Saturday 17th Nov, 2018

INDUSTRY OPINION: Infrastructure charges threaten shipping line THC revenue in Australia

Photo: Jim Wilson
Photo: Jim Wilson

THE Australian Competition and Consumer Commission (ACCC) identified in its annual Container Stevedoring Monitoring Report 2016-2017 that the stevedores are restructuring “their revenues away from their shipping line customers and towards the transport sector”. That much is evident. The report also identified shippers as the ultimate payer. This begs the question: are Australian shippers now paying twice for the same in-terminal activities?

Typically, Australian shippers are already paying more than $500 per TEU in THCs to their shipping line suppliers. This THC Tariff includes the lifting of the container from the vehicle, the load and discharge move to or from the vessel, wharfage, transhipment, off dock costs, on-site reefer service, port security, overtime, extra yard work, lashing and other terminal expenses. That is, all activities within the terminal gate. Depending on the Incoterms we generally define THC as “before departure, from the seller’s vehicle to the stack and thence to the departing conveyance” and at destination “from the arriving conveyance to the stack and thence to the buyer’s vehicle”. So, as a shipper, I have truly covered my costs for those activities through the fees I am paying to the shipping line, who in turn pays the terminal operator. As shippers, as far as we’re concerned, our balance is paid.

The THC was broken out from the general freight rate to give shippers greater transparency of stevedore pricing, wharf pricing and terminal productivity, particularly at the height of the wharf labour disputes in the late 80s and 90s. Today THCs are anachronistic. The shipping line negotiates directly with the stevedore, but rarely does the shipping line pass any savings onto the shipper. The shipper has zero visibility of whether the THC on the invoice reflects the shipping line’s agreement with the terminal operator. While the THC charges faced by the shipper have increased year-on-year in Australia, the ACCC reports that “stevedores have been lowering stevedoring rates in an effort to maintain market share and win new business”. If this is true, it’s fair to say that shipping lines are not passing on those savings to the shippers.

Have we arrived at a time where the THC no longer reflects reality and should be re-absorbed into the general freight rate? That is certainly the case in Sri Lanka and other parts of the world, where laws have been introduced to protect consignors and shippers from charges where they are the non-contracting party. The Global Shippers Forum frames it as follows:

“Current widespread malpractices include imposing non-negotiated charges on consignors and shippers for a range of local charges over which the consignor or shipper has no control or influence in their freight rate negotiations with the shipping line, terminal operator, shipping agent, or third-party logistics provider. Shippers generally are not party to the contracts in which these fees are set, yet they have no choice but to pay the fees if they want their cargo to be transported.”

The laws in Sri Lanka, essentially mandating an all-inclusive freight charge, has “resulted in dramatic reductions in the door-to-door freight costs, reductions that benefit both the seller and buyer of the goods”.

The other option is for the in-terminal activities to be covered by the shipper through a direct commercial agreement with the terminal, bypassing the shipping line as the middle man. That would liberate the shippers to negotiate as they will with the stevedores and would mean the only negotiable rate with the shipping lines would be the blue ocean rate.

The worst-case scenario is the one we have now. Where shippers are still paying the shipping line for the Terminal Handling Charge and are now paying a second time for in-terminal activities to the stevedore through their transport operator. This is an unnecessary and duplicate supply chain cost.

For now, shippers should be asking shipping lines for real and immediate reductions in their Terminal Handling Charges, when they are now paying for those activities through their transport operator.

The shipping lines should be asking for major and immediate reductions in their handling fees from the terminal operators, as their client, the shipper, is already subsidising that activity through the landside terminal access fee.

The model is changing, and change can be a good thing.

For now, shippers should only pay once for in-terminal activities. Either to the shipping line or the terminal operator. Who that should be, I’ll leave it up to them. 

* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association

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