Terminal Handling Charge Shippers’ Perspective

PhilippineShippers’BureauTerminal Handling Charge:Shippers’ PerspectiveBy Philippine Shippers’ Bureau

Background• The terminal handling charge (THC) has been an issuefor many years now. It was unilaterally imposed byinternational shipping lines on both export and importcontainerized cargoes purportedly to recover costsincurred at container terminals.• THC was first introduced in 1990 as a separate chargefrom ocean freight for all container shipments for HongKong-Europe trade by a group of carriers known as FarEastern Freight Conference (FEFC). This was followedby another group of shipping lines, i.e. Australian & NewZealand Eastern Shipping Conference (ANZESC) in thesame year.2

Background• In late 1991, Asia North America Eastbound Agreement(ANERA) also imposed THC for all container shipments.Other rate and discussion agreements adopted the THCand extended its imposition across Asia.• ANERA (which was now replaced by TranspacificStabilization Agreement serving US-Asia trade) andIntra-Asia Discussion Agreement (IADA), serving intra-Asia trade, continue to charge the THC. Since then, THChas become a conventional charge of shipping lines andhas steadily increased over the years.• Philippine Shippers’ Bureau (PSB) had sought a dialoguebetween shippers and liners (IADA, TSA, and FEFC) inManila early last year but has never come up with adefinite agreement.3

Background• In the regional scene, Asian shippers, including thePhilippines, vigorously demanded for the justification ofTHC from shipping lines, liner conferences andrate/discussion agreements but no concrete resolution hasbeen reached except for a “harmonious and friendly”meeting and exchange of views, the most recent of whichwas the Federation of ASEAN Shippers’ Councils(FASC)-IADA meeting in April 2004 in Singapore.4

Contradictory Views on THCbetween Liners and Shippers5

What is THC?• THC, according to the Glossary of Shipping Terms, is acharge for handling services performed at the terminal. Ingeneral, it means the movement of containers within theterminal and the use of its facilities.• Based on the Shippers-Liners dialogue at the local level,IADA proposes that their THC comprised mainly ofstevedoring, empty repositioning and container-relatedservices; while TSA defined the limits of their THC“starting upon discharge of empty container from vesselthrough container receiving at the terminal gate until it wasloaded onto the vessel and vice-versa.”6

Liner Conference/Agreement• Sea freight for containerizedshipment is under “free-inand-out”(FIO) term, whichmeans that costs of loadingand unloading are for theaccount of theshipper/consignee.Note: Based on IADA’spresentation during PSB-IADAmeeting in March 2004.Shippers’ Perspective• Sea freight for containerizedshipment is under “Linerterms” under which loadingand unloading costs are borneby the carrier and, thereforeincorporated in the freight rate.• In contrast with liner’sperspective, “FIO” term isgenerally used in charteringarrangement to cover a port-toportfreight or sea transportcost, and this chartering term isnot applicable in linercontainerized shipping.7

Liner Conference/Rate Agreement• THC = on-board stevedoring costs(i.e. discharge and loading costs)+ terminal or cargo handling costs+ other container-related servicesNote: Based on TSA’s presentationduring PSB-TSA meeting inMarch 2004.Shippers’ Perspective• On-board stevedoring isconventionally for the accountof the carrier andconsiderably part of the freightunder the relevant LinerTerms; while cargo handlingservices (or arrastre) forcontainerized cargo is beingpaid separately by shippers toterminal operator. Hence,stevedoring cannot form partof the THC; otherwise, thereis an overlapping of servicesboth charged againstshippers/consignees.8

Liner Conference/Rate Agreement• THC = on-board stevedoring costs(i.e. discharge and loading costs)+ terminal or cargo handling costs+ other container-related servicesNote: Based on TSA’s presentationduring PSB-TSA meeting inMarch 2004.Shippers’ Perspective• THC, as per declaration ofASEAN Ports Association intheir APA Resolution 2002-01,is not a charge on portoperational activities. Thus, itshould not involve port-relatedservices.Note: Based on APA Resolution 2002-01during 28 th APA Meeting in October2002..9

