In the Philippines, freight forwarders are at the forefront of domestic and international shipping and logistics. Today, the increasing trade, competition, and globalization necessitate the greater movement of goods and services, which then requires the need for a more efficient sea freight forwarding system.
However, the Philippine logistics industry continues to lag behind its neighboring countries. In a policy note titled, “Regulatory Challenges in the Philippine Logistics Industry”, the Philippine Institute for Development Studies (PIDS) notes that the Philippines presently has the leading logistics cost among the member-states of ASEAN.
The high cost of logistics is due to the Philippines’ archipelagic nature and sometimes inconsistent regulations. However, despite these challenges, the Philippine logistics market has still managed to grow due to the country’s expanding outsourcing sector, strong economic growth, and rising globalization.
DTI to Overhaul Sea Freight Forwarding Rules
To improve the Philippine logistics industry and to meet the increasing demand for a more efficient sea freight forwarding system, the Department of Industry and Trade (DTI) plans to revise the rules on sea freight forwarding. Their plan includes imposing higher paid-up capital requirements for certain freight forwarding categories.
Furthermore, the Draft Department Administrative Order (DAO) intends to make the accreditation application process faster – from 21 days to 3 days. Additionally, they are planning to make the Certificate of Accreditation validity longer – from two years to 3 years.
Specifically, the Revised Rules on Sea Freight Forwarding objectives are as follows:
a) Lay down the minimum standards and requirements for the accreditation of sea freight forwarders;
b) Upgrade the quality of services, capabilities, resources and expertise of the covered firms in order for them to meet the demands of the Philippines’ new global trade and upsurging domestic trade;
c) Curtail acts and practices inimical to the fast growth of the freight forwarding industry and prejudicial to the interests of Philippine shippers; and
d) Promote and encourage fair, honest and equitable relations among parties in consumer transactions and protect the consumer against deceptive, unfair and unconscionable sales acts or practices.
All entities engaged in transporting goods for a fee by land or sea from point of receipt to point of destination are covered under the draft DAO.
Required Paid-Up Capital/Partner’s Contribution/Equity
Under the proposed revised rules, the required paid-up capital/partner contribution/equity to appear in the articles of partnership/incorporation are as follows:
|Category||Paid-Up Capital/Partner’s Contribution/Equity|
|Domestic Freight Forwarders (DFF)||Php 1,000,000.00|
|Breakbulk Agents (BBA)||Php 2,000,000.00|
|International Freight Forwarder (IFF)||Php 3,000,000.00|
|Cargo Consolidators (CC)||Php 4,000,000.00|
|Non-Vessel Operating Common Carriers (NVOCC)||Php 5,000,000.00|
It must be noted that the present rules categorize freight forwarders using the same categories (DFF, BBA, CC, IFF, and NVOCC). Presently however, the minimum paid-up capital is only necessary for sole proprietorships, partnerships, and corporations, specifically Php 250,000 (DFF), Php 2 million (IFF), and Php 4 million (NVOCC).
The paid-up capital requirement proposal for Breakbulk Agents and Cargo Consolidators is completely new.
Under the proposed revised rules, companies looking to apply for more than one category will have to follow the paid-up capital requirement under the highest category.
Furthermore, companies will no longer have to apply for a separate accreditation (which is currently the case) for their brand offices. This applies as long as they declare the establishment of these offices before their operation.
Insurance Requirements Adjustment
Presently, insurance is only required for partnerships and corporations, with a minimum requirement of Php 250,000 (DFF), Php 500,000 (IFF), and Php 1 million (NVOCC).
However, under the proposed revised rules, insurance requirements will also face an adjustment. The proposed minimum amount of insurance is as follows:
|Category||Paid-Up Capital/Partner’s Contribution/Equity|
|Domestic Freight Forwarders (DFF)||Php 300,000.00|
|Breakbulk Agents (BBA)||Php 400,000.00|
|International Freight Forwarder (IFF)||Php 600,000.00|
|Cargo Consolidators (CC)||Php 800,000.00|
|Non-Vessel Operating Common Carriers (NVOCC)||Php 1,000,000.00|
Moreover, proof of cargo insurance coverage must come in the form of insurance policy and official receipt. It must also show payment of premium referring to either the Merchandise in Transit Insurance or any standard global comprehensive cargo liability insurance for transport operators and freight forwarders which cover destinations between the Philippines and other countries.
Note: Present rules that regulate sea freight forwarders are found in Philippine Shippers’ Bureau’s Administrative Order No. 06, Series of 2005. However, PSB is now non-operational. It was dissolved in 2014 under DTI’s rationalization plan and was replaced by a new office, the Supply Chain and Logistics Management Division. Furthermore, the PSB’s regulatory functions and powers were reassigned to another DTI unit, the Fair Trade Enforcement Bureau.
The Draft Department Administrative Order (DAO) aims to revise current rules as they are still governed by PSB AO No. 6. With the proposed revised rules, they aim to realign provisions with the current organizational makeup of the DTI.
Unlawful Acts and Omissions
The Draft Department Administrative Order (DAO) also lists unlawful acts and omissions. This includes:
a) Engaging in or transacting business by a firm, operating either as a main, sole, or branch office, without prior accreditation;
b)Misrepresentation by a firm that it has a subsisting accreditation;
c) Using a subsisting accreditation by another with or without authority from an accredited firm;
d) Failure to display the valid and original copy of Certificate of Accreditation as required by Section 22 hereof;
e) Refusal/Failure to comply with any of the obligations mentioned in Rule IV hereof, or the submission of report/s, document/s or paper/s that are false, or contain false/misleading data;
f) Misrepresentation by the applicant, of any material fact in obtaining the accreditation, or any other certification/s or documents;
g) Transferring or authorizing the use of accreditation to another entity other than the accredited firm;
h) Non-compliance with relevant lawful orders/ administrative issuances and/or circulars of DTI;
i) Violation of the Code of Conduct and Ethical Standards for Freight Forwarders;
j) Collecting and charging of fees not prescribed by DTI;
k) Failure to deliver cargo as required in the transport document;
l) Failure to deliver cargo to its rightful owner;
m) Failure to comply with its contractual obligation to the shipper;
n) Grant of Rebates;
o) Refusal/prevention/obstruction the entrance, presentation, inspection, taking of pictures/video recordings, making of sketches, taking of copies.
In case of breach of responsibilities and duties, and if the company cannot justify its actions, the company will have to face sanctions. These sanctions include recall, cancellation, revocation, or suspension of Certificate of Accreditation or denial of application renewal.
The proposed revised rules aim to be consistent with Republic Act No. 11032, which mandates that all government agencies must re-engineer their procedures and systems to reduce processing time, bureaucratic red tape, and streamline services.