Carriers seek refuge in THCs

Carriers seek refuge in THCs Study shows European ports' terminal handling charges have risen markedly since liner conference ban.

By Eric Johnson

      If a scientist were to go into a lab and try to ascertain the effects the European Commission's October 2008 liner carrier conference ban has had on the shipping industry, the results would surely come out inconclusive due to unforeseen outside variables.
      The most prominent of those variables, of course, has been a dramatic decline in volume and freight rates in 2009. Those declines have made it nearly impossible to determine whether the historically low shipping rates on offer the past year between Asia and Europe were attributable to the conference ban or the moribund global economy.
      Similarly, it's hard to determine whether service has improved as a result of the ban, an important factor since the ban was ostensibly enacted to enable shippers to garner better rates and service in a more competitive environment. Carriers have slashed capacity, rearranged port rotations and transit times, and collaborated on trades where separate services were previously offered.
      These measures have certainly not improved service quality, but that's a tradeoff that shippers were likely willing to absorb for such low rates.
      But there's one area where the ban has had a significant influence: terminal handling charges, particularly at European ports.
      According to research conducted by maritime and trade consultant Hackett Associates for the European Commission, THCs have spiked at European ports small and large since last October. In Asia, however, carriers have largely reduced THCs, save for a couple examples where they have increased markedly.
      The research covered 44 ports and 20 carriers, including a handful in the Americas. But the study was primarily focused on how the ban had affected THCs on the Asia/Europe trade lane.

Ben Hackett principal, Hackett Associates
'In Europe THCs hadn't really changed in 15 years, All of a sudden they changed overnight.'

      For one, the broad range of THCs charged by individual carriers showed that they were indeed setting these charges independently, said Ben Hackett, principal of Hackett Associates.
      'There is a clear range of charges with significant differences between the carriers, indicating that THCs are now set by individual players rather than collectively as was the case during the conference era,' Hackett said during a presentation at the Global Shippers' Conference in Dubai in November.
      But unfortunately for shippers, that broad range has increased throughout Europe. Of the 20 European ports studied, only two saw THCs decrease on average among the carriers in the survey (Piraeus THCs fell 40 percent and Gioia Tauro fell 5 percent). The rest saw increases anywhere from 3 percent to 44 percent, with THCs at major northern European ports like Rotterdam, Antwerp and Hamburg rising 20 percent (see table).
      The amounts are not insignificant either. Average THCs at Hamburg rose to 195 euros after the conference ban while THCs at major Mediterranean ports rose to anywhere from 140 euros to 170 euros.
      'In Europe, THCs hadn't really changed in 15 years,' Hackett said. 'All of a sudden, they changed overnight. THCs in European ports went up across the board by (an average of) 20 percent after the EU ban began. And some ports that didn't have THCs started to have them.
      'Carriers maintain they have taken a new look at cost structures and have been under-recovering in Europe,' he continued. 'It appears that many of the carriers carried out internal exercises to determine what the terminal handling costs were for box movements. This was used to help set the new charges, but it cannot be ascertained to what level these reflect actual costs.'
      That is sure to irk shippers who want THCs to be reined in and assessed purely on actual costs, with that transparency largely non-existent at present.
      Another finding of the survey was that carriers increasingly priced their THCs according to country rather than individual port in Europe, a new
development since the ban.
      'The setting of country-based THCs does suggest that there is an element of 'averaging' across ports in cases where more than one port of call exists,' Hackett said, adding that carriers appeared to move to nationwide THCs for reasons of 'simplicity.'
      Looking at specific ports, Hackett found broad disparities in THCs charged by individual carriers in some countries. APL, for instance, charged an average of 255 euros per container to Le Havre, to Mediterranean Shipping Co.'s 150 euros. In Felixstowe, however, all 10 carriers surveyed fell within a band of 110 euros to 120 euros per container.
      Maersk Line, the world's biggest container line, charged a href= href=https://www.americanshipper.com/NewWeb/AS+PDFs/Jan2010/Chart_pg33.pdf target=_blank>average THCs of 185 euros to Rotterdam, but NYK Line charged only 160 euros into the same port.
      'You have to ask why a higher volume shipping line would be charging more THC than a smaller line,' Hackett said.

