Govt’s Terminal Handling Charge (THC) initiative draws bouquets and brickbats

Dec. 24, 2013 (LBT) - The year 2013 is coming to a close in a few days but the end of the year has opened a very controversial arena in the import and export sector in Sri Lanka with the budget proposal that could do away with the Terminal Handling Charge, commonly called the THC.

The simmering controversy over the THC burst into limelight with President Mahinda Rajapaksa stating in parliament during the Budget speech on November 21 that:

“In order to prevent monopoly pricing in the shipping trade, no shipping line will be permitted to levy terminal handling and other charges in addition to freight and specified international charges for container cargo. Relevant prohibition will be made effective through amendments to the Finance Act, effective from January 2014.”

The Global Shippers Forum (GSF) has welcomed Sri Lanka’s move to remove the Terminal Handling Charge (THC) with effect from January next year describing the initiative as introducing reforms to ensure fair trading practices, while the Asian Shipowners’ Forum (ASF) has stated that it was the wrong time to contemplate such an action. It has also said the move would have the opposite effect on the island nation’s efforts to become a major shipping and logistics hub in South Asia. The move could also make Sri Lanka a very unattractive place to do business, and drive away potential port users. Port competitiveness will suffer, ultimately impacting the local economy and jobs, said the Asian Shipowners’ Forum.

The following is the statement by the Global Shippers’ Forum:

Global Shippers’ Forum welcomes Sri Lanka government move to ensure fair trading practices

The Global Shippers’ Forum (GSF) has welcomed the recent intervention by the Sri Lankan government in introducing reforms to ensure fair trading practices.

In response to protracted lobbying by the Sri Lanka Shippers’ Council to address unfair trade practices prevailing in the shipping industry in Sri Lanka over many years, the government acted to strengthen the powers of the Director General of Merchant Shipping to deal with anti-competitive practices, unfair charges and to create greater transparency into shipping charges, says the Secretary General of the GSF.

Shippers in Africa, Asia, the Indian sub-continent and South America have been calling for urgent action on unsubstantiated shipping charges and surcharges. Shippers are also demanding that greater transparency in shipping charges, including terminal handling charges and a plethora of surcharges they do not believe reflect the real costs of the alleged ‘services’ be provided.

Chris Welsh, Secretary-General of the Global Shippers’ Forum states:

“The proposed Sri Lanka reforms are likely to be a catalyst for wider demands, especially in the developing world, for greater regulatory oversight of liner shipping and shipping charging practices where anti-trust exemptions remain in place.

“In the absence of effective competition in many regions of the world, there is a growing belief that tougher controls on liner shipping are needed to regulate carrier practices relating to freight tariffs to provide much needed transparency into shipping charges and surcharges”.

“The GSF favours a market-led and fair competition approach to ensure open and competitive ocean transportation markets. However, in the absence of open and competitive markets it is increasingly likely that shippers will demand new regulatory agencies, or at least regulatory oversight, of tariffs and charges to ensure they are fair and equitable.

“I hope that a resolution of these long-standing grievances can be achieved before it comes to that, but momentum is building for a regulatory approach.”

The GSF will give further consideration to the issue at its up-coming annual meeting in Los Angeles, USA, on 10-11 March 2014.

The Global Shippers’ Forum GSF is the global voice for shippers, created in 2006 as the successor to the Tripartite Shippers’ Group, first organised in 1994. Like the Tripartite Shippers’ Group, the GSF represents the interests of various national and regional shippers’ organisations in Asia, Europe, North and South America and Africa. The GSF is focused on the impact of commercial developments in the international freight transportation industry and the policy decisions of governments and international organisations that affect shippers and receivers of freight. The GSF was formally incorporated and registered as a non-governmental organisation in the United Kingdom in June 2011.

The following is the Asian Shipowners’ statement:

Asian Shipowners Urge Sri Lanka To Reconsider Action on Surcharges: Proposed Ban Would Isolate Sri Lanka From the International Community

The Asian Shipowners’ Forum (ASF), the representative of the 15 shipowners’ associations in Asia, announced that it will shortly file its comments urging the Sri Lanka government not to ban collection of surcharges, including the terminal handling charges (THC).  According to ASF,the ban, proposed in a November 21 budget speech,could isolate Sri Lanka from the international community and drive shipping business away from the country’s ports.

