Terminal Handling Charge - PHILEXPORT

1 Terminal Handling Charge : Shippers Perspective By Philippine Shippers Bureau Philippine Shippers Bureau 2 Background The Terminal Handling Charge (THC) has been an issue for many years now. It was unilaterally imposed by international shipping lines on both export and import containerized cargoes purportedly to recover costs incurred at container terminals. THC was first introduced in 1990 as a separate Charge from ocean freight for all container shipments for Hong Kong-Europe trade by a group of carriers known as Far Eastern Freight Conference (FEFC). This was followed by another group of shipping lines, Australian & New Zealand Eastern Shipping Conference (ANZESC) in the same year. 3 Background In late 1991, Asia North America Eastbound Agreement (ANERA) also imposed THC for all container shipments. Other rate and discussion agreements adopted the THC and extended its imposition across Asia.

2 ANERA (which was now replaced by Transpacific Stabilization Agreement serving US-Asia trade) and Intra-Asia Discussion Agreement (IADA), serving intra-Asia trade, continue to Charge the THC. Since then, THC has become a conventional Charge of shipping lines and has steadily increased over the years. Philippine Shippers Bureau (PSB) had sought a dialogue between shippers and liners (IADA, TSA, and FEFC) in Manila early last year but has never come up with a definite agreement. 4 Background In the regional scene, Asian shippers, including the Philippines, vigorously demanded for the justification of THC from shipping lines, liner conferences and rate/discussion agreements but no concrete resolution has been reached except for a harmonious and friendly meeting and exchange of views, the most recent of which was the Federation of ASEAN Shippers Councils (FASC)-IADA meeting in April 2004 in Singapore.

3 5 Contradictory Views on THC between Liners and Shippers 6 What is THC? THC, according to the Glossary of Shipping Terms, is a Charge for Handling services performed at the Terminal . In general, it means the movement of containers within the Terminal and the use of its facilities. Based on the Shippers-Liners dialogue at the local level, IADA proposes that their THC comprised mainly of stevedoring, empty repositioning and container-related services; while TSA defined the limits of their THC starting upon discharge of empty container from vessel through container receiving at the Terminal gate until it was loaded onto the vessel and vice-versa. 7 Liner Conference/Agreement Sea freight for containerized shipment is under free-in-and-out (FIO) term, which means that costs of loading and unloading are for the account of the shipper/consignee.

4 Note: Based on IADA s presentation during PSB-IADA meeting in March 2004. Shippers Perspective Sea freight for containerized shipment is under Liner terms under which loading and unloading costs are borne by the carrier and, therefore incorporated in the freight rate. In contrast with liner s perspective, FIO term is generally used in chartering arrangement to cover a port-to-port freight or sea transport cost, and this chartering term is not applicable in liner containerized shipping. 8 Liner Conference/Rate Agreement THC = on-board stevedoring costs ( discharge and loading costs) + Terminal or cargo Handling costs + other container-related services Note: Based on TSA s presentation during PSB-TSA meeting in March 2004. Shippers Perspective On-board stevedoring is conventionally for the account of the carrier and considerably part of the freight under the relevant Liner Terms; while cargo Handling services (or arrastre) for containerized cargo is being paid separately by shippers to Terminal operator.

5 Hence, stevedoring cannot form part of the THC; otherwise, there is an overlapping of services both charged against shippers/consignees. 9 Liner Conference/Rate Agreement THC = on-board stevedoring costs ( discharge and loading costs) + Terminal or cargo Handling costs + other container-related services Note: Based on TSA s presentation during PSB-TSA meeting in March 2004. Shippers Perspective THC, as per declaration of ASEAN Ports Association in their APA Resolution 2002-01, is not a Charge on port operational activities. Thus, it should not involve port-related services. Note: Based on APA Resolution 2002-01 during 28th APA Meeting in October 10 A. STEVEDORING Services (paid by shipping lines to Terminal operator) Based on the PPA Tariff, it means all work performed on-board vessel, that is the process or act of loading and unloading cargo, stowing inside hatches, compartments and on-deck or open cargo spaces on board vessel.

