Multisectoral port stakeholders are jointly opposing the Philippine Ports Authority’s (PPA) proposal to prescribe arrastre rates on empty containers and to apply arrastre, stevedoring, and storage charges on out-of-gauge (OOG) cargoes, saying this would jack up logistics cost and lower competitiveness of Philippine businesses.
In a position paper dated October 8, the Association of International Shipping Lines (AISL) expressed “strong objection to the imposition of arrastre on empty containers,” adding it does not see any new or additional cost being incurred by the government or terminal operators to justify the proposed tariff.
The Philippine Multimodal Transport and Logistics Association, Inc. (PMTLAI), Philippine Exporters Confederation, Inc. (PHILEXPORT), and Supply Chain Management Association of the Philippines (SCMAP) also objected to the proposal in a joint position paper dated October 8.
During an invitation-only online public hearing with stakeholders on October 1, PPA said it was mulling imposition of arrastre rates on empties handled at the international ports of Manila and Batangas, as well as arrastre, stevedoring, and storage charges on OOG cargoes handled at ports under its jurisdiction.
AISL in its position paper strongly objected to the proposal, saying that based on the 2019 container volume data as reference, international shipping lines will have to pay an estimated P5.4 billion in additional cost.
Shipping lines will then have to recover the additional cost by passing it on to customers, “otherwise the option left to them is to reduce capacity in order to remain efficient,” AISL said.
“Continuous cost increases in the Philippines will further increase the cost of freight and logistics to the detriment in particular of small and medium-size enterprises,” it added.
The Philippines should instead “take a closer look at its South East Asian neighbors to effectively address key logistics bottlenecks.”
If arrastre rates on empty containers are introduced at Manila and Batangas ports, AISL said the Philippines stands to lose its competitiveness vis-à-vis its Southeast Asian counterparts.
Even without arrastre, AISL noted the cost of container handling services rendered on 20-foot and 40-foot empty containers in the Philippines already ranks among the highest in Southeast Asia. AISL said the current cost of handling services in Manila is 13% higher than in Singapore and 157% compared to Saigon. The Philippines also ranks second to Singapore in cost of handling services for 40-foot empty containers, while the cost is 118% higher compared to Saigon.
AISL said applying arrastre on empty containers will only inflate the overall cost for lines servicing the Philippines and further skew comparison with other Southeast Asian countries.
Further, AISL noted that empty containers have always been universally recognized as an extension of a container vessel and part of the ship’s gear.
“These boxes are not mere appurtenants of a vessel but serve as the very core of container shipping,” it explained. “They are not treated as cargoes but as vessel equipment in the form of steel boxes suitable for repeated use and specially designed to facilitate the carriage of goods by one or more modes of transport without intermediate reloading.”
Arrastre charge is the amount the owner, consignee, or agent of either merchandise or baggage has to pay for the handling, receiving and custody of the imported or exported merchandise or the baggage of passengers.
AISL noted that local regulations in the Philippines have officially acknowledged that shipping containers are part of the ship’s gear. These regulations include PPA Memorandum Circular (MC) No. 11-89 and Bureau of Customs’ Customs Administrative Order (CAO) No.7-78 (Rules, Regulations and Procedures Governing the Treatment of Containers and Containerized Cargoes Amending CAO 8-75).
“It is just too unfortunate that PPA has to introduce such cost increases at a time when the economy of the country is under severe stress because of the coronavirus pandemic and at such period of time when the GDP growth of the country is forecast to contract by more than 7% by yearend,” the group said, adding that this “strikes a big blow to the cost of doing business in the Philippines.”
Shippers’ united stand
For their part, PMTLAI, PHILEXPORT and SCMAP pointed out “such exorbitant proposed rates will increase the cost of doing business, drive away investors, and unduly burden existing manufacturing industries and export companies.”
They said, “While these intended charges are billable to the shipping lines, this will directly impact the logistics cost and will ultimately be borne by the end consumers.”
Citing the tariff comparison presented by AISL during the October 1 public hearing, the multisectoral groups said the rates imposed and collected in Philippine ports “are already the highest among its competitors in Southeast Asia.” An increase in rates will only put the country’s competitiveness at a disadvantage.
The groups said they support PPA’s effort to compensate the terminal/cargo handling operators for services rendered and to ensure policies and rates are uniform, updated, and authorized. However, “the rates imposed should be reasonable, realistic, and equally beneficial to all stakeholders,” they added.
They further pointed out that empty containers should not be subject to arrastre charge as they have always been a part of the stevedoring cost. They noted that containers, under PPA MC No. 22-2004, “shall be treated as part of ship’s gear,” while arrastre, as defined, is “a person/entity who/which performs portside cargo handling operations…”
Justification for charging empties in Manila, Batangas
In its October 1 online hearing, PPA noted there is no rate for arrastre services on empty containers in the tariff for import and export cargoes handled by Manila South Harbor and Manila International Container Terminal (MICT). There is also no arrastre collected on empty containers at Batangas port.
