Financial Times

THC hurting exporters, consumers

Terminal handling charges on import and export containers imposed by shipping lines were making exports uncompetitive and imports, including essential foodstuffs such as rice and flour, more expensive, the Sri Lanka Shippers' Council (SLSC) said last week.

Shipping lines were clearly making a profit from the terminal handling charges (THC), which cost the country an estimated Rs 4.3 billion a year, according to a study done by the SLSC, its chairman Ravi Ratnapala said.

"The THC is not transparent," he told a news conference. "Separating the THC from the freight rate allows shipping lines to make a profit. It is an anti-competitive practice."

Ultimately it is consumers who have to bear the cost since the THC, imposed on imports since 1994, is passed on to consumers, he said.

Shippers were willing to pay any costs incurred by shipping lines for handling their cargo but wanted a breakdown of the actual THC and for it to be included in an all-inclusive freight rate so that it can be recovered from buyers, Ratnapala said.

Requests by the SLSC to shipping lines for a cost breakdown of the THC have been ignored, Ratnapala said.

The Sri Lanka Ports Authority too had not responded to requests for a breakdown of the THC " for reasons best known to itself," he added.

The SLSC had decided not to hold any more talks with the Ceylon Association of Ship's Agents, which represent the lines, some of which are "very powerful and can make or break a port," Ratnapala said.

The THC had risen to $115 per 20-foot container (TEU) today from $61 when it was imposed in 1997.

The THC was having a "drastic effect" on the bottom line of exporters and was a "huge cost to the country," he said.

Sixty percent of Sri Lanka's exports are on FOB (free on board) terms under which the buyer pays the shipping cost.

SLSC vice chairman Noel Priyatilake said among the worst hit were garment exporters and small and medium exporters. "Our competitors in the apparels market such as China and Bangladesh are paying THC of only $40-50 a container. So our competitiveness gets eroded," he said. THC in Colombo port is the third highest in the region, only behind Hong Kong ($206) and Indonesia ($150).

Rohan Masakorala, chairman of the Association of Shippers' Councils of Bangladesh, India, Pakistan and Sri Lanka (Ascobips) said that the true nature of the THC as a hidden freight charge is revealed by the fact that when shipping lines imposed the THC on exports in 1997 it was originally called a freight surcharge.

"But when the SLSC objected and asked the shipping lines to charge it from the buyers, CASA renamed it the THC," he said.

Ratnapala said that if the THC is an actual recovery of land-based costs, as claimed by shipping lines, then the benefits of the rebates on port charges given by the SLPA to lines which have signed terminal services agreement with the port, should be passed on to shippers.

"But that has not happened," he added.

The SLSC study on THC found some of the costs should be part of the freight rate and that the extra costs for terminal handling of containers came to only $50 per container.

"The rest was there even before containerisation," he said. "Furthermore, our study can account for only $143 of the $148 THC the lines say the SLPA is charging them to handle containers. Five dollars remains unaccounted for - just clean profit."

There also is an over-recovery of THC on LCL (less than container load) exports with the lines making a profit.