6 Other services included in stevedoring are: Rigging/Unrigging of ship s gear Opening and closing of hatches Snatching, centering to the hatch opening, passing of cargo and trimming Provision of standard stevedoring gears and equipment as required by the cargo type I. Basic Cargo Handling Services 11 B. ARRASTRE Services (paid by shippers to Terminal operator) Based on the PPA tariff, arrastre includes the ff. services: Receive/Load cargoes from/ to ship s tackle with the use of a dock (arrastre) gang and cargohandling equipment; Check cargo by marks and quantity and acknowledge and sign tally sheets; Sort, pile, stow and classify cargoes in sheds/open storage/ warehouse, if not taken/deliver direct from/to truck; Check and recoup bad order and damaged cargoes, if any damage caused by the contractor; Delivery/Transfer cargo onto or receive from truck s tail of consignee s/shipper s transportation or ship s tackle; Secure cargo from pilferage or losses while under the cargo handler s custody; and Provide manpower, equipment and such other necessary cargo Handling gears for receiving, storing, delivery, transfer and shifting of cargo.

7 I. Basic Cargo Handling Services 12 Figure I. Container Work Flow in the Terminal . Shipper Container Terminal Laden Container Empty Container *5,6,7,8 *9,10 S H I P S I D E S H I P S I D E *7 , 11,12 Vessel/ Carrier *13, 14, 15, 16, 17 *1,2,3,4 Legend: * - FEFC cost components # TSA cost components - IADA cost components 7, 8, 9 #9, 10, 11 5,6 1,2,3,4 # 7, 8 # 1, 2, 3, 4, 5, 6 Refer to Annex I for the corresponding items for THC cost components. Arrastre services Stevedoring services T e r m i n a l H a n d l i n g C h a r g e 13 THC (PAID BY SHIPPERS TO LINES) 20 40 IADA Php4,280 Php5,300 (US$ ) (US$ ) TSA/FEFC Php5,720 Php7,590 (US$104) (US$138) Stevedoring (PAID BY SHIPPING LINES TO Terminal OPERATOR) 20 40 Php3,099 Php4,335 *Note: Based on PPA Tariff Rate for non-self-sustaining vessel.

8 Philippine THC is quite high as compared to stevedoring rate. II. Comparison between THC & Stevedoring Note: IADA THC is charged in Philippine peso while FEFC & TSA Charge in US$. 14 THC (PAID BY SHIPPERS TO LINES) 20 40 IADA Php4,280 Php5,300 (US$ ) (US$ ) TSA/FEFC Php5,720 Php7,590 (US$104) (US$138) Arrastre (PAID BY SHIPPERS TO Terminal OPERATOR) 20 40 IMPORT Php2,587 Php5,936 EXPORT Php2,112 Php4,851 Note: Based on PPA Tariff Rate. III. Comparison between THC & Arrastre Philippine shippers pay both THC and arrastre to the shipping lines and Terminal operator, respectively, causing a double burden to them. Note: IADA THC is charged in Philippine peso while FEFC & TSA Charge in US$.

9 15 Liner Conference/Rate Agreement THC is being charged with no respect on the international commercial terms agreed between buyer and seller. In intra-Asia trade, shipper and consignee are both charged THC at the origin and THC at destination, respectively. In Asia-US/Europe trade, shipper is being charged THC; conversely for US/Europe-Asia trade, consignee is also charged THC regardless of the agreed commercial terms. Shippers Perspective THC should be charged only to the party paying the freight in accordance with the international commercial terms (Incoterms). FOB sellers/shippers AND CIF buyers/importers should not be charged THC by the carriers. To illustrate: Seller Buyer Carrier If CFR/CPT Or CIF/CIP If FOB Or FCA Carrier s THC imposition against both buyer and seller for one and the same shipment violates the Incoterms.

10 16 Effects of THC 17 Trade20 Dry40 DryIADAUSD 78 (Php4,280*)USD 96 (Php5,300*)FEFC USD 104 USD 138 TSA USD 104 USD 138*Note: IADA THC is charged in Philippine peso while FEFC and TSA Charge in US Dollar denomination. Table II-A. Current Level of THC in the Philippines. 18 Table II-B. Cumulative THC increases in the Philippines, 1996 - 2004 (in %). Cum. Inc. Inc. Dry40 DryTrade*Note: The most recent increase of 5% took effect last May 2004 for Intra-Asian trade from Php4,080 to Php4,280 per TEU and Php5,100 to Php5,300 per FEU. 19 Container Traffic* (in million TEU) Year Philippine THC Level** (in USD per TEU) Export Import Total Cost of THC (in million USD) 1999 90 2000 90 2001 104 2002 104 2003 104 *Sourced from **Computed based on THC levels as applied to RP-USA/Europe trade by FEFC & TSA.