WTO last port left for exporters in THC storm

PUBLISHED : Friday, 30 September, 2005, 12:00am
UPDATED : Friday, 30 September, 2005, 12:00am

If Below Deck had a penny for every word he has written on the protracted dispute about terminal handling charges (THC) in the past 10 years, you would not be reading this column.

But the container shipping industry is no closer to solving the dispute today than it was then, which is why the region's exporters have decided to ask their governments to help them to take the matter to the World Trade Organisation for adjudication.

For the record, the THC is a fee the shipping lines charge exporters to 'recover' the basket of costs they incur when calling at a port to pick up cargo.

Exporters say the lines use the THC as a profit centre and have demanded they account for so-called 'costs' they claim to be recovering. Lines have refused, citing commercial sensitivity of contracts with terminal operators.

It is a complex issue, for sure. But what the novice needs to know is that it is not the first time shippers in Greater China have asked their governments for help with this thorny issue.

On the mainland, where the THC has been in place since January 2002, the dispute was strangely referred in August 2003 to the Ministry of Communications for resolution - which happened to be majority owner of China's two biggest shipping lines.

The ministry quickly assembled a 'panel of experts' to find a way to resolve the dispute. And it just as quickly rejected their sage advice to roll the THC into the freight rate, a move which would have made all-in freightage charges susceptible to market forces and obliged the ministry's carriers to negotiate with huge western importers such as Wal-Mart, rather than their small and medium-sized suppliers in Asia.

In Hong Kong, the government has been 'facilitating' discussion between exporters and carriers for two years but apparently things are not going too well: one of the world's biggest carrier groups - the Far Eastern Freight Conference - has yet to show up to a meeting despite official requests.

The government has taken a kid-glove approach to the matter because of Hong Kong's blind devotion to the merits of non-intervention in the commercial affairs of the private sector.

Below Deck is not alone in believing this stance is a cop-out, in this regard. The government would not have to intervene in the market to demand a list of the THC's cost elements from each line, proving it is not being used to boost carrier earnings and ending the dispute once and for all.

In fact, it has a duty to do so.

The THC differential alone costs south China's exporters US$97 more per 40-foot box to ship through Hong Kong than it does through Shenzhen, a third of the overall unit cost disparity that has been driving business away from the port of Hong Kong in droves.

With the impact of the port's higher costs clearly and increasingly visible, surely the government has a responsibility to make sure every penny of that differential is justified?

To provide a snapshot: south China's exporters would have saved US$139 million in THC costs alone in the first five months if they had chosen to ship their 1.43 million 40-ft boxes through ports in Shenzhen.

With cost savings like that, it does not take a steely-eyed accountant to figure out why our port may see a decline in business this year for the first time since 2001.

More than 300 people were laid off at the port this year as operators looked to shed costs and realign their payrolls to reflect the port's decline. And those able to keep their jobs are increasingly being 'outsourced' to third-party labour firms, which pay less and offer fewer benefits.

The carriers quite clearly need help to shed their privileged mindset, the genesis of which can be traced back to decades of antitrust immunity that has allowed them to 'informally discuss' freight rates and capacity deployment without the fear of prosecution for rate fixing that almost every other industry would face. They need to enter the arena in which all firms must conduct business where proof of expenses is mandatory if you want to be reimbursed.

If governments lack the mettle to deal with this matter, then they should open the door for the WTO to step into the leadership void they have created.