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In the News:

Effects of Port Congestion and Strikes on Nigeria's economy

By Mr Pier Luigi Carrodano.

Introduction.

The recurrence of port congestion has been with Nigeria now for many years, including the early 1970s incident called the “Cement Armada”, when over four hundred and fifty ships laden with imported cement and general goods were stranded at Lagos anchorage awaiting berthing spaces for months on end. Some of those ships ended up waiting 180 or more days before setting on their way and freight surcharges ranging from 30% to 100% were incurred by many parties. As some of us can recall, the congestion of those days led to the appointment of the first port commandant of Nigerian Ports in the person of Brigadier Benjamin alias Black Scorpion, who tried to bring some order out of a huge chaos.

Since then, we have had more recent cases of port congestion since the new millennium including the present one that started since 2008 and is now being resolved. What does the atmosphere of port congestion look like? Apart from a very long queue of ships waiting to berth, it is also marked by container and general cargoes block-stacking, more movement of containers to off-dock facilities, frantic search by agents to locate their consignments, hectic time to position goods for inspection and difficulties at the customs desks to do inspections, problems with trucks and traffic jams at port entrance gates and immediate port environs, rowdiness of port workers and lots of pressure on whoever is operating the terminals. One major difference in the congestion of these days is the existence of private terminal operators whereas they did not exist before. However, the problems associated with port congestion today have been there ab initio and cannot be said to have been introduced by the new terminal operators.

The other subject being considered along with port congestion here, strikes, can be seen as a likely result of frayed nerves, frustration or the bursting of constrained emotion amongst port workers and stakeholders which finds readier expression due to the atmosphere of the congestion. However, such strikes do not consecutively erupt with every incident of port congestion. Anyway, the two problems deserve a closer look if we are to understand its causes or to predict its recurrence or to begin to track the effects on Nigeria’s economy as a whole.

What is port congestion?

Port congestion will happen when existing port facilities could not meet up with the increase in cargo volume and number of vessels calling at a certain port. Available infrastructures in Lagos are not sufficient to accommodate the large volumes of import which had recently increased substantially.

Cargo influx demands berthing facilities for vessels to carry out loading/unloading operations and large stacking area and sheds to receive cargoes. During the present congestion, vessels have been made to wait for berth for many days and even weeks and when the berth eventually becomes available, cargo is discharged at a slow pace because of space restriction, with the result that cargoes are block-stacked at the quay side in a disorderly manner. Delivery to Receivers is delayed as it is necessary first to sort out the various parcels and containers before cargo can be made available to them.

In most cases, port congestion has occurred with lack of spaces for both ships and discharged cargoes. In the 1970’s case, for example, the then Federal Military Government (FMG) had negotiated for the purchase and supply of 20 million tonnes of cement needed for post war infrastructure reconstruction. Of this amount, 16 million tonnes was being imported with the Ministry of Defence as consignee. The government had just made a development project to rehabilitate the nation’s army barracks and other military institutions and facilities. To further complicate the case, the huge order was to be delivered within a period of 12 months when the total capacity of all the existing ports in Nigeria at that time was 6.5 million tonnes of general cargo per annum.

At other times port congestion had occurred because of poor offloading system, insufficient storage spaces, limited number of available berths for calling ships and lastly, the preference for Lagos ports by a majority of importers and exporters which continues to affect the system of port operations.

Causes of Port Congestion

The historical causes of port congestion in Nigeria so far are as follows:

  1. The importation of goods far in excess of the installed capacity of the port system to handle. The case of the cement armada has already been cited. Again, this was shown during the 1970-1974 2 nd National Development Plan which allocated a lot of infrastructure development and therefore caused placing of huge orders that experienced a bottleneck at the ports.
  2. The rise of consumerism in Nigeria due to the prosperity of the 1970s oil boom era, including the Udoji Salary Awards and Arrears, which increased citizens purchasing power leading to a sharp rise in international trade and overstretching the capacity of the ports. At the same time, the Federal Government relaxed importation restrictions and importers had easier leeway to import things.
  3. Discharge of cargo is mainly by manual labour, time-consuming and the change in cargo packaging from crates, casts, bottles and boxes into containers threw up initial challenges of its own. This impacted on both existing port infrastructure and even on the poorly developed roads and bridges of the 1970s era.
  4. The lack of rail transportation is a big impediment to the clearance of goods from the ports to off-dock facilities or to inland container terminals. The same lack of rail transport means that rail wagons that could easily convey bulk liquid cargoes or containers out of the seaport system are not in use and the heavy burden falls on trucks many of which were shaky and poorly maintained.
  5. Inefficient trucking services and poor road network prevented expeditious evacuation of cargoes in the 1970s and to some extent can be said to adversely affect the ease of conveying goods and containers by trucks even today in such seaport towns like Apapa
  6. Abuse in the use of NPA’s transit sheds as permanent warehouses by some port users, especially the small ones, which seem to lack the financial ability to run their businesses efficiently and thereby fail often to comply with regulations compelling port users not to keep their cargo in transit sheds beyond certain time limits.
  7. Customs authorities in a bid to ease congestion have devised some kind of simplification of the formalities required for cargo release. Unfortunately malpractices applied by some unscrupulous importers trying to avoid payment of Customs duty make it difficult to do away with the many formalities of the clearing process. Because of this situation evacuation of cargo from the port is delayed.
  8. Multiplicity of security agents at the ports whose roles could introduce lenghty bureaucracy and endless paper trails that slow down the cargo release process.
  9. The high number of containers abandoned by importers due to their inability to clear them if they fall within the import prohibition list. Or simply because of accumulated cost of rental charges and demurrages which does not make economic sense to invest additional money. (It is estimated that some 18000 containers landed since long time are not yet cleared. Government is planning to transfer those containers outside Lagos, to make more room available for incoming cargoes.)