This is because under PPA MC No. 11-89, which was issued in April 1989, no arrastre fees should be charged on empty containers, whether these containers are part of vessel gears or as export or import cargoes at Manila ports.
PPA said it thus sees the need to adopt a policy prescribing arrastre for empty containers at Manila South Harbor, MICT, and Batangas Port “to ensure that policies on the handling of empty containers in PPA ports are uniform and updated.”
It added this is also to “compensate the terminal/cargo-handling operators for services rendered on empty containers in the yard.”
For Manila South Harbor and MICT, the proposed rates are P4,307 for a 20-footer import; P3,516 for a 20-footer export; P9,881 for a 40-footer import; and P8,076 for a 40-footer export.
For Batangas port, the proposed rates are P3,532.50 for a 20-footer import; P2,884 for a 20-footer export; P8,105 for a 40-footer import; and P6,624 for a 40-footer export.
Prescribed arrastre rates for foreign empty containers at other PPA ports will remain the same.
If the proposal is passed, the arrastre rates on empty containers will be subject to PPA share, to be remitted by port operators International Container Terminal Services, Inc. (ICTSI) and Asian Terminals, Inc. (ATI). ICTSI operates MICT while ATI operates Manila South Harbor and Batangas Port.
Impact of OOG charges
PMTLAI, PHILEXPORT and SCMAP meanwhile, agreed there should be authorized established rates for OOG cargoes as these cargoes affect the port’s productivity.
But they “do not subscribe to the justification of applying the multiplier factor of 3 in the base tariff as a methodology in determining the OOG tariff.”
Citing again AISL’s tariff comparison during the public hearing, the groups noted that among Southeast Asian counterparts, the standard regional OOG surcharge is only 50%, except in Tanjung Priok in Indonesia. The groups said PPA’s proposal “will likewise diminish the country’s competitiveness.”
AISL, in its position paper, proposed that instead of getting the average of the maximum stacking high of standard laden containers in selected PPA ports in the country in order to arrive at the multiplier factor of three, what should be done is impose a 50% surcharge for stevedoring OOG cargoes. This is what has been adopted in Port Klang, Laem Chabang and Cat Lai Terminal, it pointed out.
“It is our view that it is not a question of stacking but on the cost of moving an OOG cargo and a standard laden container,” AISL said.
No value added, says local shipping lines
The Philippine Liner Shipping Association (PLSA), in a separate position paper dated October 7, said OOG rates will provide no value-added service for ports where shipping lines provide for cargo-handling equipment.
PLSA noted that most “cargo-handling contracts are on a hold-over capacity” and “such uncertainty leaves no opportunity for cargo-handlers to invest by purchasing cargo-handling equipment.”
Shipping lines are constrained to provide for cargo handling equipment to mitigate huge operational costs and expenses incurred because of delays in loading and unloading operations and vessel turnaround.
PLSA also said shipping lines are already being charged for OOG shipments at Manila North Harbor, the computed rate of which is added to a non-standard lift fee of P6,000.
While the proposed arrastre, stevedoring and storage rates for OOG for domestic and foreign cargoes will be applied at all ports under PPA, PLSA said any shipping line coming from/to Manila North Harbor will still be charged an additional P6,000 per lift as non-standard lift. This will put total cargo-handling rates for OOG at P11,299.50 for a 20-footer and P15,294 for a 40-footer.
PPA is proposing arrastre, stevedoring, and storage charges for OOG shipments because the rates for these shipments are currently unauthorized. This is also to compensate the terminal/cargo-handling operators for services rendered in handling OOG cargoes.
An OOG shipment is any cargo that is too large to be loaded into a six-sided shipping container.
PPA said OOG cargoes lower a ship’s productivity as handling averages to only three to four moves per hour as against 24 moves per hour on average for standard containers at MICT.
Slots in the yard are also lost to OOG cargoes, which occupy more space and have a longer dwell time of 10 to 11 days compared to the standard container’s dwell time of seven days.
As proposed by PPA, the current applicable arrastre, stevedoring and storage rates of laden containers will be the base tariff for determining OOG tariff. The multiplier factor of three will be applied to the base tariff and the resulting rates will be the prescribed rates for arrastre, stevedoring and storage. This means that the tariff for OOG cargoes will be thrice the amount of tariffs on laden containers.
For example, the proposed arrastre and stevedoring rates for an OOG in Manila North Harbor are P3,997.50 and P1,302, respectively. These are thrice the current P1,332.5 arrastre and P434 stevedoring rates for a laden 20-footer.
If the proposal is passed, the tariff for OOG cargoes will also be subject to PPA share.
PMTLAI, PHILEXPORT, and SCMAP are recommending that the proposed policy go through a proper regulatory impact assessment first as mandated under Republic Act No. 11032, otherwise known as the Ease of Doing Business and Effective Government Service Delivery Act of 2018.
Further, the RIA result must be reviewed and approved by the Anti-Red Tape Authority in consideration of the government’s regulatory policy to mitigate the impact of the COVID-19 pandemic on the economy and the cost of doing business. – Roumina Pablo