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Nov.30, 2015

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GOVERNMENT WATCH INTERNATIONAL | WASHINGTON | CUSTOMS | SECURITY | REGULATION 14 THE JOURNAL OF COMMERCE NOVEMBER 30.2015 CHINA'S CRACKDOWN ON ocean carrier sur- charges is forcing container lines to lower certain charges at a time when overca- pacity and rate competition are reducing carrier profits. Eleven carriers, including Maersk Line, CMA CGM and Hong Hai Shipping, agreed to reduce certain "non-appropri - ate" surcharges this month, saving Chinese exporters millions of yuan, according to information posted by the National Development and Reform Commission at The crackdown on surcharges should help reduce the costs of exporting at a time when global economies are slowing. China's exports face stiff competition from South- east Asia because of higher labor costs. China's exports contracted 3.7 percent year-over-year in September after declining 5.5 percent in August and 8.3 percent in July, according to the General Administration of Customs. China devalued its currency in August in a move to boost exports. "Chinese efforts to reduce carrier sur- charges are not entirely unexpected, given lackluster performance of China's exports, and should be seen as one of several gov- ernment initiatives to try to restore China's competitiveness," Tom Behrens-Sorensen, a partner in Navisino Advisors and former chairman of Maersk China, told The Jour- nal of Commerce. When terminal-handling charges were introduced in the 1990s, the Ministry of Commerce and the Chinese Shippers Association vehemently opposed them, he said. "The outcome this time around will depend on carriers' resolve and ability to build their case convincingly and to lobby relevant stakeholders." Government officials also are targeting fees charged by ports and marine terminals, such as pilotage and security fees. A security fee at Shanghai also was scrapped recently, one source told The Journal of Commerce. Surcharges have come into the cross- hairs of Chinese regulators because, with overcapacity and slowing trade growth decimating freight rates, they account for a much larger percent of the total freight cost compared to prior years, and it's often the Chinese exporter versus the overseas buyer who pays them. Surcharges five to seven years ago accounted for 20 to 25 percent of carriers' revenue, according to one carrier executive. Now they can be 40 to 45 percent on certain routes. "Currently, the shipping industry is depressed, and shipping companies hope that they can rely on low freight rates to get hold of cargo, and can make up the gap by adding shipping surcharges. The weird pricing structure of shipping surcharges and shipping freight rates has hampered the market orders severely, and so we pay high attention to this issue," Gao Hai Yun, head of the international department of the Ship- ping bureau of the Ministry of Transport of China, told China Transportation News. The increased scrutiny of container lines isn't limited to the east-west trades such as the trans-Pacific, but is focused globally. The surcharges being put under the microscope aren't ones implemented by carrier agree- ments, but rather those originating from local offices and copied by other carriers. For years, the government has viewed sur- charges with suspicion, based on complaints from exporters, but it was only recently that a senior-level Chinese government agency such as the NDRC got directly involved, reflecting the growing urgency in China to remove barriers to exporting. Maersk Line canceled the port of origin surcharge and clearance fee and lowered several other surcharges effective Nov. 1, saving shippers 55 million yuan (nearly $8.7 million), according to the National Development and Reform Commission. CMA CGM adjusted its surcharges on Nov. 15, saving shippers 37 million yuan, according to the commission. CHINA CRACKDOWN SQUEEZES CARRIERS In its latest effort to revive exports, China pressures ship lines and terminals to curb assessorial fees Surcharges five to seven years ago accounted for 20 to 25 percent of carriers' revenue. Now they can be 40 to 45 percent on certain routes.

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