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
wangt@un.org, tengfei.wang@gmail.com
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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
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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
Ministerial Conference on Transport
Adoption of “Busan Declaration on
Transport Development in Asia and the
Pacific”
Trans-Asian Railway
Trans-Asian Railway
Asian Highway
Asian Highway
-
An international integrated
intermodal transport and
Logistics system for Asia
and the Pacific
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The Building Blocks
Asian Highway & Trans-Asian Railway networks
Asian Highway Network
• 142,000 km
• 32 countries
• Intergovernmental
Agreement entered into
force on 4 July 2005
Trans-Asian Railway Network
• 114,000 km
• 28 countries
• Intergovernmental
Agreement entered into
force on 11 June 2009
Inter-modal connections through development of dry ports
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International Integrated Intermodal Transport and Logistics System
for Asia and the Pacific
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The forthcoming Ministerial Conference on
Transport, Second Session
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
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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 publication can be downloaded from
http://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
•
•
•
•
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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
Notice on registration and management of international
freight forwarders, 2005
NVOCC
Philippines
NVOCC
Thailand
International Freight
Forwarder
Domestic Freight
Forwarder
Freight Forwarder
Multimodal transport
operator
Ministry of Commerce and
State Administration for
Industry and Commerce
Ministry of Transport
Philippine Shippers'
Bureau, Department of
Trade and Industry
Regulations of the People's Republic of on Shipping,
2001
Administrative Order No 6, Philippine Shippers' Bureau
- revised Rules on Freight Forwarding, 2005
Ministry of Transport
Carriage of Goods by Sea Act, 1991
Ministry of Commerce
Civil and Commercial Code (first promulgated on 11
November 1925, and amended a number of times)
Carriage of Goods by Sea Act, 1991
Multimodal Transport Act, 2005
Civil and Commercial Code
Ministry of Transport
Ministry of Commerce
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Logistics Association’S’
Indonesia
Thailand
Viet Nam
Indonesian Logistics &
Forwarding Association
(ILFA)
[3,000 members]
Thai Logistics Services
Provider Federation
1. Thai International Freight
Forwarders Association:
2. Thai Air Freight
Forwarders Association
3. Thai License Customs
Brokers Association
4. The Transportation
Association
5. Imports-Exports Transport
Association
Vietnam International
Freight Forwarders
Association [140 members]
Indonesian Trucking
Company Association
[200 members]
Indonesian Courier
Company Association
[200 members]
Warehousing Association
Logistics IT Association
Shippers Association
Vietnam Ship Agents and
Brokers Association
(VISABA) [45 members]
Vietnam Ship Agents and
Brokers Association
(VISABA) [20 members]
Vietnam Seaport Association
(VPA)
Vietnam Automobile
Transportation Association
(VATA)
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
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Minimum paid-up capital requirement
for freight forwarders (in US$)
900,000
763,625
600,000
545,404
272,702
300,000
46,074
22,991
79,264
65,833
Singapore
Thailand
0
China
Indonesia
Republic of
Korea (legal
person)
Republic of
Korea (legal
entity)
the
Philippines
Industry self regulation
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
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