ASF Secretary General Yuichi Sonoda states, “This ban would disrupt numerous private contractual relationships both for transportation services and the sale of goods.  The ban would be an unprecedented interference with private commercial transactions.  The parties to the transaction, not the government, should determine how freight charges should be structured.”

“THCs and other surcharges are assessed in virtually all major trade lanes in the world, including the Asian region.  By mandating how business partners structure their financial arrangements, Sri Lanka would be isolating itself from major commercial centers that attract business by protecting freedom of contract.

“This is the wrong time to contemplate such an action.  Carriers are major customers of Colombo and other Sri Lankan ports.  Sri Lanka is expanding its terminal facilities in an effort to become a major shipping and logistics hub in South Asia.  It is also trying to boost exports.  This action would have the opposite effect – it would make Sri Lanka a very unattractive place to do business, and drive away potential port users. Port competitiveness will suffer, ultimately impacting the local economy and jobs.”

ASF urges Sri Lanka not to take action without considering all points of view.  The proposed ban is based largely on erroneous information provided to the government.  For example, most of the 42 different surcharges listed in opponents’ complaints are duplicative or are not even charged by carriers.

Recent complaints that the THC level is excessive are also unfounded.  Current prevailing THC rates were agreed to between carriers and exporters in 2008 in response to an order of the Sri Lanka Supreme Court.  The proposed ban would replace a cooperative, court-ordered solution with a one-sided mandatory structure for shipping charges.  And while local carriers have documented that the THC is tied to fees imposed by the Sri Lanka Ports Authority and other terminals, proponents of the ban have presented no data to support their complaints.

The members of the ASF urge Sri Lanka to seek a fair and fact-based approach to this issue.  Mr. Sonoda concluded,

“The process established by the Sri Lanka Supreme Court in 2007 showed that carriers and exporters can work together to avoid unreasonable or unfair charges.  Cooperative solutions work much better than government mandates.”

The Asian Shipowners’ Forum (ASF) represents 15 shipowners’ associations of Australia, China, Chinese Taipei, Hong Kong, India, Japan, Korea and the Federation of ASEAN Shipowners’ Associations comprising Brunei, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.  ASF’s role is to promote the interests of the Asian shipping industry and promote policies that lead to efficient and effective ocean transportation service in the world.

Ship agents voice concern

The government’s recent proposal to prohibit the cost recovery of Terminal Handling Charges (THC) by shipping lines in Sri Lanka has been hailed by some as a strong initiative to improve export competitiveness.

However, shipping industry sources make a strong case as to why such a move is counter-productive to the government’s vision.  The proposed prohibition also runs contrary to a Supreme Court decision in 2007 giving legal effect to the THC with effect from 1/7/2008 through the mechanism of a mediation committee, the report of which was filed in the Supreme Court.

Ship agents say that the government’s five hub concept to boost Sri Lanka’s economic development and fast- track poverty alleviation is indeed commendable and the development of port infrastructure and the vision to propel Sri Lanka into the position of a global maritime centre has come in for high praise from the international and local shipping communities.

“With this backdrop, it is puzzling to note that the government intends to bring in legislation into an area that was hitherto completely ‘commercially driven’ by the global maritime and trading community,” they said.

With the advent of containerization it has become necessary for container terminals worldwide to compute and recover costs they incurred in handling containers through their terminals and onto or off ships as the case may be. These costs commonly referred to as THC came to be recovered from the trade worldwide in both the developed and developing countries. Today, with the rare exception in a country or two, THC is charged and collected as part of cost recovery globally, they said.

According to the ship agents, this proposed legislation, without a due consultative process with all stakeholders, against an internationally established and accepted practice, notwithstanding a Supreme Court decision in favour of the THC recovery, completely isolates Sri Lanka, to its own disadvantage, from other hubs competing with Sri Lanka. The THC cost recovery is available to shipping lines in these hubs viz Vallarpadam, Singapore,  Malaysia,  Salalah to name a few.

The Supreme Court appointed mediation committee observation on THC reads thus:

“It is observed that the THC recovered from shippers is confined to payments to the SLPA/SAGT and container depots. Therefore, it can be seen that the THC recoverable is verifiable, transparent and the possibility of it being increased at the will and fancy of shipping lines is not tenable.”

Terminal Handling Charge (THC) is a direct recovery of the Port Stevedoring Charge levied by the Sri Lanka Ports Authority, South Asia Gateway Terminals and China International Container Terminal which is USD 140 per 20’ & USD 212 per 40’ container.

