13 February 2013

New Zealand Does Not Enforce Incoterms

The Commerce Commission ruled that the terms of trade defined by the International Chambers of Commerce (known as Incoterms) are not conclusive in New Zealand. The Commission said, “In the absence of any sales agreement between the NZ importer and the Chinese seller, it is difficult to establish what exactly was agreed upon”.

Wikipedia says “The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries.” The Incoterms definition of CFR (and CIF) is that the “seller must pay the costs and freight to bring the goods to the port of destination.”

In New Zealand, the Commerce Commission decided not to act against forwarders who charged both exporters and importers for freight on shipments with CFR terms.

The decision to take no action was made in response to a complaint under the Fair Trading Act made by an importer against QUBE Logistics NZ Ltd (formerly POTA Global), ABBA Logistics Limited and Access Freight Forward Company Limited.

The complaint also alleged that the forwarders in question charged fictitious fees, such as ‘Forestry’ and ‘Port Security Fees’, which simply do not exist. The Commission found that “there is no clear evidence to prove or disprove that the services and related charges shown in the invoices were fictitious.”

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.

Importers should note that, in some cases, the forwarders collude with exporters in China to transfer freight costs to importers. We described earlier the operation of The China Scam.

The corrupting influence of these practises is already evident. What started as a scheme by a Shanghai-based forwarder (Amass) to overcharge New Zealand importers by setting up a local subsidiary (Abba), has now spread to other local forwarders, some of which have been in business for decades. Those companies are jumping on the overcharging bandwagon, bringing the entire sector into disrepute, as predicted by the Importers Institute.

Importers bringing in LCL (less than a container load) shipments, should change their terms from CFR (or CIF) to FOB and obtain binding quotes from local forwarders. The quotes should include the freight and all the destination charges. Importers who leave the selection of the forwarder in the hands of their suppliers run an increasing risk of being ripped off.