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, i.e. 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.

• 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.

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.

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

(i.e. 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. 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

(i.e. 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

2002..

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. 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.

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$ 77.81) (US$96.36)

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.

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$ 77.81) (US$96.36)

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$.

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.

16

Effects of THC

17

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: 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. 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 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 0.74 0.75 134.10 2000 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).

20

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

Containerized EXPORT Philippine’s

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 43.68

USA / 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.

21

Containerized IMPORT Philippine’s 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 46.02

USA / 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 THC to Philippine importers (2003).

22

• THC accounts for 30%-50% of the shipping cost of RP-ASEAN & 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.

Effects of THC Imposition

23

Shippers’ Position and

Action Plan

24

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.

25

Discussion Points/Shippers’ Concerns

Cargo Handling Operator’s

Services?

Shipping Line’s’

THC Services?

26

Discussion Points/Shippers’ Concerns

Buyer’s Obligations if the term is?

FCA/FOB

CFR/CPT, CIF/CIP

Seller’s Obligations if the term is?

FCA/FOB

CFR/CPT, CIF/CIP

Carrier’s Services &Obligations?

If FCA/FOB:

If CFR/CPT or CIF/CPT:

27

END

Thank you!