Plus USD 8 per 20’ & USD 16 per 40’ levied by the SLPA as Harbour Tonnage Dues on all Export/Import Containers.

Also a lift on & lift off of  USD 3 per 20’ & USD 6 per 40’  paid to the Container Storage Depots situated outside the Port Area as part of their cost recovery.

Ship agents are of the view that there is a misnomer in relation to the terms of carriage as defined by shipping lines and the place of delivery as defined by terminals and the merchant i.e. the importer or exporter which also leads to confusion between shipping line and merchant which can be clearly determined by the terms of shipment as defined in the Bill of Lading. E.g. a carrier would quote terms of carriage as FCL/FCL meaning a shipper packed and consignee unpacked container while the practice of the port or terminal would entail the place of delivery being stated as CY/CY merely denoting where the container can be delivered to or taken delivery from. The place of delivery is not the liability of the shipping line unless expressly contracted to.

The THC does not constitute part of freight, internationally, and is a land based cost recovered from the merchant i.e. shipper or consignee as the case may be. Exporters are also well aware of the fact that there is a DTHC – Destination Terminal Handling Charge, which is paid by their buyer at the Destination. It is similar in principle to the THC paid in Colombo by the Importer.

The trade needs to appreciate the fact that major global carriers call Colombo because of its hub status and not because of the volume of local exports or imports. Seventy five percent of the volume handled at Colombo represents transshipment cargo. As such the hub status of Colombo benefits the local importer and exporter by way of competitive freight rates, multiple choice of carrier, increased shipping opportunities and good transit times, the ship agents said.

It is for the same reason that the transhipment stevedoring rate is 1/4th to 1/3rd that of the domestic stevedoring rate which incentivizes the mega Shipping Lines to call Colombo and boost transhipment volumes while at the same time contributing qualitatively and competitively to Sri Lanka’s domestic trade and port and terminal revenue.

According to ship agents, if Shipping Lines are unable to recover the full THC cost, it brings about a reduction in the margin or a financial loss for the services offered. In the quest for better margin business, shipping lines may place restrictions on lower margin Sri Lanka domestic shipments and such restriction placed on space for domestic cargo would stifle the opportunities available for local shippers and consignees eventually driving freight rates higher and more importantly impacting on the governments export growth targets.  Carriers would prefer to cater to markets which derive a higher revenue rather than Sri Lanka which places constraints on their cost recovery.

On a trading angle the concern that the Importers are also subject to the THC cost recovery which in turn burdens the consumer is a myth.  In fact , it is a benefit to the importer not to include THC in the freight. If it is incorporated , the Importers will have to pay additional Customs Duty, PAL, NBT and other levies applicable. Although the beneficiary would be the government it will be a burden to the consumer as these extras will be recovered by the Importer and added to the cost of product.

Since THC is a cost recovery, shipping lines will have to recover it one way or another, or their margins will suffer or it becomes unprofitable and untenable to provide the service.

Shipping lines can increase their freight charges to recover the full amount of THC. If they are successful, the foreign trading partners of Sri Lanka importers and exporters will have to pay more trading with Sri Lanka.

“When this happens, these foreign traders will either re-negotiate their prices with Sri Lanka parties or re-contract with traders from another country. In the former case, the savings in THC is returned as other charges rendering a net zero sum effect. The latter case will result in Sri Lanka losing a trading opportunity,” the ship agents said.

In the final analysis, the proposed abolishment of THCs will at best bring about a net zero sum outcome, with cost recovery finding its way back into the trading structure or higher freight.

Ship agents also said that there has been a great deal of rhetoric about 42 different charges outside freight imposed on importers and exporters by the supply chain and the shipping  industry sources categorically state that their charges outside freight are transparent, cost recoveries and for deterrent purposes only and most certainly do not add up to such a large number and a single shipper or consignee would at most be levied 6 or 7 different charges depending on the circumstances involved. This matter needs to be investigated further with the other service providers such as freight forwarders, consolidators, NVOCC (Non Vessel Owning Container Carriers) operators which is why it is important that these matters need to be discussed with all stakeholders concerned rather than concluding that shipping lines are levying these 42 charges.

Ship agents pointed out that a continuing dialogue between the various stakeholders, as directed by the Supreme Court in its wisdom and full implementation of all the recommendations by the mediation committee, will better serve Sri Lanka’s overall interest and help achieve SLPA’s vision for 2020 and maritime hub status for Sri Lanka.



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