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Philippine Shippers Bureau

Terminal Handling Charge: Shippers Perspective


By Philippine Shippers Bureau

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, i.e. Australian & New Zealand Eastern Shipping Conference (ANZESC) in the same 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 THC and extended its imposition across Asia. ANERA (which was now replaced by Transpacific Stabilization Agreement serving US-Asia trade) and Intra-Asia Discussion Agreement (IADA), serving intraAsia 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. 3

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.

Contradictory Views on THC between Liners and Shippers

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.
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Liner Conference/Agreement Sea freight for containerized shipment is under free-inand-out (FIO) term, which means that costs of loading and unloading are for the account of the shipper/consignee.
Note: Based on IADAs 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 liners perspective, FIO term is generally used in chartering arrangement to cover a port-toport freight or sea transport cost, and this chartering term is not applicable in liner containerized shipping.
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Liner Conference/Rate Agreement

Shippers Perspective

THC = on-board stevedoring costs On-board stevedoring is conventionally for the account (i.e. discharge and loading costs) of the carrier and + terminal or cargo handling costs considerably part of the freight + other container-related services under the relevant Liner Terms; while cargo handling Note: Based on TSAs presentation services (or arrastre) for containerized cargo is being during PSB-TSA meeting in paid separately by shippers to March 2004. terminal operator. Hence, stevedoring cannot form part of the THC; otherwise, there is an overlapping of services both charged against shippers/consignees.
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Liner Conference/Rate Agreement

Shippers Perspective

THC = on-board stevedoring costs THC, as per declaration of ASEAN Ports Association in (i.e. discharge and loading costs) their APA Resolution 2002-01, + terminal or cargo handling costs is not a charge on port + other container-related services operational activities. Thus, it should not involve port-related Note: Based on TSAs presentation services. during PSB-TSA meeting in Note: Based on APA Resolution 2002-01 March 2004.
during 28th APA Meeting in October 2002..

I. Basic Cargo Handling Services


A. STEVEDORING Services (paid by shipping lines to terminal operator)
Based on the PPA Tariff, it means all work performed onboard 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 of ships 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 10

I. Basic Cargo Handling Services


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 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 trucks tail of consignees/shippers transportation or ships tackle; Secure cargo from pilferage or losses while under the cargo handlers custody; and Provide manpower, equipment and such other necessary cargo handling gears for receiving, storing, delivery, transfer and 11 shifting of cargo.

Figure I. Container Work Flow in the Terminal.


Arrastre services Stevedoring services
S H I P S I D E S H I P S I D E

Container Terminal
Laden Container
*5,6,7,8
1,2,3,4

Vessel/ Carrier
*13, 14, 15, 16, 17
7, 8, 9

*7 , *9,10
5,6
11,12

Shipper
Empty Container

#9, 10, 11

# 1, 2, 3, 4, 5, 6

*1,2,3,4

# 7, 8

Terminal

Handling

Charge
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Legend: * - FEFC cost components # TSA cost components - IADA cost components Refer to Annex I for the corresponding items for THC cost components.

II. Comparison between THC & Stevedoring


THC
(PAID BY SHIPPERS TO LINES)

Stevedoring
(PAID BY SHIPPING LINES TO TERMINAL OPERATOR)

IADA

20 40 Php4,280 Php5,300 (US$ 77.81) (US$96.36)

20 Php3,099

40 Php4,335

TSA/FEFC Php5,720 Php7,590 (US$104) (US$138)


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

*Note: Based on PPA Tariff Rate for non-self-sustaining vessel.

Philippine THC is quite high as compared to stevedoring rate. 13

III. Comparison between THC & Arrastre


THC
(PAID BY SHIPPERS TO LINES)

Arrastre
(PAID BY SHIPPERS TO TERMINAL OPERATOR)

IADA

20 40 Php4,280 Php5,300 (US$ 77.81) (US$96.36)

20 40 IMPORT Php2,587 Php5,936 EXPORT Php2,112 Php4,851


Note: Based on PPA Tariff Rate.

TSA/FEFC Php5,720 Php7,590 (US$104) (US$138)


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

Philippine shippers pay both THC and arrastre to the shipping lines and terminal operator, respectively, causing a double burden to them. 14

Liner Conference/Rate Agreement

Shippers Perspective

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/EuropeAsia trade, consignee is also charged 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 the carriers. To illustrate:

Seller
If CFR/CPT Or CIF/CIP

Buyer
Carrier
If FOB Or FCA

Carriers THC imposition against both buyer and seller for one and the same shipment violates the Incoterms. 15

Effects of THC

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Table II-A. Current Level of THC in the Philippines.

Trade IADA FEFC TSA

20 Dry USD 78 (Php4,280*) USD 104 USD 104

40 Dry USD 96 (Php5,300*) USD 138 USD 138

*Note: IADA THC is charged in Philippine peso while FEFC and TSA charge in US Dollar denomination.
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Table II-B. Cumulative THC increases in the Philippines, 1996 - 2004 (in %).

20 Dry 40 Dry 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 Trade
*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. 18

Table III-A. Estimated Cost of THC to Philippine shippers (1999-2003).


Year Philippine THC Level** (in USD per TEU) Container Traffic* (in million TEU) Export Import Total Cost of THC (in million USD)

1999 2000 2001 2002 2003

90 90 104 104 104

0.74 0.80 0.81 0.89 0.95

0.75 0.81 0.82 0.90 0.96

134.10 144.90 169.52 186.16 198.64

*Sourced from www.ppa.gov.ph. **Computed based on THC levels as applied to RP-USA/Europe trade by FEFC & TSA.

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


Philippines Major Market* Containerized EXPORT No. of Applicable Estimated cost TEUs THC per to shippers** (in million) TEU (in (in million USD) USD)

Asia (59%) USA / North America (21%) Europe (17%) Others (3%) Total RP (100%)

0.56 0.20 0.16 0.03 0.95

78.00 104.00 104.00 104.00 n.a.

43.68 20.80 16.64 3.12 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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Table III-C. Estimated cost of THC to Philippine importers (2003).


Philippines Major Market* Containerized IMPORT No. of Applicable Estimated cost TEUs THC per TEU to shippers** (in million) (in USD) (in million USD)

Asia (62%) USA / North America (18%) Europe (11%) Others (9%) Total RP (100%)

0.59 0.17 0.11 0.09 0.96

78.00 104.00 104.00 104.00 n.a.

46.02 17.68 11.44 9.36 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.
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Effects of THC Imposition


THC accounts for 30%-50% of the shipping cost of RPASEAN & East Asian container trade. THC has cost Philippine shippers approximately 130 to 200 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 trade where THC is being imposed at both ends. Shippers point out that THC is an integral part of the ocean freight and therefore should not be paid separately by them.
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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? Carriers Services &Obligations?

FCA/FOB CFR/CPT, CIF/CIP

If FCA/FOB:

Sellers Obligations if the term is? FCA/FOB CFR/CPT, CIF/CIP

If CFR/CPT or CIF/CPT:

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END
Thank you!

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