Can the Container Crisis be Mitigated?
The scarcity of space available in maritime transport to move goods, the exorbitant cost increases of this means of transport, closures of ports and factories, as well as saturation and delays of operations in ports, are key factors that influence the current container/supply chain crisis.
The consequences of container delays include increases in the times of merchandise receipt, higher logistics costs, and therefore the final price of the goods, as well as eventual shortages, both of raw materials and finished goods. The situation affects importers and exporters, national production, and ultimately, the final consumer.
Given that, since there is no clear idea of when this situation will be regularized in international trade – a recovery is projected in the medium or long term – measures must be taken by the different sectors to mitigate, as far as possible, the impact of the container crisis.
The most alarming aspect of the shipping logjam is the great increase in the cost of maritime transport estimated to have more than quadrupled in the past year, which not only raises the cost of freight logistics but also the final payment of import taxes.
Since Costa Rica uses the CIF value (cost, insurance, freight) of the merchandise as the base for import taxes, an increase in the freight component of this customs value raises import duties which are eventually, in whole or in part, passed on to the final consumer.
To counter this situation, two bills are currently under study by the Legislative Assembly that aim to reduce temporarily the value of the freight cost of goods transported by sea to Costa Rica for purposes of determining import taxes.
The proposed “Law of Temporary Relief for Maritime Transportation Costs for National Imports in order to Mitigate the Container Crisis” File No. 22,769, provides that the Single Customs Declaration (DUA) can record as freight value, for tax calculation purposes, the average of such value recorded between the years 2017 and 2019. However, the technical way to establish these amounts requires the Executive Branch to issue the applicable regulations, which would most likely delay the measure’s implementation if approved.
The second proposal is the “Value of the Freight of Containerized Goods that are Transported by Sea,” file No. 22,770, submitted by the Executive Power, that regulates by adopting the port to port freight costs declared before the container crisis, referencing a specific table of values on record. This would reduce the CIF declaration, alleviate the burgeoning taxes on merchandise, and prevent the “sticker shock” that consumers will otherwise face.
Also, under study is a draft resolution of the Council of Ministers of Economic Integration (COMIECO) proposing that the cost of maritime transport of imported goods be calculated using objective and reasonable parameters, for example, that a freight value is considered equivalent to that which existed, on average, before the pandemic.
Pending the progress and approval of these projects, as well as their eventual practical implementation, foreign trade operators should realize that these initiatives which would only cushion the problem of high freight rates for paying taxes entail temporary relief for those affected by the crisis. Actions must also be taken to facilitate and digitize customs procedures such as streamlining port-side operations.
Likewise, operators must take the necessary business measures to minimize the negative impact on the development of their operations, both in the short and long term, such as increasing purchases in the national market, acquiring raw materials from closer locations to minimize logistics costs and arrival times, switching to air transport when feasible, and relocating part of their business to areas closer to the main place of operation (nearshoring).
In a crisis that is not expected to end soon and which is already creating price increases, all sectors involved must work together within their fields of action to reduce the negative impact of container delays and their economic consequences on import duties, supply costs, and consumer budgets.