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China rejects 4 container conferences’ THC hikes It imposes penalties on 2 of them - IRSA and ISSA - for breaching rules

Business Times - 07th May 2007 By Donald Uwquhart

(SINGAPORE) China’s Ministry of Communications (MOC) has rejected plans by four container shipping conferences to raise controversial terminal handling charges (THC) at south China ports and imposed penalties for violating regulations.

The ministry said in a recent circular that the proposal by the four conferences did not provide sufficient information and/or had no reason to justify such hikes that ranged from between two and four times current levels.

The proposal, intended to come into effect from May 15, was made by the Intra-Asia Discussion Agreement (IADA), the Informal Rate Agreement (IRA), the Informal Red Sea Agreement (IRSA) and the Informal South Asia Agreement (ISSA).

The members of these conferences include the likes of Neptune Orient Lines's APL, Hapag-Lloyd, Evergreen, K Line and Pacific International Line (PIL).

Two of the conferences - the IRSA and ISSA - were cited for failing to file their organisations’ constitution agreements with the MOC as prescribed by the regulations.

As such, the MOC said it considers the freight agreements concluded by the two to be ‘invalid’, and proposals to increase THCs ‘should be cancelled’.

The MOC went on to bar the two conferences from conducting any activities in China for one year and their members are forbidden from implementing any of the ISAA or IRSA's operational or freight agreements during that period.

The MOC also said that it would levy unspecified penalties against the two conferences and their members according to Article 48 of the Maritime Rule of China.

The other two conferences - the IRA and IADA - both failed to file their designated liaison offices with the MOC as required by regulations and their members submitted ‘incomplete materials’ on the proposed THC hikes.

The MOC rejected their filings and said their members cannot implement the THC increases. Chairman of the Asian Shippers’ Council (ASC) John Lu applauded the MOC for its ‘prompt response in taking a tough stand against the rate agreements for contravening MOC regulations’.

He highlighted that the decision to raise the THCs was made without prior consultation with shippers, ‘which goes against the norms of good business practices to keep customers engaged over impending changes, and is required by Chinese regulations’.

Shippers from the Hong Kong Shippers’ Council, Shenzhen Shippers’ Association and Macau Shippers' Association had earlier issued a statement accusing the carriers of being ‘far too greedy’ in implementing the hikes.

The conferences’ THC hikes in south China ports such as Guangzhou and Shenzhen would mean new THCs - first introduced in China in 2003 - ranging from US$141 per 20-foot container to as high as US$344 per 40-foot container, depending on the trade.

A two-year-long investigation by three Chinese central government departments into the practice of charging THCs determined that they are inherently a part of the freight cost and cannot be charged separately.

In a landmark decision, the communications ministry then issued Decree No 10 in March this year, specifying the process which conferences must follow in implementing freight agreements relating to Chinese ports.

This was aimed at ensuring the conferences do not undermine fair competition in the international shipping market, the MOC said.

Mr Lu said that the ASC has always maintained that the THC is part of the freight rate and ‘any suggestion by the four rate agreements that collecting THC is an international practice is a blatant lie’.

Arguing that it is in essence a double charge, he said that it should be abolished and replaced instead by an all-in freight rate, subject to negotiation between the interested parties.

‘We recognise that there may be instances when surcharges are justified, in the event of sharp increases in fuel for example. But any surcharge has to be temporary and transparent, based on costs. The THC fails on all three counts,’ Mr Lu said.

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