AusAID-funded Project ‘Compendium of Best Practices and Benefits of National Logistics Associations in Selected APEC Economies’ Bangkok Workshop Bangkok,

AusAID-funded Project ‘Compendium of Best Practices and Benefits of National Logistics Associations in Selected APEC Economies’ Bangkok Workshop

Bangkok, 27 February – 2 March 2012

Guidelines for Minimum Standards and Codes of Professional Conduct for Freight

Forwarders (FF), Non-Vessel Operating Common Carriers (NVOCC) and

Multimodal Transport Operators (MTO)

Dr Tengfei Wang, Economic Affairs Officer

[email protected], [email protected]

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Outline

An overview of transport development in Asia and UNESCAP activities in the region

Guidelines for Minimum Standards and Codes of Professional Conduct for Freight Forwarders, Non-Vessel Operating Common Carriers and Multimodal Transport Operators

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UNESCAP at a glance: Facts and figures

Regional development arm of the United Nations for the Asia-Pacific region

With a membership of 62 Governments, 58 of which are in the region

4 billion people (62% of world population)

26% of world GDP Engine of the world

economy Unbalanced

development

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Vision for Asia and the Pacific Region

Trans-Asian Railway

Asian HighwayAsian Highway

Trans-Asian Railway

An international integrated intermodal transport and Logistics system for Asia and the Pacific

-

Ministerial Conference on TransportAdoption of “Busan Declaration on Transport Development in Asia and the Pacific”

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The Building BlocksAsian Highway & Trans-Asian Railway

networks Asian Highway Network Trans-Asian Railway Network

• 142,000 km• 32 countries• Intergovernmental

Agreement entered into force on 4 July 2005

• 114,000 km

• 28 countries

• Intergovernmental Agreement entered into force on 11 June 2009

Inter-modal connections through development of dry portsInter-modal connections through development of dry ports

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International Integrated Intermodal Transport and Logistics System for Asia and the Pacific

Ministerial Conference on Transport second session will be held in Bangkok, Thailand during 12-16 March 2012.

The following issues in transport will be discussed at the Conference:– Transport infrastructure– Transport facilitation– Transport logistics

• Minimum standards• Experience sharing and partnership• Capacity building• …

– Finance and private sector participation– Sustainable transport development– Road safety– Transport and the Millennium Development Goals– Inter-island shipping– Connecting subregional transport networks– …

The forthcoming Ministerial Conference on Transport, Second Session

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the publication can be downloaded fromhttp://www.unescap.org/publications/detail.asp?id=1462

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Why Minimum Standard?Potential benefits for FF, MTO and LPS (1)

– Hayne Leland, Quacks, Lemons, and Licensing, A Theory of Mimimum Quality Standards, Journal of Political Economy, 87(6), 1979

– Professor Hayne E. Leland observed that when consumers cannot identify high quality physicians, all physicians must charge the same fee (equal to the average quality). As a result, the most talented individuals choose other professions (where their superior ability can be revealed). Only the low quality providers are left.

– Under these conditions, Professor Hayne E. Leland argued that setting minimum quality standards would raise the average price and quality of the product.

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Potential benefits for FF, MTO and LPS (2)• In 1970s, there were very few provisions

made for NVOCC in the United States. Many operators entered the market with “a phone, desk and Rolodex full of Chutzpah”

• The fly-by-night reputation of many NVOCC operators from early beginnings resulted in generally negative perception of the industry

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The implications of these two stories• To set up minimum standards and code of conduct may help the industry to build a positive image,

attract talent people to join the industry, and foster a healthy industry• On the other hand,• If the minimum standard is too high, this may

– prevent the poor and underprivileged to have an opportunity to learn and grow– limit market competition

• Thus, government need to – strike a right balance in making minimum standard– create a level playing field of the market

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The main issues covered in the Guidelines

• Government regulation and industry self regulation

• Compliance, monitoring and enforcement• Classification of operators• Minimum paid-up capital requirement• Staff and capacity building• Code of professional conduct• Liabilities and liability insurance

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Government regulations vs. Industry self regulations

• Government regulations– more visible, effective, credible and accountable in implementing and

enforcing compared with industry self regulations. [+]

– Government regulations are applied to all operators in the market. [+]

– Government regulations can be costly and slow to make. [-]

• Industry self regulations– speed, flexibility, sensitivity to market circumstances and lower costs [+]

But

– self-regulation often fails to fulfill its theoretical promise, more commonly serving the industry rather than the public interest. [-]

– Self-regulatory standards are sometimes weak, enforcement is ineffective and punishment is secret and mild. [-]

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Government regulations and industry self regulations for freight forwarders

Country Government regulations

Industry self regulations

Bangladesh Yes Yes

China Yes Yes

Indonesia Yes Yes

Republic of Korea Yes Yes

Sri Lanka Yes Yes

The Philippines Yes Yes

India No Yes

Lao PDR No Yes

Myanmar No Yes

Singapore No Yes

Thailand No Yes

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Compliance, monitoring and enforcement

• Compliance – refers to the situation that freight forwarders, NVOCCs and

MTOs comply with obligations and requirement of relevant and applicable laws, rules and regulations.

