You’re Paying False Import Charges and Don’t Even Know That
Recent complaints made by importers against several freight forwarder charges are disturbing. It shows that there is a structural problem in the way importers are doing business, and a lack of clarity as to what ‘rules’ apply.
Put simply, importers are being landed with costs which should never apply to them. They are buying under cost and freight rate (CFR) terms whereby the overseas seller pays the freight for the goods to arrive in New Zealand, but myriad unexpected extra import charges are arising when the goods get here.
Some of those fees have been challenged successfully in the Disputes Tribunal. Clearly, something needs fixing so that there is transparency and certainty in what rules apply.
Before we analyze this issue, it should also be noted that the accusations raised are not a blanket condemnation of all forwarders or non-vessel operating (NVO) consolidators.
Others, similarly, will feel they are totally above board. That said, let’s look at how this current situation has developed, and plot a course through the developments.
The issue came into the public spotlight initially in February as a result of a Commerce Commission decision on a complaint made under the Fair Trading Act by an importer against QUBE Logistics NZ (formerly POTA Global) and Access Freight Forward Company.
The complaint alleged the forwarders had not adhered to the International Commercial Terms (Incoterms) definition of CFR terms by which the “seller must pay the costs and freight necessary to bring the goods to the named port of destination”. It also alleged the forwarders had charged fictitious fees under headings such as “Forestry” and “Port Security”.
However, the commission ruled that Incoterms merely inform the sales contract, and by themselves don t constitute contract terms. Nor do they define the price payable, or credit terms. In other words, only the specific contract between the parties counts in the end.
In this particular case, the commission couldn’t find any evidence of a contract or written agreement between the Chinese seller and the importer, or indeed between the forwarders/agents in New Zealand and the importer.
So the commission found the “lack of clear evidence” meant it could not establish what exactly was agreed on it, therefore, decided to take no further action. This enraged the Importers Institute which immediately said that the failure to enforce Incoterms left importers vulnerable to exploitation.
“Forwarders charging importers freight on supposedly-prepaid shipments and making up outrageous destination ‘fees’ can continue to do so, sure in the knowledge that the New Zealand Commerce Commission will not act against them. Importers in New Zealand are now fair game for those operators,” it said.
Litigation has resulted in specific disputes between individual importers and forwarders. One Disputes Tribunal decision sighted by the Shipping Gazette™ involved about $1700 of additional charges imposed on an importer who had to pay up otherwise the goods would not have been released.
Of this, the tribunal ordered just under half to be reimbursed to the importer. The forwarder agreed that those sums should not have been charged for a CIF consignment (cost, insurance and freight). Nonetheless, it argued it should not have to repay the money because it was only charging what it was told to bill by the overseas forwarder.
That ‘defence’ was overruled. The tribunal found that the remaining amount was justified — although the referee also questioned the authenticity of these business practices, adding “until such time that these import charges are regulated, a usual business practice may constitute a justifiable reason for charging them”.
The implied suggestion from a tribunal referee that the forwarding industry may benefit from regulation would, I guess, have caused a few ripples within the industry. A referee does not have the stature of a judge but his or her rulings carry the weight of law and will, if necessary, be enforced by the courts.
It is understood other importers have also been successful in obtaining refunds through the Disputes Tribunal. Subsequently, a Christchurch importer contacted the Shipping Gazette™ to highlight what he claimed were “bogus charges” amounting to about $300 under the definition of a “cargo import service fee” and “cargo handling charge” for a consignment” moving from China via Auckland to Christchurch.
This led to the Importers Institute revealing what it feels is a simple scam.
“A forwarder in China will offer a very low freight rate to an exporter there and secure the business on that basis. ‘The forwarder’s office in New Zealand then charges part of the freight to unsuspecting importers, who thought that the freight was included in the price of the goods. The New Zealand offices of the Chinese forwarders will then further gouge the importers by charging them grossly inflated and made-up charges disguised as ‘fees’.”
Another source in the industry contacted the Shipping Gazette™ to say that while he felt these additional charges were “morally bankrupt”, the problem is that legally there is no clear ground.
He also endorsed the claim of the Institute that overseas forwarders may be directing their New Zealand arm on how to apply additional fees, leaving the local forwarder powerless. If they refuse to do so, they will lose the overseas business.
Such practices also put pressure on reputable New Zealand forwarding companies as they face losing freight controlled by overseas exporters to their competitors, who quote lower freight rates, only to add on extra costs to Kiwi importers.
Where to from here?
From the forwarders’ side, CBAFF is clearly unhappy that some practices are bringing the entire industry into disrepute. Although it won’t discuss the pricing of its members, it has supported the stance of the Importers Institute and has urged the Commerce Commission to send a “clear message” on any Incoterms breach.
It has also warned a failure to abide by Incoterms can lead to private legal action or being brought before the Disputes Tribunal. Other players in the industry are also concerned. One customs broker wrote to the Shipping Gazette™ to say that nothing will change unless the receiving forwarder says ‘no’ to overseas pressure to apply local charges.
He added: “Yes, intervention could be called price-fixing but something needs to be done as such continued practices are making our industry look second rate and very shifty.’
The fact the forwarding industry is self-regulating means it is subject to general business law, but no specific set of binding regulations applies to its operations. The failure to recognize Incoterms as being the terms of trade for New Zealand, instead of merely informing individual contracts, seems to me a core point.
From my reading of the situation, the solution could be in the Government, via whatever law it chose to amend, making Incoterms the necessary base of any freight/trading contract (as opposed to merely informing contracts).
The Importers Institute takes a slightly different view. It feels the existing law should be enough to handle the situation. Instead of new laws, the problem would be solved if the Commerce Commission enforced the application of Incoterms correctly. The institute also feels that if legal disputes do end up in court, the terms of a contract would probably be interpreted with reference to Incoterms definitions as the default.
These represent two views on a way forward. For now, what appears to be clear is that problems arise if importers simply leave it to their overseas suppliers to select the forwarder. The Importers Institute recommendation is clear — the best solution is for importers to take control of their freight arrangements, as opposed to leaving those matters in the hands of their suppliers.
They should change their terms from CFR (or CIF) to FOB and nominate forwarders whom they trust and from whom they can obtain binding quotations for freight and destination charges. That may solve the immediate problem, but something needs to be enshrined in law to eradicate these practices for good.
Source: NZ Shipping Gazette
We’d love to answer any of your questions! Contact us now.
P.S. Do you know of other people that will find this article useful? Please share it on social media. Thank you!