Employees pocket millions of yuan for guaranteeing no delays during export boom
Daniel Ren 10 November 2008
Global shipping firms have been riding the swell of the mainland’s booming export trade over the past decade. But the good times also exposed a seedier side of the industry - kickbacks and other unethical practices.
Some employees of shipping firms have rewarded themselves handsomely in exchange for offering discounts to cargo agents, with or without their bosses’ consent.
But with a global recession looming, the tables may be about to turn on these pirates of the docks.
Jacky Chen (not his real name), who runs a Shanghai-based shipping forwarding company, recently revealed to the South China Morning Post internal dealings of how staff of shipping companies blackmail agents like himself.
“Kickbacks are an open secret in the industry,” he said. “But no one bothers to stop them or at least talk about them. Why? Because everybody can grab a piece of the booming trade as long as they abide by the hidden rule.”
In one extreme case, a sales manager collected 800,000 yuan (HK$908,000) a year from Mr Chen in return for an assurance that all his customers’ containers would be on board in time.
A common tactic of the manager, who worked at an Asian container line operating routes from China to Southeast Asia and the Middle East, was to offer a huge “discount” in freight charges to forwarding agents like Mr Chen.
But the “discount” was effective only after a separate under-the-table deal was sealed with the agents to share the amount of the rebate. And in fact, the discounted amount represented a premium to the rate the shipping firm ultimately earned.
Mr Chen is not alone in his dealings with underhand salespeople. Several other cargo agents confirmed the practice is prevalent in Shanghai and that they have all been “blackmailed” by the employees of shipping lines. But they admitted that the “bribery” made life easier for them and helped them increase profits.
In a perverse way, Mr Chen said he had no complaints and felt the kickbacks he paid to the “powerful” saleswoman were worth every penny, as the extra costs were easily passed on to the exporters.
At a time when exporters were accustomed to surging shipping rates as they supplied tonnes of cargo to overseas buyers for a handsome profit, the higher freight costs became relatively inconsequential. The priority of the manufacturers was to meet the orders and deliver them on time.
Mr Chen conceded he had struck the jackpot, raking in millions of yuan in the past few years by charging his clients exorbitant prices.
Profiting with him were the sales staff at the shipping firms, whom Mr Chen described as “unreasonably greedy”, some of them earning 3 million to 4 million yuan a year.
In good times and when the load factor was high, shipping lines hardly felt the pinch from the discounts, as the huge cargo volumes more than made up.
In fact, their sales staff were credited with securing the business to boost profits.
But that may be about to change. Tough times are looming as the industry grapples with the slowdown and container lines struggle to attract more clients.
“In the worst scenario, some shipping lines will go bust because of the low load factor,” said Chu Hai, a shipping analyst at Essence Securities. “The companies will lower their rates as they scramble for business.”
Industry employees said sales staff now faced heavy pressure from their bosses, as it has become a buyers’ market.
“We still can’t totally rule out those under-the-table deals now, but one thing is for sure - the salespeople won’t have as much freedom as before,” said Lu Ming, an agent with Shanghai Shipping Agency.
“The bosses might have turned a blind eye to their practices when times were good, but now the employees are forced to promote sales to keep their jobs.”
More significantly, with the downturn accelerating, cargo agents like Mr Chen may now refuse to pay kickbacks to salespeople.
“Now, they won’t have any bargaining tools to blackmail me, because they certainly want my business now,” he said.
Shipping firms were not immediately available for comment.
Since the late 1990s, thousands of forwarding companies or cargo agents have mushroomed in Shanghai with the liberalisation of the shipping sector.
Agents like Mr Chen conducted a bustling business, where the “best rates” were charged by the “best services”.
Almost every night, he was called by shipping sales staff to pay their expenses at karaoke joints, with the night’s entertainment bill amounting to several thousand yuan. Sometimes, it was one “appointment” after another in one night.
But Mr Chen believed he reaped the benefits. His containers always arrived on time during the peak season. That was critical, as any delayed delivery meant exporters would not receive their payment.
Exporters were willing to pay a higher price to agents who could guarantee punctual delivery.
