To survive from COVID-19 economic fallout

Published:  10:28 PM, 26 April 2020 Last Update: 10:37 PM, 26 April 2020

Freight forwarding sector needs urgent stimulus package

Freight forwarding sector needs urgent stimulus package

Freight forwarding is the most important service sector of the economy supporting import-export trade of any country. Like any other country in the world, almost 100% of Bangladesh's foreign trade activities are carried out by freight forwarding companies.

Bangladesh has been ranked the 39th among 50 emerging economies (EMs), which were part of this logistics index in 2019. Two other Asian nations, Cambodia and Myanmar have been placed behind Bangladesh in the ranking topped by India and China.

If we evaluate the development of the logistics sector of the last four decades, above picture of Bangladesh's progress would seem realistic to anyone. This achievement has been possible as a result of the relentless service provided by nearly 1,200 freight forwarding companies with world class knowledge and investment in technology.

After receiving export merchandise from manufacturers, freight forwarding companies arrange shipment to buyers at affordable costs, including by air, sea, land, or using combination of multiple transportation modes. Importers do not accept the goods unless shipment arrives within deadline stipulated in the Letter of Credit (L/C).

Therefore, forwarding companies has to ensure timely transportation by monitoring movement of shipment at all stages until it reaches the destination. In the process the importer need to be kept updated of shipment location, arrival date and time etc. 

At times of critical space situation, when exporters face a space crisis, freight forwarding company helps exporters by finding new routes or by arranging special cargo flights at affordable costs.

Exporters of all commodities;  including garments, vegetables, live and frozen fish, live crabs, jute, jute products, leather, leather goods, handicrafts, have to use the services of the freight forwarding companies.

Forwarders need to provide the same kind of services for import shipments including machineries, capital equipment, huge project cargoes for infrastructure development works, power plants, bridges etc.

The import-export value of Bangladesh during the 2018 -2019 financial year has been  about $ 98 billion, nearly 100% of which was done through forwarding companies. The efficiency of the forwarding companies in keeping with the size and growth of the service market is a reflection of the above reality.

About 100% of Bangladesh exports moves under Letter of Credit (L/C). Under the terms of L/C,   the exporters do not get the value of the product from buyers if goods are not delivered with proper release from consigned bank. Therefore, forwarders are required to ensure delivery of the goods on presentation of release from bank.

The country's national exchequer is enriched by foreign currency earned by forwarders in the form of commission or profit shares from overseas principals.  Forwarders play important roles in increasing government revenue by paying VAT.

Freight forwarding is an employment generating sector due to its requirements of physical handling of goods at warehouses, seaports and airports. Due to its reliance international communication, this sector plays an important role in creating employment for educated youths. 

Currently, about one lac men and women are working in this sector. With the growth of international trade, the number of people working in this profession is constantly increasing.

Freight forwarding is a capital intensive business as the trade needs license from government.

To qualify for licenses, among others; freight forwarders need to have minimum investment in the form of paid-up capital,  bank guarantee to port, customs, investment in warehouse, branch offices at seaports and airports, purchases and maintenance of own transport, providing bank guarantees to airlines for registration as approved agent and huge investment in the IT sector.

This important service sector of the country's economy is now in serious financial problems due to the ongoing import-export stagnation that began on December 8th in Wuhan, China, caused by contagious corona virus.

In the simple calculation, freight forwarders have lost business and suffered losses for not being able to handle worth $ 3.50 billion as per initial estimate of BGMEA as buyers have suspended or cancelled orders.

Forwarders lost another 20 per cent of business and corresponding loss for cancellations of non-garment export products and from declined volume of imports. Thus, the companies in this sector are the worst affected.

As a result many are now on the verge of failing to pay employees' salaries, bank loan interest and office maintenance costs.

Many are facing the difficult decision of whether to thin staff or close business altogether in the face of a prolonged economic downturn caused by the coronavirus pandemic.

In likely situation, if there will be no financial stimulus package from government, many companies will have to close business for not being able withstand sustained drop in business.

Therefore, there is no alternative to sustaining this important sector through government incentives.

Our honorable Prime Minister Sheikh Hasina has already unveiled incentive packages to tackle the potential economic losses due to the outbreak of coronavirus.

Those are, indeed timely sort of initiative that can support our international exports during this difficult time and post corona pandemic.

As a member of Bangladesh Freight Forwarders Association (BAFFA), we welcome government initiatives as we believe, if exporters are protected, that should have a knock on effect on the freight forwarders as exporters rely upon us to provide logistics services.

Without having or building handling capacity of the country's logistics sector, targeted export will not be possible because forwarders are the logistics service providers to handle shipping of import export shipments.

As the forwarders has already been hard hit by the pandemic and heading to uncertain situation ahead, this essential sector need to be brought under special rescue package. The support package may include:

a.    Cash incentive to pay salaries of the employees

b.    Suspension of income tax on salaries

c.    Waiver of interest on existing loans

d.    Special loans to run business at simple terms, without collateral and at maximum 2 per cent interest.

e.    Reduction of corporate tax and

f.    Withdrawing VAT in all applicable areas including office rent& utility bills.

Such initiatives by government will help forwarding companies to overcome the economic damage from COVID -19 and prepare themselves to support export-import of the country as situation improves.

The writer is the Director - Media & Publication, Bangladesh Freight Forwarders Association (BAFA) & Managing Director - Tower Freight Logistics Ltd.

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