Terminal Handling Charge Shippers Perspective 2005

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Terminal Handling Charge:

Shippers Perspective

By Philippine Shippers Bureau

Philippine

Shippers

Bureau


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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 costs

incurred at container terminals. THC was first introduced in 1990 as a separate charge

from ocean freight for all container shipments for HongKong-Europe trade by a group of carriers known as Far

Eastern Freight Conference (FEFC). This was followedby another group of shipping lines, i.e. Australian & NewZealand Eastern Shipping Conference (ANZESC) in thesame year.


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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 and

has steadily increased over the years. Philippine Shippers Bureau (PSB) had sought a dialogue

between shippers and liners (IADA, TSA, and FEFC) inManila early last year but has never come up with a

definite agreement.


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Background

In the regional scene, Asian shippers, including thePhilippines, 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 friendlymeeting and exchange of views, the most recent of which

was the Federation of ASEAN Shippers Councils

(FASC)-IADA meeting in April 2004 in Singapore.


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Contradictory Views on THC

between Liners and Shippers


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What is THC?

THC, according to the Glossary of Shipping Terms, is acharge 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 vesselthrough container receiving at the terminal gate until it was

loaded onto the vessel and vice-versa.


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L iner Conference/Agreement

Sea freight for containerizedshipment is under free-in-and-out (FIO) term, whichmeans that costs of loadingand unloading are for theaccount of theshipper/consignee.

Note: Based on IADAspresentation during PSB-IADAmeeting in March 2004.


Sea freight for containerized

shipment is under Linerterms under which loading

and unloading costs are borne

by the carrier and, therefore

incorporated in the freight rate.

In contrast with linersperspective, 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.


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L iner Conference/Rate Agreement

THC = on-board stevedoring costs

(i.e. discharge and loading costs)+ terminal or cargo handling costs

+ other container-related services

Note: Based on TSAs presentationduring PSB-TSA meeting in

March 2004.


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) forcontainerized cargo is being

paid separately by shippers to

terminal operator. Hence,

stevedoring cannot form part

of the THC; otherwise, thereis an overlapping of services

both charged against

shippers/consignees.


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THC = on-board stevedoring costs

(i.e. discharge and loading costs)+ terminal or cargo handling costs

+ other container-related services

Note: Based on TSAs presentationduring PSB-TSA meeting in

March 2004.


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

2002..


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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. Other services

included in stevedoring are:

Rigging/Unrigging ofships 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


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B. ARRASTRE Services

(paid by shippers to terminal operator)Based on the PPA tariff, arrastre includes the ff. services:

Receive/Load cargoes from/ to ships tackle with the use of adock (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 anydamage caused by the contractor;

Delivery/Transfer cargo onto or receive from trucks tail ofconsignees/shippers transportation orships tackle;

Secure cargo from pilferage or losses while under the cargohandlers custody; and

Provide manpower, equipment and such other necessary cargohandling gears for receiving, storing, delivery, transfer and

shifting of cargo.

I. Basic Cargo Handling Services


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Figure I. Container Work Flow in the Terminal.

Shipper

ContainerTerminal

Laden

Container

Empty

Container

*5,6,7,8*9,10

S

HI

PS

I

D

E

SH

I

PS

IDE

*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


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THC(PAID BY SH IPPERS 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 SH IPPING LI NES TO

TERMINAL OPERATOR)

20 40

Php3,099 Php4,335

*Note: Based on PPA Tariff Rate

for non-self-sustaining vessel.

Phil ippine THC is quite high as compared

to stevedoring rate.

II. Comparison between THC & Stevedoring

Note: IADA THC is charged in Philippinepeso while FEFC & TSA charge in US$.


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THC(PAID BY SH IPPERS 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

(PAI D BY SH IPPERS 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

Phi lippine 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 Philippinepeso while FEFC & TSA charge in US$.


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THC is being charged with norespect on the internationalcommercial terms agreed

between buyer and seller. In intra-Asia trade, shipper and

consignee 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 the

agreed commercial terms.


