Removing the Constraints in Transit Transport and Trade Facilitation

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Removing the Constraints in Transit Transport and Trade Facilitation

Improvement in transit transport and trade facilitation is an important step needed to make things better for Nepal’s international trade which suffers from numerous problems.


When it comes to trade and transit, Nepal as a land-locked country faces problems in multiple areas. The problems are related to policy, institutional, infrastructure, legal and procedural matters, administrative and information sharing.

Policy Constraints
As a transit receiving country, Nepal has to bear various transit costs that obstruct the flow of trade thereby increasing the cost of goods and services to the general public. The trade and transit processes are sluggish because of unnecessary delays at different stages basically due to the requirement of various documents and different formal and informal charges levied upon importing goods. On top of this, the shipping companies have added to the financial burden which importers have to bear at the transit port (Kolkata).

Recently, shipping liners have increased the rates of freight as GRI (General Rate Increment), BAF (Bunker Adjustment Factor), PSS (Peak Season Surcharge), CAF (Currency Adjustment Factor) etc, with the rate increasing by a minimum of USD350 per container. Further, the ‘free time’ is very short and it is not possible for logistic service providers to arrange for delivery within the time agreed by the sellers for Nepali importers.This calls for changes in the trading terms and holding shipping lines responsible within the jurisdiction of Nepal. The government has not been able to streamline the operations and activities of shipping line representatives; the registration of such companies and the legal framework needed to define their activities and responsibilities have become issues of the utmost importance.

The policy of permitting Indian service providers to collect charges for electronic cargo tracking system (ECTS) from Nepali importers for movement of freight within India is not pragmatic. The pilot project of ECTS has been ongoing for the last two and a half years and a huge sum of Indian currency has been collected from Nepali importers. The policy of importing in Cost, Insurance and Freight (CIF) basis also needs revision as shipping liners do not take the liability of movement of goods from ports at Kolkata or Visakhapatnam to Birgunj.

Instead they transfer the liability to rail service providers which actually covers a very small amount of liability. Further, the process related to settlement of claims is lengthy as the mechanism to submit proof of evidence in case of discrepancy during the custody of goods is very difficult and time consuming.This situation demands holding logistic service providers responsible within Nepal’s jurisdiction with the right type of law and liability coverage mechanism.

The current system of operation is also faulty as this provides not only high power to clearing agents of India but also puts them in high difficulty. The system authorises the clearing agents of India to take the responsibility of entire Nepali freights not only with customs but also shipping liners, transporters, CF operators and other intermediary service providers.

There is also a lack consultation with proper experts and organisations. The issues and concerns of the private sector are not considered while formulating policies even if the suggestions are collected from business community members. Problems arise when bureaucrats work like experts and consultants and do not pay attention to the ground realities.

The Nepal-India Treaty of Trade and Transit has become outdated and needs a revision as too many provisions in the treaty are confusing. The arrangements agreed in different multilateral agreements have not been incorporated in the bilateral mechanism and therefore government authorities as well as the private agencies involved in trade services often impose non-tariff measures (NTMs) on Nepal’s trade.

Institutional Constraints
It has been often seen that problems in transit and transport arise at any time without foreshadow. So, to address the problems, there is a need for a joint institutional set up such as IGC meetings, customs co-operation mechanism and meetings of different committees between transit providing and receiving countries. Nepal and India also have joint mechanisms and hold meetings of different committees, but the coordination is missing. Past experience shows that these meetings are practically held in the agenda of transit countries and not vice versa.

 Transit transport is a very risky job and it needs responsible institutions and a trained workforce. The establishment of the Nepal Intermodal Transport Development Board (NITDB) in 1998 has not been much helpful in this regard as NITDB has not been able to garner expertise to play a role to resolve trade and transit related issues. Besides, NITDB is neither functioning as per the scope of ‘intermodalism’ and ‘multimodalism’.  Another institutional constraint is the lack of a mechanism to regularly review the documents and procedures for export and import. There is a lot of scope to improve electronic exchange of information and utilisation of the state-owned company Nepal Transit and Warehousing Company Limited (NTWCL) in facilitating trade.

Meetings between the Nepal Consulate General (NCG), Kolkata Port Trust and Kolkata Customs Office do not take place at regular intervals to sort out operational problems. Similarly, no mechanism exists to approach the Ministry of Ports, Shipping and Waterways of India to address the issues. There is a need to pay heed to the issue that most of the cost and procedural problems are related to the shipping liners and CFS operators.

 The Inland Container Depot (ICD) at Birgunj was constructed with the assistance of the World Bank and government of India in 2000 with an investment of Rs 1 billion. This is one of the few projects in Nepal aimed at reducing transit costs and time. Unfortunately, the authorities have failed at the optimum utilisation of such an important infrastructure and as a result the main objective of the establishment of ICD to reduce transit and transport costs is yet to be met.

Besides, the low-level of knowledge of transit transport among importers and exporters also adds to the problems; it is partly because of the absence of institution(s) to provide trainings to the transit operators, freight forwarders and importers and exporters.

One of the main constraints to Nepal’s international trade at the moment is the involvement of CONCOR as the only rail service provider. Due to its money-making motive, the state-owned Indian company does not show any concern towards the cost related problems. This calls for creating a competitive environment in transport services as soon as possible and also to start negotiations to bring railways to other border points of Nepal.

The coordination between the ministries of finance, commerce and transport has remained very weak to resolve the issues related to transit and transport. The Ministry of Physical Planning and Infrastructure has been working to implement the BBIN Agreement which was supposed to be under the Ministry of Industry and Commerce.

