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No Free Lunch

Overcharging with impunity

Some business people simply don’t have a conscience. It’s bad enough that too many people in government think nothing of stealing taxpayer money to enrich themselves. The reality is, corruption is not a monopoly of government, and whether in a private company or in the public sector, excessive greed all adds up to keep us from achieving a more dynamic and broad-based economy that uplifts all lives.

I recently wrote of how my son had to pay through the nose to take possession of a “free” warranty replacement for a defective part for a power tool he had bought earlier. The part was a $65 replacement tabletop for a table saw, but he had to shell out nearly P30,000, or about 10 times its actual value, to get hold of the item shipped from China. For a struggling small entrepreneur, it was a huge dent on his income.

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I was led to research on the inordinate costs he had to incur, and found that his experience was no isolated case. Thanks to insiders in the trade services industries that include freight forwarders, warehouse operators and truckers, I learned of how excessive greed there preys on small businesses relying on small shipments of imported inputs (it’s not as bad for large firms able to import by the container-load). For many years, I’ve been looking at how government inadequacies stifle small business development in our country, but didn’t expect that formidable obstacles lie within the private sector itself.

In hindsight, cryptic warnings should have warned us of the no-win predicament my son was to find himself in. When the

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China manufacturer of his defective product readily agreed to replace the part for free, they alerted him on “substantial costs he may have to pay” on the receiving end. When he mentioned his forthcoming shipment to someone in the freight forwarding business, that person advised him to forget about the item and have it returned, as “it wasn’t going to be worth it.” But he set those warnings aside, thinking it couldn’t be all that bad.

Well, it was, and more. He spent three times our worst expectations. For a small metal tabletop, the biggest costs were forwarding charges (totaling nearly P11,000), warehouse charges (more than P7,000), and trucking (P3,000). There were also inordinate charges for customs processing (P3,500, yet no duties were due), handling (P1,600), documentation (P1,000), designated examination area fee (P1,000), and others.

From what I’ve learned, it’s the freight forwarders and the off-dock container freight station (CFS) or warehouse operators who have been overcharging importers somewhat arbitrarily, and with impunity. The whole scheme, as described to me, came about as follows: Many years ago, these firms started “bribing” their respective customers to use their services, with “rebates” that, along with profit margins, swelled over time. Freight forwarders pay rebates to exporters abroad to get them to use their services; it amounts to “buying” their cargo. (No wonder my son’s China supplier was happy to ship a “free” replacement part; they were getting paid for it by someone else!)

Meanwhile, the CFS operators pay the freight forwarders similar “rebates” to patronize their warehouses. All those added costs, along with arbitrary profits, are hidden in the total amount charged to the hapless importer, who pays for it all, on a per cubic meter or per ton (whichever leads to a higher amount) basis.

To get a sense of the numbers, the rebates used to be at $100 per 40-foot container ($50 for 20-footers) back around 1998. By 2006, these started skyrocketing and peaked at P12,000 ($200-$300 depending on the exchange rate) per cubic meter or ton, translating to a whopping $8,000 per 40-foot container (around $3,000 per 20-footer). This amount is shared between the foreign forwarder and their local agent or branch. Meanwhile, Mayor Joseph Estrada’s Manila truck ban gave truckers the excuse to jack up rates from P3,500-P4,500 to P10,000-P12,000 per container—which have stayed there since, even as the ban is gone.

All these unwarranted trade costs lead to much higher costs of commodities than they need to be. So don’t think it’s only dishonest public officials making life hard for all of us.

[email protected]

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