I. Basic Cargo Handling ServicesA. STEVEDORING Services(paid by shipping lines to terminal operator)Based on the PPA Tariff, it means all work performed onboardvessel, that is the process or act of loading andunloading cargo, stowing inside hatches, compartments andon-deck or open cargo spaces on board vessel. Other servicesincluded in stevedoring are:• Rigging/Unrigging of ship’s gear• Opening and closing of hatches• Snatching, centering to the hatch opening, passing of cargoand trimming• Provision of standard stevedoring gears and equipment asrequired by the cargo type10

I. Basic Cargo Handling ServicesB. 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 adock (arrastre) gang and cargohandling equipment;• Check cargo by marks and quantity and acknowledge and signtally 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 anydamage caused by the contractor;• Delivery/Transfer cargo onto or receive from truck’s tail ofconsignee’s/shipper’s transportation or ship’s tackle;• Secure cargo from pilferage or losses while under the cargohandler’s custody; and• Provide manpower, equipment and such other necessary cargohandling gears for receiving, storing, delivery, transfer and11shifting of cargo.

Figure I. Container Work Flow in the Terminal.Arrastre servicesStevedoring servicesShipperLadenContainerEmptyContainer*5,6,7,8●1,2,3,4# 1, 2, 3, 4, 5, 6*1,2,3,4ContainerTerminal*9,10● 5,6*7 ,11,12# 7, 8SHIPSIDESHIPSIDEVessel/Carrier*13, 14, 15, 16, 17● 7, 8, 9#9, 10, 11T e r m i n a l H a n d l i n g C h a r g eLegend: * - FEFC cost components # TSA cost components ● - IADA cost componentsRefer to Annex I for the corresponding items for THC cost components.12

II. Comparison between THC & StevedoringTHC(PAID BY SHIPPERS TO LINES)20’ 40’IADA Php4,280 Php5,300(US$ 77.81) (US$96.36)TSA/FEFC Php5,720 Php7,590(US$104) (US$138)Stevedoring(PAID BY SHIPPING LINES TOTERMINAL OPERATOR)20’ 40’Php3,099Php4,335*Note: Based on PPA Tariff Ratefor non-self-sustaining vessel.Note: IADA THC is charged in Philippinepeso while FEFC & TSA charge in US$.Philippine THC is quite high as comparedto stevedoring rate.13

III. Comparison between THC & ArrastreTHC(PAID BY SHIPPERS TO LINES)20’ 40’IADA Php4,280 Php5,300(US$ 77.81) (US$96.36)TSA/FEFC Php5,720 Php7,590(US$104) (US$138)Arrastre(PAID BY SHIPPERS TOTERMINAL OPERATOR)IMPORT20’ 40’Php2,587 Php5,936EXPORT Php2,112 Php4,851Note: Based on PPA Tariff Rate.Note: IADA THC is charged in Philippinepeso while FEFC & TSA charge in US$.Philippine shippers pay both THC and arrastre to theshipping lines and terminal operator, respectively, causing adouble burden to them.14

Liner Conference/Rate Agreement• THC is being charged with norespect on the internationalcommercial terms agreedbetween buyer and seller.• In intra-Asia trade, shipper andconsignee are both chargedTHC at the origin and THC atdestination, respectively.• In Asia-US/Europe trade,shipper is being charged THC;conversely for US/Europe-Asia trade, consignee is alsocharged THC regardless of theagreed commercial terms.Shippers’ Perspective• THC should be charged onlyto the party paying the freightin accordance with theinternational commercial terms(Incoterms).• FOB sellers/shippers ANDCIF buyers/importers shouldnot be charged THC by thecarriers. To illustrate:SellerIf CFR/CPTOr CIF/CIPCarrierBuyerIf FOBOr FCACarrier’s THC imposition against both buyer and sellerfor one and the same shipment violates the Incoterms.15

Effects of THC16

Table II-A. Current Level of THC inthe Philippines.Trade 20’ Dry 40’ DryIADA USD 78(Php4,280*)USD 96(Php5,300*)FEFC USD 104 USD 138TSA USD 104 USD 138*Note: IADA THC is charged in Philippine peso while FEFC andTSA charge in US Dollar denomination.17

