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Friday Nov 15, 2024
Monday, 2 December 2013 00:00 - - {{hitsCtrl.values.hits}}
The Government’s recent proposal to prohibit the cost recovery of Terminal Handling Charges (THC) by the shipping lines in Sri Lanka has been hailed by some as a strong initiative to improve export competitiveness.
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.
The Government’s five hub concept plus tourism, to boost Sri Lanka’s economic development and fast- track poverty alleviation is indeed commendable.
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.
With the advent of containerization it became 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.
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 and Salalah to name a few.
The Supreme Court appointed mediation committee observation on THC read 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 Terminal and China International Container Terminal which is USD 140/- per 20’ & USD 212/- per 40’.
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.
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. Eg. 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.
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.
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.
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.
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 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.
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 2020 and maritime hub status for Sri Lanka.