Extra shipping costs of several hundred US dollars per container were “peanuts” when the goods in one container were worth hundreds of thousands of dollars.
“No pain, no gain,” Mr Chen explained. “The [sales] guys were a soft touch after being bribed.”
To illustrate, he cited a case in which the freight rate he was charged on an invoice was much lower than the heavily discounted amount previously agreed with the shipping manager.
After checking with the sales manager who issued the invoice, Mr Chen found that he had received another windfall.
“The guy told me that it was not a mistake, and our company just deserved a bigger discount,” he said. “He sort of wanted to display his clout to me; and I got the drift.”
He asked for the manager’s bank account number and remitted part of the extra discount.
“I realised then that nothing is impossible,” said Mr Chen.
According to Xinhua, the mainland had recorded 24,879 business-related corruption cases, involving 6.16 billion yuan, as of June 2007, but the numbers may only represent part of the problem.
These practices are not limited to the shipping sector nor will they be a diminishing problem on the mainland, where over the past three decades the rapid transition to a market economy has opened up legal and regulatory loopholes for corruption.
In the mid-1990s, a clerk with Shanghai Ocean Shipping Agency Co colluded with an export-import company to evade import taxes worth more than 100 million yuan by falsifying shipping documents. The woman fled overseas before the police started to investigate the case.
According to a research report by China International Capital Corp, container throughput at the mainland’s ports grew 13.2 per cent in the first nine months of this year. The growth slowed from 14.5 per cent in the same period last year.
In September, turnover rose a scant 6.8 per cent from a year ago.
“China’s exports were heavily hit by the global financial tsunami,” the report warned. “Because the figure for the fourth quarter last year was high, China’s container throughput growth is likely to go down further.”
The shipping lines and agents have been hit by the knock-on effects from the slowing exports.
But for the shipping sales staff, it is business as usual, and kickbacks are essential.
“It is a habit now,” Mr Chen said. “They don’t want to change, and I am fed up with it. It is time to quit the business now.”
1 comment:
Kickback vultures feed on ship trade
Employees pocket millions of yuan for guaranteeing no delays during export boom
Daniel Ren
10 November 2008
Global shipping firms have been riding the swell of the mainland’s booming export trade over the past decade. But the good times also exposed a seedier side of the industry - kickbacks and other unethical practices.
Some employees of shipping firms have rewarded themselves handsomely in exchange for offering discounts to cargo agents, with or without their bosses’ consent.
But with a global recession looming, the tables may be about to turn on these pirates of the docks.
Jacky Chen (not his real name), who runs a Shanghai-based shipping forwarding company, recently revealed to the South China Morning Post internal dealings of how staff of shipping companies blackmail agents like himself.
“Kickbacks are an open secret in the industry,” he said. “But no one bothers to stop them or at least talk about them. Why? Because everybody can grab a piece of the booming trade as long as they abide by the hidden rule.”
In one extreme case, a sales manager collected 800,000 yuan (HK$908,000) a year from Mr Chen in return for an assurance that all his customers’ containers would be on board in time.
A common tactic of the manager, who worked at an Asian container line operating routes from China to Southeast Asia and the Middle East, was to offer a huge “discount” in freight charges to forwarding agents like Mr Chen.
But the “discount” was effective only after a separate under-the-table deal was sealed with the agents to share the amount of the rebate. And in fact, the discounted amount represented a premium to the rate the shipping firm ultimately earned.
Mr Chen is not alone in his dealings with underhand salespeople. Several other cargo agents confirmed the practice is prevalent in Shanghai and that they have all been “blackmailed” by the employees of shipping lines. But they admitted that the “bribery” made life easier for them and helped them increase profits.
In a perverse way, Mr Chen said he had no complaints and felt the kickbacks he paid to the “powerful” saleswoman were worth every penny, as the extra costs were easily passed on to the exporters.
At a time when exporters were accustomed to surging shipping rates as they supplied tonnes of cargo to overseas buyers for a handsome profit, the higher freight costs became relatively inconsequential. The priority of the manufacturers was to meet the orders and deliver them on time.