Table II-B. Cumulative THC increasesin the Philippines, 1996 - 2004 (in %).Trade20’ Dry 40’ DryCum. Inc. Ave. Inc. p.a. Cum. Inc. Ave. Inc. p.a.IADA 185.0 23.1 194.0 24.3FEFC 60.0 10.0 72.5 12.0TSA 48.5 8.0 45.2 7.5*Note: The most recent increase of 5% took effect last May 2004 forIntra-Asian trade from Php4,080 to Php4,280 per TEU and Php5,100to Php5,300 per FEU.18

Table III-A. Estimated Cost of THCto Philippine shippers (1999-2003).YearPhilippineTHC Level**(in USD perContainer Traffic*(in million TEU)TEU) Export ImportTotal Cost of THC(in million USD)1999 90 0.74 0.75 134.102000 90 0.80 0.81 144.902001 104 0.81 0.82 169.522002 104 0.89 0.90 186.162003 104 0.95 0.96 198.64*Sourced from www.ppa.gov.ph.**Computed based on THC levels as applied to RP-USA/Europe trade byFEFC & TSA.19

Table III-B. Estimated cost of THCto Philippine exporters (2003).Philippine’sMajor Market*No. ofTEUs(in million)Containerized EXPORTApplicableTHC perTEU (inUSD)Estimated costto shippers**(in millionUSD)Asia (59%) 0.56 78.00 43.68USA / North America 0.20 104.00 20.80(21%)Europe (17%) 0.16 104.00 16.64Others (3%) 0.03 104.00 3.12Total RP (100%) 0.95 n.a. 84.24*Estimates based on the percentage market share of Philippine trade andcontainer traffic.**Computed based on the current IADA THC of USD78.00 per TEU and FEFC/TSA-THC USD104.00 perTEU for Intra-Asia andUSA/Europe trade,respectively.20

Table III-C. Estimated cost of THCto Philippine importers (2003).Philippine’s MajorMarket*No. ofTEUs(in million)Containerized IMPORTApplicableTHC per TEU(in USD)Estimated costto shippers**(in millionUSD)Asia (62%) 0.59 78.00 46.02USA / North America 0.17 104.00 17.68(18%)Europe (11%) 0.11 104.00 11.44Others (9%) 0.09 104.00 9.36Total RP (100%) 0.96 n.a. 84.50*Estimates based on the percentage market share of Philippine trade andcontainer traffic**Computed based on the current IADA THC of USD78.00 per TEU and FEFC/TSA-THC USD104.00 perTEU for Intra-Asia andUSA/Europe trade,respectively.21

Effects of THC Imposition• THC accounts for 30%-50% of the shipping cost of RP-ASEAN & East Asian container trade.• THC has cost Philippine shippers approximately 130 to200 million US dollar per year. It has increased at anannual average rate of 8% (TSA), 10%-12% (FEFC) &24% (IADA), the latest of which was in May 2004 at 5%with no formal announcement and notice among shippers.• THC adversely affects the cost-competitiveness ofinternational shippers particularly in the intra-Asian tradewhere THC is being imposed at both ends.• Shippers point out that THC is an integral part of theocean freight and therefore should not be paid separatelyby them.22

Shippers’ Position andAction Plan23

Shippers’ Position & Action Plan• To continue the efforts for an open dialogue with thecarriers directly or through a government intervention;• To demand that a proper consultation among shippers beobserved for freight increases, surcharges and othermutual concerns;• To ask from carriers the application of a simple oceantariff structure in which “all-in freight” covers basicocean freight, THC and other charges, to be paid for bythe party paying the freight; and• To work for the establishment and improvement ofeffective freighting system.24

Discussion Points/Shippers’ ConcernsCargo Handling Operator’sServices?Shipping Line’s’THC Services?25

Discussion Points/Shippers’ ConcernsBuyer’s Obligations if the term is?FCA/FOBCarrier’s Services &Obligations?If FCA/FOB:CFR/CPT, CIF/CIPSeller’s Obligations if the term is?FCA/FOBIf CFR/CPT or CIF/CPT:CFR/CPT, CIF/CIP26

ENDThank you!27