian Ribbonfish. In the case of value added IQF products, the increase will be between Rs. 5.90 to Rs.6.88/kg.
As can be seen from the above scenario, the future trade of seafood will receive a serious setback, if the intended freight increase is put in to effect.
2. Terminal Handling Charges (THC)
A major hurdle faced by the seafood export industry in India is the exorbitant Terminal Handling Charges (THC) levied by Indian terminal operator. Although the scale of rates for the THC is fixed by Tariff Authority for Major Ports (TAMP), the shipping services sector pays little heed to the regulatory body knowing full well that no penal action will be taken against them. The THC in Indian ports today are very high compared to ports in the neighbouring countries including Sri Lanka and the Middle East region
According to media reports, more than half of Colombo Port’s total cargo volume comes from India. Needless to say, this is due to the high charges at Indian ports. Reports further reveal that Colombo port is all set to increase its cargo handling capacity to three times the present capacity, in anticipation of a further increase in Indian cargo through it. It seems they are eyeing the possibility of Indian traders capitalising on the high economies of scale.
3. Anti-Dumping Duty
The US anti-dumping duty on frozen shrimp imports from India was imposed from August 4, 2004. The average duty imposed on Indian companies was 10.17 per cent and in the first AR this was cut to 7.22 per cent. It was further reduced to 1.69 per cent in the second AR and to 0.79 per cent in the third. In the fifth AR, this was raised to 1.69 per cent.
After the sixth Administrative Review (AR) it has been further enhanced to 2.51 per cent, from 1.69 per cent. Announcing the results of the sixth AR, the US Department of Commerce (DoC) reduced the duty for Falcon Marine Exports, the mandatory respondent for the review, to zero. The revised duty is applicable from February 2011 to January 2012. This decision of DoC will be effective from 2013, when the seventh administrative review completes.
Whereas the number of Indian companies exporting to the US in the year 2005 stood at 270, the number stands at 68, today.
4. CVD Petition Filed against Seven Countries including India
The ‘Coalition of Gulf Shrimp Industries’ of the U.S. has filed a petition before the International Trade Administration, the United States Department of Commerce (DoC) and the United States International Trade Commission (ITC), demanding the imposition of countervailing duties on certain frozen warm water shrimps from China, Ecuador, India, Indonesia, Malaysia, Thailand and Vietnam. The petition makes several allegations regarding the countervailable subsidies provided in India with regard to the manufacture, production and export of certain frozen warm water shrimp.
The petition identifies certain subsidy programmes as countervailable to the shrimp industry in India. The petition alleges that the Government of India is aggressively promoting its shrimp industry through the provision of generous government subsidies. It calls for the initiation of an investigation into the countervailable subsidies provided to the Indian shrimp industry, and to impose duties through a countervailing duty order in an amount that would offset the benefit conferred by these subsidies. The petition also asks the US Department of Commerce to include subsidies to producers of raw shrimp in India, in its investigation.
5. Withdrawal of SHIS for Marine Industry
The Director General of Foreign Trade (DGFT), on 5th June 2012, published the Annual Supplement of the Foreign Trade Policy (FTP), in which the Status Holder Incentive Scheme was expanded to cover more export product groups including marine products.
However, the words ‘Marine Products’ was neither mentioned in Chapter 3 of FTP, nor in the Handbook. Because of this anomaly, exporters couldn’t avail of SHIS benefits.
Surprisingly, on 28th December 2012, marine products were withdrawn from the scope of SHIS.
Our efforts to tide over the present crisis require the government’s support and assistance. Seafood exports have always figured on the ‘growth sectors’ side of the country’s economy, but periodic policy formulations haven’t done enough to improve upon the growth of this industry. As exporters, we have always felt that policy changes are effected without taking into account important factors like the comparative situation in our competitors’ economies.
The sector is already placed at a huge disadvantage as diesel is not being considered as an input for calculations in the erstwhile DEPB scheme and also in the Drawback scheme. Regardless of the serious obstacles faced by this sector, both due to external and internal factors, the supports of DEPB of 8% has been reduced to 3.5% drawback, and worse still, VKGUY of 5% has been reduced to 3%.
With the international markets, particularly the USA and EEC, being very weak and risky due to economic crisis, the sector is greatly concerned about its immediate and future prospects, which is compounded by the massive reduction in the support package for this sector. Unless the support packages are restored, both in terms of increase in VKGUY and Drawback rates, the sector and its employment force of almost 3 million people will face severe hardships in the days to come.