Apparel export is a buyer-driven market and over the years, majority of exporters have also accepted this reality and adapted to the same, yet, time and again challenges arise from this very imbalanced relationship between the buyer and exporter. Many times, we hear of examples wherein exporters are arm twisted to take the impact of situations that they are not responsible for or not even in their control. The latest challenge which has been highlighted by many exporters, though all of them are not willing to come on record for fear of a backlash, is the unjustified demand by buyer nominated forwarders, who are fleecing suppliers left high and dry by bankrupt retailers.
Recently, due to the increase in cancellation of shipments and rising number of retailers announcing bankruptcies and going in for Chapter 11 protection… such instances have increased between exporters and forwarders. There are incidents in which nominated freight forwarders of bankrupt buyers are also trying to recover their alleged losses of their client’s bankruptcy by holding the goods of unpaid suppliers and charging the vendors for not just freight, warehousing but also for their dues from the bankrupt customer. This is tantamount to criminal intimidation of the vendors, most of whom fall in the MSME category in India. The commercial and material investment by these small and medium enterprises is built over the years to create an overseas customers base which has already taken a heavy toll due to COVID-19. This has been further corroded by the lack of ethics and worst form of coercion in the form of holding ‘freight hostage’ by contracted freight forwarders, who have no pending dues from the vendors in India.
As per the exporters, freight forwarders of India as well as from few other countries are involved in such practices. What can be more ironical and painful for an exporter than to get back unpaid shipment or a situation in which an exporter is forced to pay around 40 per cent amount of the total value of the shipment. It is indeed a double whammy for no fault of the exporter. The fact that such brazen demands are sent to an exporter is in itself an absolute mockery of the status a supplier from India has overseas.
Indian exporter L Artisan Products, Gurugram faced such issues with OTX Logistics, Netherlands. Very vocal about the unfair practice and consequences of the same that he is facing, Ashish Malhotra of L Artisan Products told Apparel Resources, “This is very sad, despite our all-best efforts and long follow up, we are helpless.” The helplessness also comes from the fact that apparel exporters stuck in such situation are facing additional challenge of piece-meal information, overseas laws imposition by overseas forwarding companies.
“Where does the Indian vendor stand in this whole scheme of things – the customer is bankrupt, the vendor is not paid, forwarder keeps the goods and is allowed to pledge to recover his dues. If the vendor wants the goods back, he needs to spend more freight charges. Style is seasonal and may not sell in any market until next year. The vendor has a loss-loss situation,” he shared. Ashish has taken his case to higher authorities and recently the council of leather exports sent a letter to the economic department of the Indian embassy in Netherlands for follow up, which incidentally has not gone down well with the logistics provider.
The forwarder argues that he is the financial victim of the bankruptcy and he is allowed by the law of the land to which he belongs to recover his loss for the goods stored in his warehouse. In a communication, the representative of the forwarder said, “I am allowed to execute the right of retention and right of pledge. As far as storage charges are concerned, we also have to pay rent to the landlord. For the goods left behind, we are allowed to commence with a public stock auction after a while.” He also claimed to be a victim in the bankruptcy, as well.
Forwarder in this case also insists that the vendor says that as long they are not paid, they remain the owner of the goods, while the liquidator is referring to the purchase order conditions claiming that the now Bankrupt company – Colveta became the owner of the goods the moment the goods were handed over to the nominated forwarder. “As long I do not have the waiver document, I am not prepared to take any risk to release the goods. As you have noticed your debit note is stating that Colveta is the buyer of this shipment,” the forwarder said.
Is there any solution?
The key question that arises is that, if the buyer and overseas forwarder are protected by the law of the country they belong to, then what about the protection of Indian vendors? Are there any laws which protect them? Unfortunately, mid-level exporters neither have such kind of resources, nor the time to go for legal solutions. In the case above, when exporter informed the forwarder that he will bring this issue to the notice of the EPCs, the exporter claims to have received threats to face a complaint against this as ‘slander’. The law, if at all such an archaic law actually exists in any country, seems to be absolutely lopsided and stays an impediment to every exporter from a developing nation.
Apart from this issue, the complexities of international trade and specially the role and responsibility of nominated forwarders is still an unchartered territory that lacks transparency. Most of the time if it is a nominated forwarder, they would try to push their weight around as they assume that since the customer has nominated them, the exporter will not have any choice. This is especially the case for the various charges being levied by the forwarder.
A lot of exporters that faced a couple of cases of Chapter 11 Bankruptcy have not had any issue with the forwarders since all their shipments were FOB. But an issue they do have with the nominated forwarders is the cost which they charge for handling the shipment vs the non-nominated forwarder and with the lead time which they need before the vessel sailing date.
“If it is a local forwarder who is not nominated then they are quite flexible with the time of handover of the goods and offer of cost also. But in case of nominated forwarder, sometimes the booking lead time is almost equal to the sewing time which the customer is giving us as a factory,” said Ajay Agarwal, Director, RK Industries, Chennai. It is also pertinent to mention here that most of the overseas forwarders have a nominated forwarding agent in India, who represents them in the country.
Ashish Singhania, another exporter and Director of Intercity Traders said that nomination is a good idea, as it gives both the exporter and the buyer the ease of handling, as the nominated supplier is well versed with the system and consolidates the cargo, which should give exporter/buyer an added benefit of best price and delivery, which in reality doesn’t happen as the nominated supplier takes advantage of the nomination.
The other issue is the nominated agent doesn’t follow the rules at times and releases the shipment without proper paper work; this is where the Government agencies should step in to make this mandatory for the forwarders to comprehend it and make this the forwarder’s responsibility to ensure that the goods are handed over with proper paperwork, so that the payments are not withheld.
A win-win situation for all is one of the basic conditions for mutual and long-lasting business, so be it exporter, buyers, forwarder of any other stakeholder, they should work on mutual cooperation. At the same time, Indian exporters and authorities have to work more aggressively to ensure safeguard of Indian companies, especially in this unprecedented situation. The lack of a comprehensive and strong committee which can take up the issues of the exporters on the global forum is the need of the hour. This can allay any acts of intimidation and false interpretations of laws to twist them to the benefits of a select few overseas forwarders/customers.