Asia Less Clear. While THCs have risen fairly uniformly throughout Europe since October 2008, in Asia, it's a hodge-podge. Of the 15 ports surveyed, seven saw THCs fall, six saw them rise, and two had practically the same THC levels before and after the ban went into effect.
      Even within those groups, there was wild variation. Among the ports where average THCs declined, Shanghai's dropped 23 percent per FEU, while Tokyo's dropped 9 percent and Hong Kong's 3 percent.
      Among ports where THCs increased, Shenzhen saw them skyrocket by 202 percent per TEU, while Busan saw a relatively modest increase of 5 percent.
      One trend was deep declines in THCs at Chinese ports. Every Chinese port surveyed aside from Shenzhen and Ningbo had per-FEU declines of 23 percent or higher.
      Shenzhen was an outlier to be sure, though the huge rise in THCs there might have been a result of carriers trying to keep up with Hong Kong's notoriously high THCs.
      It should also be noted that carriers assess different THC levels by TEU or FEU in Asian ports, while charging per box in European ports.
      'In Europe the charges are per container, not size-related, but in Asia, and in the Americas, they have remained linked to the box size,' Hackett said. 'This may not be directly correlated to the terminal cost structure in all the ports.'
      In the Americas, where the survey included nine ports, charges decreased slightly in Canada, increased slightly in the United States, and there was little change in Santos, the one South American port included in the research.
      Hackett said that another change since the ban is that lines are more flexible in how they apply THCs for big customers.
   'THCs are negotiable with big shippers, so they're not as sacrosanct as they were under the conference system,' he said.

Lu

      That's a notion that John Lu, chairman of the Asian Shippers' Council, has outlined repeatedly in the last few months. As explained in the November issue of American Shipper (pages 26-28), Lu said export shippers in Asia bear the brunt of the THCs, even if research shows they've fallen in the past year.
      'THCs should be on a reimbursement basis,' Lu said. 'It is supposed to be the actual cost the liner pays to the terminal operator. But certain countries don't have the luxury of being a shipping hub and so they have to appease the carriers to lure them to serve those countries.'
      Much of the discussion at the shippers' conference panel on which Hackett spoke centered on the ban's impact in the last year.
      'Surcharges remain opaque,' said Jean Louis Cambon, head of the ocean management committee for tire manufacturer Michelin.
      Cambon suggested that rather than staying the same, THCs should have come down in the last decade.
      'As THCs in Europe stayed the same, operations at terminals became more efficient,' he said. 'But those benefits weren't passed on to shippers in the form of lower THCs.'
      Cambon said a major issue is that carriers are operating in what he calls a 'single league.'
      'There's no differentiation,' he said. 'Carriers should take the initiative to develop performance standards, with service clusters emerging. This would allow carriers to focus on what they do best and get away from the 'one-league' syndrome. I think there is recognition amongst the carriers that the current business model has run its course, but there is no clear indication what the new business model should be.'
      Of the conference ban's impact, he said: 'One year is too short to judge the impact on service quality, particularly in the context of the economic crisis.'
      But Cambon said alliances and consortia shouldn't all be thrown out with the bathwater.
      'Consortia have no pricing authority and they can benefit competition,' Cambon said. 'They allow small carriers to operate in lanes they wouldn't have the resources to ship in on their own. But you have to be careful about the weight these consortia have in the market.'
      Venkatesh Ramachandran, managing director of Mumbai-based freight forwarder Clearship and vice chairman of the West Indian Shippers Association, said the EU ban has had little effect on THCs in India.
      'We haven't seen anything that's affected us negatively as a result of the EU ban,' Venkatesth said. 'India hasn't seen THC increases.'
      He said India, which has been monitoring carrier activity more closely the past year through its Competition Commission, is pondering even stronger regulation of carriers by requiring them to clear vessel sharing agreements and licenses with the government.
      'India is following the lead of Europe,' he said. 'The government is trying to bring some amount of transparency to the industry.'
Hackett's research indicates that THCs haven't risen dramatically, with levels at Nhava Sheva (India's largest container gateway) rising 8 percent since the European liner ban went into effect.
      But Venkatesh said capacity reductions by carrier alliances have been more damaging to shippers than THCs.
      'In a true sense, there hasn't been an end to liner conferences,' he said. 'The lines can still control capacity and affect demand that way. There have been serious reductions in capacity that has affected demand. And rate increases have followed a trend with a gap in between carriers announcing them. There has to be some collusion at some point there.'
      But Cambon disagreed, saying carriers had to maintain the right to adjust their supply.
      'In the manufacturing industry, you don't continue to produce if you don't sell,' he said. 'It's the same with the reduction in capacity. As much as we appreciate that some moves have to be made, what we don't appreciate is the carelessness with which some of the moves are being made. Necessity we accept. Carelessness, we don't.'
      Hackett rounded off the debate with a reminder that the ban was, indeed, enacted to help shippers.
      'The ban was supposed to benefit the shipper,' he said. 'Carriers can pull capacity at will, as opposed to within the conference structure. Ultimately, that doesn't always benefit shippers.'