Infrastructure Constraints
At present, the transit time for Nepali transit transport operators to reach the Kolkata Port is not less than seven days (if all goes well); the duration at times exceeds 15 days. It should be noted that the duration should not take more than 2-3 days to reach a location like Kolkata Port from Nepal. The monopoly of Indian transport operators and their standard transit time setting is the major constraint which enables them to cheat Nepali traders. The overloading of trucks also plays a role for the delay in transit transport as overloaded freight vehicles do not move during the day time to avoid penalties. So, there is a lack of high speed railways and roadways for transit transportation.

Talking about infrastructure, the lack of the right type of equipment for handling cargo, particularly at border points, also adds to the constraints in Nepal’s foreign trade. A high volume of bulk and break-bulk cargo and infrastructure of ICD and ICPs are based on truck and container movement which fails to address the small and medium enterprises (SMEs) related trade which comprises of larger numbers of goods though shipment in small quantities. Therefore, it is necessary to enhance the infrastructure to cater to bulk and break-bulk cargo imports to Nepal by adding infrastructure to facilitate different kinds of commodities.

There is a need to formulate and implement standard operational procedures (SOPs) for ICDs, ICPs and even for the border customs to work efficiently. An integrated tracking system in line with ASYCUDA could probably address the issues to make transit cargo more transparent, accountable and predictable to monitor.

Legal Constraints
Till date, the transit providing and receiving countries (India and Nepal) have not improved their legal arrangements in-line with WTO provisions. Another legal constraint is unilateral notification issued by the Indian government on transit and customs matters that affect Nepal’s transit transport. The dispute settlement mechanism between the government agencies of Nepal and India is lengthy and there is no mechanism to resolve the issues being faced by the private sector companies working to facilitate the trade between the two neighbours.

The current provision of holding Indian clearing agents liable by shipping lines in case of delay on returning of containers needs to be addressed by making Nepali freight forwarders responsible through a separate Act.

Further, the dispute settling mechanism for SMEs needs to be immediately actionable as the procedures, cost and time of settlement is financially burdensome for such businesses. Therefore, a tailored contract documentation system for the SMEs must be developed to avoid them being bullied by the larger enterprises.

Neither the operation of shipping line representatives in Nepal or the charges they collect here are in accordance with the country’s tax system nor are their operations monitored. To bring the activities of shipping liners under the purview of Nepal’s law, the government and the policymakers need to pay heed to the necessity to amend provisions in the Goods Carrier Act, Multimodal Transportation of Goods (MTO) Act, Cargo Act alongside formulation of Warehouse Act, Shipping Act and Rail Transportation Act.

Procedural Constraints
Under current arrangements and practices, transit documents and other procedures are not compatible with international standards set by the United Nations. The Bilateral Agreement on Customs Cooperation agreed by SAARC countries has aimed to improve this situation. However, the provisions of the agreements are not practiced by SAARC member states. Customs authorities and multi-modal transport agencies do not use the combined Transport Bills of Lading to make transit procedures easier and reduce the need for inspections or even cover the liabilities.

The single Bills of Lading permits door to door shipment and the issuing agent takes the responsibility for arranging the inland transport which is not in-line with the internal business contracts based on INCO (international commerce) terms or provision of transit. The MTO Act which was introduced by the Nepal government has failed to address these issues. The use of international shipping companies who can choose appropriate and reliable transportation companies for the onward journey of the cargo in transit by building in the cost of haulage in the freight charge at origin (CIF) has been proven to be a system that permits shipping liners to monopolise the free time and cost of haulage as destination delivery as well as detention and demurrage charges that are transferred to Nepali importers.

Likewise, the procedure of remitting money to transit service providers needs to be revised to control money laundering. The entire procedure of transit transfer needs to be reworked with concerns addressed with automation.

Administrative Constraints
Several administrative constraints also exist. For instance, operation hours of the customsoffice at the Kolkata Port is very inflexible for us. The customs office there closes after 5 pm. In most cases, cargoes arriving after the time need to wait until the next day for clearance. There are a lot of administrative hurdles at the port which are mentioned several times in reports. Also, the shipments are required to pass through multiple checking agencies at the border which affects the total transit time. The transit facilitation speed depends on the administrative capacity of the country and the Time Release Study (TRS) conducted by the customs department never reflects the reality. The additional payment in transit entry and exit points also adds to the financial burden of the importers/exporters and their agents.

Nepal’s consulate in Kolkata can work to ease the problems only in Bengal but there are several transit transport related issues for Nepali importers/exporters and logistics agents in the two Indian states of Utter Pradesh and Bihar. A 2005 Asian Development Bank (ADB) study has found that illicit payments exceed 10 percent of the total transport cost along Kolkata/Haldia-Raxual-Birgunj-Kathmandu corridor.

Nepali importers/exporters and their agents also face several administrative problems at the Vizag Port. The port authority has agreed in principle but the problems related to compliance mechanism along with the procedures and formalities due to the absence of a consulate office at Vishakhapatnam are yet to be addressed; delays in Nepal bound shipments from the Vizag Port are basically caused by documentation related issues. Furthermore, the Electronic Cargo Tracking System (ECTS) has become a big pain for Nepali importers due to its high cost and the long transit time associated with it.

Lack of Coordination in Information Sharing
Sharing information between government agencies and other stakeholders is very important in today’s modern-day international trade. Nepal’s international trade suffers partly due to the absence of a proper information sharing mechanism. The system of exchange of customs data between the port authority and customs office in Kolkata and customs office and terminal operators in Nepal is yet to be created. The absence of such a mechanism has been causing nonconformance by customs authorities resulting in delays in clearance and movement of shipments.   

The Trade Facilitation Committee under the Ministry of Industry, Commerce and Supply needs to be more active to identify the impediments and resolve the issues on trade facilitation.

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