Mr Chen conceded he had struck the jackpot, raking in millions of yuan in the past few years by charging his clients exorbitant prices.
Profiting with him were the sales staff at the shipping firms, whom Mr Chen described as “unreasonably greedy”, some of them earning 3 million to 4 million yuan a year.
In good times and when the load factor was high, shipping lines hardly felt the pinch from the discounts, as the huge cargo volumes more than made up.
In fact, their sales staff were credited with securing the business to boost profits.
But that may be about to change. Tough times are looming as the industry grapples with the slowdown and container lines struggle to attract more clients.
“In the worst scenario, some shipping lines will go bust because of the low load factor,” said Chu Hai, a shipping analyst at Essence Securities. “The companies will lower their rates as they scramble for business.”
Industry employees said sales staff now faced heavy pressure from their bosses, as it has become a buyers’ market.
“We still can’t totally rule out those under-the-table deals now, but one thing is for sure - the salespeople won’t have as much freedom as before,” said Lu Ming, an agent with Shanghai Shipping Agency.
“The bosses might have turned a blind eye to their practices when times were good, but now the employees are forced to promote sales to keep their jobs.”
More significantly, with the downturn accelerating, cargo agents like Mr Chen may now refuse to pay kickbacks to salespeople.
“Now, they won’t have any bargaining tools to blackmail me, because they certainly want my business now,” he said.
Shipping firms were not immediately available for comment.
Since the late 1990s, thousands of forwarding companies or cargo agents have mushroomed in Shanghai with the liberalisation of the shipping sector.
Agents like Mr Chen conducted a bustling business, where the “best rates” were charged by the “best services”.
Almost every night, he was called by shipping sales staff to pay their expenses at karaoke joints, with the night’s entertainment bill amounting to several thousand yuan. Sometimes, it was one “appointment” after another in one night.
But Mr Chen believed he reaped the benefits. His containers always arrived on time during the peak season. That was critical, as any delayed delivery meant exporters would not receive their payment.
Exporters were willing to pay a higher price to agents who could guarantee punctual delivery.
Extra shipping costs of several hundred US dollars per container were “peanuts” when the goods in one container were worth hundreds of thousands of dollars.
“No pain, no gain,” Mr Chen explained. “The [sales] guys were a soft touch after being bribed.”
To illustrate, he cited a case in which the freight rate he was charged on an invoice was much lower than the heavily discounted amount previously agreed with the shipping manager.
After checking with the sales manager who issued the invoice, Mr Chen found that he had received another windfall.
“The guy told me that it was not a mistake, and our company just deserved a bigger discount,” he said. “He sort of wanted to display his clout to me; and I got the drift.”
He asked for the manager’s bank account number and remitted part of the extra discount.
“I realised then that nothing is impossible,” said Mr Chen.
According to Xinhua, the mainland had recorded 24,879 business-related corruption cases, involving 6.16 billion yuan, as of June 2007, but the numbers may only represent part of the problem.
These practices are not limited to the shipping sector nor will they be a diminishing problem on the mainland, where over the past three decades the rapid transition to a market economy has opened up legal and regulatory loopholes for corruption.
In the mid-1990s, a clerk with Shanghai Ocean Shipping Agency Co colluded with an export-import company to evade import taxes worth more than 100 million yuan by falsifying shipping documents. The woman fled overseas before the police started to investigate the case.
According to a research report by China International Capital Corp, container throughput at the mainland’s ports grew 13.2 per cent in the first nine months of this year. The growth slowed from 14.5 per cent in the same period last year.
In September, turnover rose a scant 6.8 per cent from a year ago.
“China’s exports were heavily hit by the global financial tsunami,” the report warned. “Because the figure for the fourth quarter last year was high, China’s container throughput growth is likely to go down further.”
The shipping lines and agents have been hit by the knock-on effects from the slowing exports.
But for the shipping sales staff, it is business as usual, and kickbacks are essential.
“It is a habit now,” Mr Chen said. “They don’t want to change, and I am fed up with it. It is time to quit the business now.”
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