• Monitoring – means periodic or continuous surveillance of compliance.

• Enforcement – means the range of actions and measures an enforcing

authority may take in order to secure compliance.

These regulations are only useful and effective insofar as they can be complied and enforced through appropriate monitoring and enforcement mechanism.

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Effective and sustainable enforcement

• Government should play a more important role than industry association in monitoring and enforcing the compliance.

• Adequate resources should be put in place by government to ensure the effectiveness and sustainability of monitoring and enforcement

• The industry associations may use the enforcement measures such as warning, temporary suspension or expulsion of membership.

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In order to make any regulation relevant, the first

thing we need to know is

• who exactly are we talking about?

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classification of logistics providers

• In some countries, freight forwarders means cargo agents and Multimodal transport operators

• In some countries, freight forwarders are classified as logistics service providers.

• The same operator can be a freight forwarder (cargo agent), NVOCC or MTO depending on the jobs undertaken and relevant transport contracts.

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“Trying to grasp smoke “

• In Chicago, 1993• The Federal Maritime Commission's (FMC)

commissioner Ming Hsu told a meeting of NVOCCs in Chicago. Hsu stressed that as an industry, the NVOCCs do not fit neatly into any particular government area of transportation classification, making proper regulation difficult.

• "It's like trying to grasp smoke," she said. "From our point of view, you don't represent a united, uniform group." There is disagreement within the industry as to whether NVOCCs are more closely aligned with freight forwarders or carriers, Hsu added.

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Relevant rules and regulations on different operators in the selected member countries

Country Operator Responsible government agency

Applicable regulations

China Freight forwarder and MTO

Ministry of Commerce 1) Regulations of the People's Republic of China on Management of International Freight Forwarding Industry; 2) Implementation Regulations of “Regulations of the People's Republic of China on Management of International Freight Forwarding Industry”, promulgated in 1998 and revised in 2004; and 3) Regulations on foreign investment in freight forwarder in China, 2005

Ministry of Commerce and State Administration for Industry and Commerce

Notice on registration and management of international freight forwarders, 2005

NVOCC Ministry of Transport Regulations of the People's Republic of on Shipping, 2001

Philippines NVOCC Philippine Shippers' Bureau, Department of Trade and Industry

Administrative Order No 6, Philippine Shippers' Bureau - revised Rules on Freight Forwarding, 2005

International Freight ForwarderDomestic Freight Forwarder

Thailand Freight Forwarder Ministry of Transport Carriage of Goods by Sea Act, 1991Ministry of Commerce Civil and Commercial Code (first promulgated on

11 November 1925, and amended a number of times)

Multimodal transport operator

Ministry of Transport Carriage of Goods by Sea Act, 1991Multimodal Transport Act, 2005

Ministry of Commerce Civil and Commercial Code

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Logistics Association’S’

Indonesia Thailand Viet Nam

Indonesian Logistics & Forwarding Association(ILFA)[3,000 members]

Thai Logistics Services Provider Federation1. Thai International Freight Forwarders Association:2. Thai Air Freight Forwarders Association 3. Thai License Customs Brokers Association4. The Transportation Association5. Imports-Exports Transport Association

Vietnam International Freight Forwarders Association [140 members]

Indonesian Trucking Company Association[200 members]

Vietnam Ship Agents and Brokers Association (VISABA) [45 members]

Indonesian Courier Company Association[200 members]

Vietnam Ship Agents and Brokers Association (VISABA) [20 members]

Warehousing Association Vietnam Seaport Association(VPA)Logistics IT Association

Vietnam Automobile Transportation Association (VATA)

Shippers Association

Shipping line and ports Association…

Ship agents association

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The implication on this workshop

• one of your ongoing efforts is to “Draft Generic Template for Establishing and Developing a National Logistics Association “

• One question: – which logistics association we are talking about?

• Two solutions: – single out the commonalities of different

operators.– differentiate solutions for different operators

763,625

22,991

272,702

545,404

46,074 65,83379,264

0

300,000

600,000

900,000

China Indonesia Republic ofKorea (legal

person)

Republic ofKorea (legal

entity)

thePhilippines

Singapore Thailand

Minimum paid-up capital requirement for freight forwarders (in US$)

Industry self regulation

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Minimum paid-up capital requirement:

a global perspective

• Globally, 103 economies still require entrepreneurs to put up a predetermined amount of capital before starting registration or licensing formalities.

