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THC – ten years of discussions, yet inconclusive

“The Island” 4th June 2007

Terminal handling Charges (THC) have been controversial from day one and discussed for over ten years with no solution forthcoming as yet. Whenever THC is discussed, the participants at such discussions provide many suggestions. However, a solution is as elusive as it was over decade ago.

We sought the views of those in the trade affected by the continual collection of charges on the basis of THC and present such views:

The Chairman of the Exporter’s Association, Mohan Mendis, said: “In our view, the levy of THC and other related levies are an anti-competitive practice. While these powerful transnational business conglomerates, the shipping lines, offer ridiculously low rates of freight to buyers in developed countries to secure a larger market share, the developing countries are forced to bear additional charges at the ports of origin. “If it is necessary that the additional charges are costs of carriage, then they must be incorporated into the freight rate which the buyers should pay, since many sales contracts are based on FOB value.

“We have no problem with accepting increased, additional costs whether they be land based or ship based: what we are seeking is that the total cost be included in the freight rate so that export pricing does not get distorted in the eyes of the buyer from whom all charges will have to be recovered.

‘Smaller exporters are affected most since the bigger exporters have the power to negotiate with the shipping lines. It is the small and medium exporter who is effected most by manipulations of these vast transnational organizations.

The Chairman of the Sri Lanka Shippers Council, Jayanath Perera, emphasized that there was no problem in including any additional costs to the freight rate. He said: “After all, they are running a business and we need them to provide transport facilities enabling us to be engaged in international trading.

“We have demanded an all-inclusive freight rate, but the lines always getaway by stating that this is an international practice,” he added.

“The freight rate should be determined by the market forces of demand and supply. Shipping lines bring up an argument that containerization has increased costs in comparison to conventional loading.

“We are willing to consider this argument, but we want to know the basis of computation of THC,” Perera said.

“At the moment the THC is not transparent and apart from THC, shipping lines have introduced other charges outside of ocean freight. Large sums of foreign exchange go out of the country in this manner and the cost of living is also aggravated. Due to the traditional costs being increased, Sri Lankan exports are uncompetitive in international markets.

“Government intervention in countries such as Indonesia, China and Thailand has resulted in some relief in this regard,” Perera concluded.

There is an urgent need to eliminate anti competitive trade practices by service providers and setting up of a regulator to bring justice to Sri Lanka’s manufacturing and export industry’” said Rohan Maskorale, a shipping consultant.

“A lack of laws, guidelines and an authority / regulator for international trade in Sri Lanka is being misused by foreign shipping lines and the service of Terminal Handling Charges is a case in point. The trade was liberalized in 1977, but the dangers which unsupervised liberalization bring was ignored.

‘Arbitrary charges have been implemented without any justification / transparency and have been continuously moving upwards and have increased to over 100 percent in dollar terms as at today. The shipping community has met minister and requested the minister to resolve this through legislation. They have gone to the Fair Trading Commission (now Consumer Authority).

“The FTC has ruled that the practice of THC on FOB shippers was anti-competitive. But the government has failed to bring in legislation or protection to the industry due to pressure by foreigners. Shipping lines have realized that they could do anything and get away with it. In fact, they have added on 11 new fixed charges, realizing the weakness of the system. Even though a draft national shipping policy was prepared ten years ago, it has yet to be made law. It is necessary to have a regulatory body on the lines of the Federal Maritime Commission in the United States and the European Commission.

“A regulatory framework has been introduced in China and India is due to follow too. In Indonesia, government intervention has succeeded in preventing the escalation of unfair costs to local exporters. It is surprising why our authorities are keeping a blind eye on the national issue,” asked Maskorale.

The Chairman, Sri Lanka Apparel Exporters, Noel Priyatilleke said: “The apparel industry in Sri Lanka accounts for 50 per cent of the annual export revenue of the country, with around 95 per cent of the exports on FOB basis. Recently the THC was subjected to a steep increase of 35 per cent. Such increases hurt the industry as they have no choice of selecting a shipping line since the buyer nominates the shipping line. Garment manufacturers have no choice but to use the specified line at whatever cost”.

Rohan Maskorale added: “THC as a principle has been totally rejected by shippers all over the world as long as it is not incorporated into the freight rate. It is used as a forcible mechanism of getting suppliers of goods on FOB basis to make payments for cargo that are not in their control once they are handed over to the nominated carrier. It is an illegal charge under the guidance given by the International Chamber of Commerce.

“Most large exporters pay all inclusive freight charges if they control the freight, making it grossly unfair on exporters who do not control freight, as their buyers are large, and the buyers control the freight. FOB exporters are at the mercy of shipping lines that add on ancillary charges at the loading point and do not release transport documents, unless they are paid.

“Shipping lines try to say that THC is a land based cost and therefore should be paid by the party importing / exporting. However when instances of transshipment in Singapore are highlighted where the cost of the terminal operation is included in the freight rate, the shipping lines are strangely silent. This is a discriminatory practice and should be removed,” he added.

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