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FoB imports flourish to consignees' comfort

External trade paradigm shifts from sellers to buyers

Jasim Uddin Haroon | January 09, 2018 00:00:00

Bangladesh's imports through FoB arrangement are rising rapidly, implying that overseas procurement is now dominated by local consignees in a paradigm shift in external trade.

But large importers, who have transport facilities under their own command, disagree with the changes in freights in import trade.

Earlier, the proportion of imports through free-on-board (FoB) arrangement was very insignificant, registering around 10 per cent of the total. Now this is almost on a par with the trade under cost and freight (C&F) modality.

In case of the FoB imports, the freight charges are usually paid by the importers on delivery, while in case of C&F, the sellers are charged.

Traders and shipping-insiders say if the import through the FoB line rises, the importers may gain from the fluctuations in international shipping freights.

They said the consignees also get a temporary relief from payment for the freights earlier as under the FoB methods they pay after receiving the cargoes.

But a number of leading importers say that the import trade is still being dominated by the C&F mode of operations.

They argue that there are some big groups with some large vessels who carry their own goods.

Otherwise, there is something "wrong" in the measurements of the F0B and C&F arrangements.

According to central bank statistics, Bangladesh imported through FoB goods equivalent to US$ 17.14 billion in July-October period of this fiscal year. On the other hand, imports settled through C&F were worth $18.52 billion during the period.

And their annual percentage charges were almost same at 28.7 per cent, according to the Bangladesh Bank official data.

Abul Bashar, chairman at BSM Group, a leading conglomerate that imports staples and spices, told the FE that their import trade was still being dominated by sellers, not by buyers.

"I am very much familiar with the import trades, and with the day-to-day developments. That is why I have strong reservations about the data produced by the central bank," the businessman said.

"The changes in the freights will be very minimal and it is hardly possible to maintain equality between FoB and C&F."

However, a number of shipping companies told the FE that they were watching the developments and that seemingly that were working in the interest of the country and the importers.

Sahed Sarwar, executive director at the Tokyo-based K-Line shipping firm, said this is happening in recent years. "I think this is giving a relief to the consignees as they pay later for the goods imported."

On the other hand, Ahmedul Karim Chowdhury, a terminal manager at Pangaon Inland Container Terminal, told the FE that in a plain calculation this sign is good for the country as the traders used to allege that exports being dominated by buyers and imports by the suppliers in a double bind.

"I am not seeing anything wrong." But, some importers hint that there might be something like "hide-and-seek game" to reap benefits out of external trade. "I think there is need to evaluate this type of changes in the trades as some may derive undue benefits," he said.

He, however, wouldn't elaborate on it. He said this is for the National Board of Revenue and the central bank to explore. In case of FoB, by way of controlling the agents involved, the buyer is able to assert pressure for lowering the commercial price. By minimising costs, it allows the importers to obtain tax advantages.

"The FoB also allows consignees to obtain better insurance prices, since you'll be looking for a deal covering a larger part of the logistical transportation," the terminal manager said.

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