• On the other hand 39 economies around the world have reduced or abolished their minimum capital requirement for the past seven years.

• Developed countries tend to request lower minimum capital than developing countries.

• In the Asia-Pacific region, Australia, New Zealand and Singapore do not require minimum capital. China, India, Indonesia, Mongolia and Uzbekistan have higher minimum capital requirement than other countries in the region.

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UNESCAP suggestions on government regulations on minimum capital requirement

• It is desirable for freight forwarders, NVOCCs and MTOs to have initial capital to cover the operational costs and essential liabilities.

• When considering the amount of minimum capital – the initial operational costs for at least six

months + – average cost of possible liabilities – (or liability insurance).

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Staff: Government regulations on industry experience

• In China, a freight forwarding or MTO company needs to have at least five staff with three years of industrial experiences

• In Sri Lanka, according to Freight Forwarders and Non-Vessel Operating Common Carriers (Licensing) Regulations, 2011 (which is being drafted), a freight forwarding or NVOCC company must have a person in the capacity of director or general manager with minimum five years experiences and at least two permanent staff who have completed professional training and hold valid certification in cargo handling.

• In the Philippines, any one of the key operating officers must have at least three years experience in shipping, freight forwarding, and/or related activities, and must submit a certification or proof of employment from previous employers

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Industry self regulations on industrial experience

• Singapore: one director with five years experience in a management position in logistics service providing company.

• Sri Lanka: a director or general manager with five years experience in Sri Lanka in international freight forwarding.

• Myanmar: a director with at least three years of experience in international freight forwarding.

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Professional training

• Generally no requirement from government regulations

• China: – Either industry experiences– Or participate in the training programme

accredited by the Ministry of Commerce and subsequently the staff need to pass the relevant exam.

• Only in a few countries industry associations make it compulsory for its members to obtain professional qualification or training.– Indonesia– Pakistan

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Some Key UNESCAP Recommendations

1.The minimum requirement for core managing staff could be at least three years of industrial experience.

2.The countries with well-established training institutions and programmes should be encouraged to include the education/training qualification into minimum requirement.

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Regulations on Insurance

• ASEAN Framework Agreement on Multimodal Transport – Registration Requirements indicates that a multimodal transport operator shall

“have an insurance policy, a coverage from a protection and indemnity club, or an alternative of a financial character to cover payment of obligations for loss, damage or delay in delivery of goods under multimodal transport contracts, as well as contractual risks (Article 30)”

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Industry self regulations• Singapore Logistics Association which indicates that the applicant of

the membership should have ‘in force a liability insurance policy which is appropriate to the nature of the logistics and/or ancillary services provided by it and has a minimum coverage of S$100,000 for any one claim’. [around US$80,000]

• In Sri Lanka, Sri Lanka Freight Forwarders Association makes it imperative that their members need obtain valid and recognized liability insurance covering at least - legal liability of Rs. 10,000,000 and errors & omissions Rs. 5,000,000. [around US$ 83,528 and US$ 41,764]

• Canada International Freight Forwarders Association (CIFFA) requires its members to “abide by CIFFA’s requirement to secure, at member’s cost, a freight forwarders liability insurance coverage, with a minimum liability of C$ 250,000, per occurrence. Annual submission of proof of coverage required.” [around US$ 250,000]

• In Switzerland, Association of Swiss Freight Forwarding and Logistics companies (SWEDLOGSWISS) requires its member “prove existence of liability insurance – contractual and non-contractual exposure coverage is CHF 1,000,000”. [around US$ 1,116,320]

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Some key UNESCAP recommendations

• There is a need for freight forwarders, NVOCCs and MTOs to have the liability insurance coverage.

• It is desirable that the NVOCCs and MTOs have full scope of insurance coverage, such as third party insurance, customs duties insurance, transport liability insurance and liability insurance for errors and omissions.

• If an ASEAN member country is a Contracting Party to ASEAN Framework Agreement on Multimodal Transport, 2005, the liabilities of a MTO should be in line with the Agreement.

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Code of Profession Conduct and standard trading conditions

• A template of code of professional conduct has been developed by the UNESCAP for industry association.

• The FIATA Model Rules for Freight Forwarding Services may be considered by an industry association as a basis for developing a country specific standard trading conditions.

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Conclusions and some implications for your ongoing work

• It is essential for the government and industry association to work together to develop the industry

• Government should play an important role in making relevant rules, regulations and create a level playing field for the logistics operators

• Government should play the dominant role for monitoring and enforcing the compliance of the relevant rules and regulations by logistics operators. Industry association can play an active role in monitoring the market players and assist government in enforcing the rules and regulations

• Industry association should play an important role in– capacity building and human resource development– Advocacy of the industry– Policy making

• It is important to identify the logistics players, single out the commonalities and differentiate solutions for different operators