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 thecarriers. To illustrate:

Seller Buyer

CarrierIf CFR/CPTOr CIF/CIP

If FOB

Or FCA

Carriers THC imposition against both buyer and seller

for one and the same shipment violates the I ncoterms.


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Effects of THC


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Trade 20 Dry 40 Dry

IADA USD 78

(Php4,280*)

USD 96

(Php5,300*)

FEFC USD 104 USD 138

TSA USD 104 USD 138

* Note: I ADA THC is charged in Phi li ppine peso whi le FEFC and

TSA charge in US Dol lar denomination.

Table II-A. Current Level of THC in

the Philippines.


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Table II-B. Cumulative THC increases

in the Philippines, 1996 - 2004 (in %).

Cum. Inc. Ave. Inc. p.a. Cum. Inc. Ave. Inc. p.a.

IADA 185.0 23.1 194.0 24.3

FEFC 60.0 10.0 72.5 12.0

TSA 48.5 8.0 45.2 7.5

20 Dry 40 DryTrade

* Note: The most recent increase of 5% took effect last M ay 2004 for

I ntr a-Asian trade from Php4,080 to Php4,280 per TEU and Php5,100

to Php5,300 per FEU.


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Container Traffic*

(in million TEU)Year

Philippine

THC Level**

(in USD per

TEU) Export Import

Total Cost of THC

(in million USD)

1999 90 0.74 0.75 134.102000 90 0.80 0.81 144.90

2001 104 0.81 0.82 169.52

2002 104 0.89 0.90 186.16

2003 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 by

FEFC & TSA.

Table III-A. Estimated Cost of THC

to Philippine shippers (1999-2003).


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Table III-B. Estimated cost of THCto Philippine exporters (2003).

Containerized EXPORTPhilippines

Major Market* No. of

TEUs

(in million)

Applicable

THC per

TEU (in

USD)

Estimated cost

to shippers**

(in million

USD)

Asia (59%) 0.56 78.00 43.68USA / North America

(21%)

0.20 104.00 20.80

Europe (17%) 0.16 104.00 16.64

Others (3%) 0.03 104.00 3.12

Total RP (100%) 0.95 n.a. 84.24*Estimates based on the percentage market share of Philippine trade and

container 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.


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Containerized IMPORTPhilippines Major

Market* No. of

TEUs

(in million)

Applicable

THC per TEU

(in USD)

Estimated cost

to shippers**

(in million

USD)

Asia (62%) 0.59 78.00 46.02USA / North America

(18%)

0.17 104.00 17.68

Europe (11%) 0.11 104.00 11.44

Others (9%) 0.09 104.00 9.36

Total RP (100%) 0.96 n.a. 84.50*Estimates based on the percentage market share of Philippine trade and

container 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.

Table III-C. Estimated cost of THCto Philippine importers (2003).


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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 an

annual 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 of

international 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 separately

by them.

Effects of THC Imposition


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Shippers Position and

Action Plan


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Shippers Position & Action Plan

To continue the efforts for an open dialogue with the

carriers directly or through a government intervention;

To demand that a proper consultation among shippers be

observed for freight increases, surcharges and other

mutual concerns; To ask from carriers the application of a simple ocean

tariff structure in which all-in freight covers basic

ocean freight, THC and other charges, to be paid for by

the party paying the freight; and

To work for the establishment and improvement of

effective freighting system.


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Discussion Points/Shippers Concerns

Cargo Handling Operators

Services?

Shipping Lines

THC Services?


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Discussion Points/Shippers Concerns

Buyers Obligations if the term is?

FCA/FOB

CFR/CPT, CIF/CIP

Sellers Obligations if the term is?

FCA/FOB

CFR/CPT, CIF/CIP

Carriers Services &Obligations?

If FCA/FOB:

If CFR/CPT or CIF/CPT:


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END

Thank you!

Terminal Handling Charge Shippers Perspective 2005

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