Good news for Nepali traders

-This article was originally published by Akash Shrestha in The Himalayan Times on October 16, 2016.

The last week of September harboured a good news for Nepalese traders; on the joint initiative of the Himalayan Terminal Pvt. Ltd (which manages the Inland Clearance Depot (ICD) at Sirsiya, Birgunj) and Container Corporation (CONCOR) India (which handles and transports containerised cargo by rail and road), some shipping liners have consented to issuing a multi-modal bill of lading to Nepal-bound cargos originating from third countries (beyond India). Should this come into operation, the cost of trading across borders for Nepalese traders will come down substantially, which can further act as a harbinger for greater volumes of cross-border trade for Nepal.

Understanding the Multi-Modal Bill of Lading (MM-B/L)

MM-B/L here means that the shipping liners will take full responsibility of carriage for the entire journey of the cargo (from the origin to the final destination). The shipping liners will use multiple modes of transportation (trains, trucks, planes, etc.) as need be to complete this journey. Previously, these liners dropped off the Nepal-bound cargo at the Kolkata port, and the entire burden of bringing it to Nepal had to be borne by the Nepalese importers. With that, Nepalese importers had to comply with a ‘two-to-three-week turn-around period for the containers’ condition of the shipping liners. They would also be subject to heavy demurrage in case of their failure to comply and had to deal with all Indian authorities during the entire transit process by themselves (which they will still have to, even after the MM-B/L, but now it opens doors for alternatives like trans-shipment which we will talk at greater length below). With this recent development, the former is taken up by the shipping liner itself, and the latter can be dealt with diplomatically.

The benefits 

Should it materialise, this new development will, first and foremost, reduce the time, money and energy cost of doing business for Nepalese importers. This will also reduce the document compliances with a single document taking care of the entire journey. Further, the document offers predictability as traders can now be certain of the cost of their import on the basis of the landed cost. Landed cost covers costs including the price of goods, transportation fees, customs fees and all other costs that have to be incurred before the cargo lands at the buyer’s door. Under the existing system, traders have often complained of not being able to ascertain this cost for there have been instances where they receive notice for payments from the customs office even months after having completed the import. Predictability is a crucial factor in any investment decision and a predictable system means that the sector has more prospects of investments in the future.

Is this the magic wand?

Definitely not. Under the current state of affairs, the importers will still have to deal with customs and clearing authorities in India. This will still require the importers to invest substantial time. Therefore, trans-shipment facility will have to compliment the MM-B/L – which will mean that India allows Nepal-bound cargo to pass straight through their port, without requiring any clearing of the cargo at the Indian ports. The shipping liner will only have to notify the Indian agencies of the goods that it is transporting.

That said, India does not yet acknowledge trans-shipment of Nepal-bound cargo. Even with the MM-B/L in operation, India will still have concerns over the Nepal-bound cargo; as per the Nepal-India Treaty of Transit, it even holds a genuine right as the transit-providing nation if it has any security concerns. One way to deal with this is to have a dedicated Indian office and a dedicated zone (controlled by the Indian office) within the ICD/s in Nepal to look into customs and other clearance-related issues. This will have to be worked out diplomatically between Nepal and India.

The Political Economy

While the MM-B/L definitely signifies a progress, and holds the potential to substantially ease trading across borders for Nepalese traders, there is more than meets the eye. Kolkata port currently has a monopoly over all Nepal-bound cargo. With Nepal now having been granted the right to use the Vishakhapatnam (Vizag) port to conduct its trade with third countries, and given Vizag’s greater capacity (both because it can cater to larger vessels, and is currently operating at only half its capacity) and better management, it is a win-win for both Nepal and Vizag to start doing business together. These opportunities are currently being explored. However, it could have huge political ramifications if Kolkata loses its business with Nepal. The same is also likely to trigger some resistance from Kolkata. In the meantime, engaging with both Kolkata and Vizag as opposed to with Kolkata alone (as long as Nepal does not transfer the monopoly from Koltaka to Vizag) should see both competing for business with Nepal, which Nepalese traders will be able to reap dividends from.

Similarly, as Nepal-Vizag business materialises, it should be made sure that no single party monopolises the transport of goods, either on railway front or road transport. For example, if the same CONCOR, upon whose joint initiative shipping liners have agreed to issue a MM-B/L, gain the exclusive right to transport cargo from the Indian port to Birgunj, it will only be a monopolisation of the transit right through India. And like in all other monopolies, the rent is transferred to the consumers in the end in the form of high price.

All in all, the recent development is definitely a welcome change. Yet, much remains to be done, and seen in terms of how we leverage this new development and build on these marginal changes to make a better environment for doing cross-border trade in Nepal.