Industry condemns Chinese ‘kickbacks’

Despite industry-wide condemnation, the China import service fee (CISF) appears to be here to stay. Particularly prevalent on the China and India routes, it’s beginning to spread globally and involves a kickback paid to the overseas exporter by his appointed forwarder or groupage operator. Effectively, for every cubic metre imported, NVOCCs are paying kickbacks of up to US$50 per freight tonne back to the exporter – and if they don’t comply they simply lose the business. Managing director of independent consolidator CFR Freight, Martin Keck, was the first to publicly condemn it several years ago. At the time he called for intervention to prevent further escalation. Although perhaps not “illegal”, an industry source said it was certainly unethical and appeared to go against the terms of sale. She cited an instance where a CIP Durban contract with freight and insurance “prepaid” reflected an amount equal to the ocean freight as a CSIF fee in US dollars on the local degroup agent’s invoice. This had to be paid before release could be effected. “Furthermore, as is becoming more and more common, the cargo which could have been sent in a 20 ft GP FCL was shipped in a 40 ft groupage box with substantially higher SA land side charges,” she said. “The CSIF fee, whether paid back to the exporter or his agent, may also impact on the value for duty purposes, which could result in the under-collection of duty and VAT, which is of serious concern to the industry,” she added. Mike Walwyn of Seaboard Maritime Services believes the answer is to insist on buying ex-works or FOB. “That way you’ll get a realistic freight rate, but you’ll also be in a position to negotiate reasonable landside charges with the groupage operator here in SA, and your cost chain will at least be transparent,” he told FTW. “I would imagine that this fee has affected virtually anybody who imports from China or India because most sales from those areas are conducted on a CFR or CIF basis, which means the exporter gets to choose the carrier. When the cargo arrives here the importer and/or his clearing agent is presented with a bill which incorporates the freight that should have been charged to the shipper.” And what makes it worse, says Walwyn, is that the local operators often try to disguise this, “hiding” it away in items like unpack charges and cargo dues. “When you see “unpack charges” of R750 per cubic metre, and you know that the cost to the operator is no more than about R120, then you know that something funny’s happening.” “It’s just not right,” says CFR’s Keck. “It started around ten years ago and although it’s very prevalent on the China and India routes, if you talk incentives we have to pay the whole world. Maybe not at the same level, but it can only get worse.” And South Africa is clearly not alone. Freightbrain International UK talks about “the games that are played by suppliers that end up costing UK importers more. “On imports from China suppliers take great delight in offering “CIF” Terms but then do not actually pay any freight charge or pay a very low rate to their favoured Chinese forwarding company,” says the company. ”On arrival into the UK the freight charge is either hidden in a multitude of UK landed and terminal charges or is simply added to the bottom of the invoice as a “CISF” or both.” A nice use of an acronym but a rather unpleasant way of clobbering the poor UK importer with what is in effect a rebate or claw back to China to cover an uneconomic freight charge, the company adds. In terms of duty payable in South Africa, if it is genuinely part of the international freight cost then it would fall outside the value for duty purposes. But if the contract of sale is under “C” terms and a further amount over the invoiced price is paid to the supplier, Customs may consider such an amount to constitute a dutiable charge, says Dave Watts of the SA Association of Freight Forwarders KZN.