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Why legislation is necessary

  • Decades ago all cargo movements through sea ports were in break bulk form.

  • Cargo was brought along side the ship at shippers‘ expense and loaded to the ship. Loading cost was borne by the ship. Similarly for discharging cost was borne by the ship and moving cargo from alongside the ship was the responsibility of the consignee.

  • Introduction of Containers changed the scenario where point of delivery changed from along side the ship, to a stack at the yard at the port rented by the shipping line. This meant that shippers had no say in the loading or discharging of their cargo.

Origins of THC

  • THC was first introduced in the Far East by the Far Eastern Freight Conference in the early 1980‘s. When THC was first introduced as actual land based cost recovery, the freight rates dropped by a similar amount.

  • In Sri Lanka THC was included in the freight up to 1994.

  • THC was first introduced in Sri Lanka in 1994 on import cargo. Consignees did not protest as cost was simply passed to the consumers.

  • In 1997 THC was introduced on export cargo as a Freight Surcharge by CASA and when challenged the term was changed to THC. Up to 1997 the so called THC on exports was part of all inclusive freight on exports . If THC was transparent the freight rates too should have dropped as it happened in the Far East when first introduced. It did not happen in Sri Lanka

  • THC is based on a 18th century principal known as hook to hook which is no longer applicable to day.

Regional THC'S Vs Sri Lanka

COUNTRY 20FT (U$) 40FT (U$)
Sri Lanka
Dubai
Singapore
Japan
South Korea
Malaysia
Philippines
Thailand
India
Vietnam
China
Bangladesh
148
115
105
93
82
78
78
61
58
57
45
42
225
170
155
140
111
117
97
92
N/A
85
68
60

Why aren't Shipping Lines Including THC to the Freight

  • There is a profit element.

  • Up to 1994 THC was part of Freight.

  • With falling freight rates shipping lines started loosing money.

  • Separating THC was one way of recovering the losses.

  • As long as THC is separated from the freight it becomes a cushion for shipping lines to recover part of the losses as there is a profit element/ over recovery.

Can THC be included in the Freight

  • Yes – It can be done

  • Upto 1994 if THC was part of freight, then why not now?

  • To day when containers are moved across the globe using transshipment points land based cost in these transshipment points are included in the freight rate

  • When other methods of land transport is used such as rail/road to deliver to inland destinations all land based cost are included in the freight rate - Eg: Inland delivery points of USA, Europe & Russia

An Independent View on THC

“Shipping lines don't deny that there is a built – in profit margin on THC, which gives them a slight cushion when freight rates start heading for the bottom; but for the THC, intra- asia carriers would have bled very heavily when Singapore-Hongkong rates dipped to $ 20 per TEU last summer. Were shippers' shedding tears for the liners? Far from it. They were gloating.”

John Merdith, CEO, Hutchinson Port Holdings
(Second Largest Container Terminal Operator in the world)

Source: Fairplay – Feb. 2003.

Why is THC Anti- Competitive and Non Transparent

  • It is forced on shippers' and thus it is non-negotiable

  • There is a profit element as well as a over recovery (eg: have a close look at the cost elements of THC and the THC on LCL cargo)

  • Charges other than the so called Land Based charges are included in the THC

  • Lines and the Sri Lanka Ports' Authority have refused to enter into a dialogue on the cost elements of THC

  • Components which were traditionally included in the freight rate is now part of THC (Eg: Loading/unloading)

  • It violates the principals of free market forces (supply and demand)

  • If THC is a actual recovery of land based cost, The benefits of TSA’s (the lower handling rates offered by the port to shipping lines) should have been passed to the Importers and Exporters

Effects on the Country (On current levels)

  • It has made our exports uncompetitive.

  • Cost to the nation on Imports & Exports Rs. 4.4 billion

  • Cost incurred by the consumers on Imports Rs. 2.5 billion

  • Cost incured by exporters is Rs. 1.9 billion (of which)

  • Cost to the FOB shipper is Rs. 1 billion

  • Cost to the C & F Exporters ( S & M scale) Rs. 0.4 billion

  • Thus only a small section of the business community (multinationals and large scale exporters) benefit from the bargaining power available to them.

  • THC has continued to increase since 1997. There is no guarantee that THC will not be increased.

  • THC in Sri Lanka is the highest in the region. Singapore, Dubai, Malaysia, India, Bangladesh, Japan, China, South Korea, Phillippines, Vietnam are lower than us.

  • It is a bad reflection on our port charges.

Will Legislation Effect the Port/ Country

  • More shipping lines called at Colombo prior to the separation of THC

  • Colombo's main attraction for a shipping line is it's transshipment volumes and not the domestic cargo

  • Shipping Lines sign service contacts with consignees/shippers for a region and not for a single port (as in the case of apparels to the USA).

  • In today's context a decision to call at a port or not will very much be depended on the ports productivity and cost.

  • It is no secret that Colombo lost volumes over the past few years due to low productivity and increased cost. The increase volumes that are being transshipped via Colombo today is as a result of Colombo increasing productivity and reducing cost. THE REDUCTION IN COST HAS NOT BENIFITTED THE SHIPPERS. LINES CONTINUE TO TAKE PROFITS.

  • The future of Colombo will solely depend on productivity and cost

  • Singapore for that matter is a good example (loosing volumes to PTP on cost)

 
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