Strikes

Last month, February, customs clearing agents and freight forwarders went on strike and withdrew their services at the Lagos ports to protest what they termed obnoxious charges by terminal operators at the Lagos seaports. A list of their grievances and demands included the following:

1. Shipping companies must provide adequate space for discharge as all empty containers must be offloaded from the trucks not later than 24 hours after delivery.

2. Terminal operators must revise downward, Terminal Handling Charges presently applied and the shipping companies should also revise their own charges.

3. Prompt refunds of container deposits.

4. All containers stemmed to Bonded Terminals must be transferred to their destination within five working days.

For the three days the strike lasted various estimates of loss incurred against the national economy have been heard, all running to billions of Naira but the Federal Government intervened by setting up a technical committee to review all charges at the ports and determine their legality or otherwise.

Suffice it to say therefore that it appears that strikes are viewed with utmost urgency and concern by government authorities and indeed by all stakeholders in the port industry because of the prospects of huge all-round losses whenever strikes or similar disagreements hit the industry.

Government response to Port Congestion

After the shock and difficulties of the 1970s incidences of congestions, the Federal Government embarked upon the building of several new seaports across the nation including the Tin Can Island Port, New Port at Harcourt Onne called the Federal Ocean Terminal, all built and completed in the 1980s. There were also the Kirikiri Lighter Terminal and the Ikorodu Lighter Terminal, all in Lagos to be utilized to ease congestion.

At times of congestion, there is more use of off-dock terminals, bonded terminals and direct delivery of cargoes.

We have seen diversion of ships to other seaports like Port Harcourt, Calabar and Warri as an option. This has been tried in former times of port congestion, though its success or otherwise as a logistic way out cannot be taken for granted. Recently, NPA advertised some incentives to shipping lines to influence their choice to divert ships to other national ports by way of reduction of charges.

Nigerian Ports Authority has announced the launch of a 25-year development master plan to increase the capacity and infrastructure of the Nigerian seaport system. As ports take a long time to build, it means that this solution is still a long way off from being brought to bear on the arsenal of weapons to fight the problems of port congestion in Nigeria today.

Effects of Port Congestion and Strikes on the National Economy.

Now, let us consider the effects of port congestion and strikes to the national economy.

Firstly, there is the general loss of revenue by all actors, public and private, during port congestion and also strikes. When terminal operators cannot take in any more goods into their terminals or receive calling ships, this is equivalent to turning customers back and in any business, this will cause loss of revenue in varying degrees. The public agencies lose the lawfully stipulated royalties, levies, charges and other revenues which are charged port users for using the ports. For the clearing and forwarding agents, when their containers or other goods being sought for clearing could not be found because of loss of tracking or because of strikes, they also lose their handling fees, etc. During the last strike by clearing and forwarding agents, for example, some freight forwarders put the loss against the federal agencies at N4 billion while some put it at N2 billion. In any case, a lot of money was lost and there was no telling how much private operators and port users lost in the incident.

Port congestion and strikes also affect calling ships. Either because of being stranded in a long queue or delayed by stevedores who are affected by strikes or when their agents could not make progress with their sailing clearances, etc, ships spend extra days or weeks in port, and when tallied against charter costs, bunker and other costs, the overheads mount up for reasons that are otherwise avoidable. Ships are exposed to pirates attack due to their long waiting for berth.

Legal costs and disputes are more likely during times of strikes and port congestion when parties to a contract are forced to fail one way or the other by difficult circumstances. For example, if a shipping line for any reason agrees to divert its ship from Lagos to Port Harcourt or Calabar or Warri, most consignees will object to such a diversion. If equipment meant for a factory located in Lagos or Ibadan, for example, were being shipped in the diverted ship, who is to pay for the cost of conveyance from Port Harcourt or Warri back to Lagos or Ibadan where the consignee wanted to use his equipment? What if the item being transported were to be an articulated machine like a large dredger whose dimensions mean that shipment had been calculated from the port of loading to avoid logistic difficulties along the roads to the site, how will diversion of that ship due to port congestion affect all the parties in the shipping contract? These are the likely problems thrown up in the wake of port congestion.

Another effect of port congestion and strikes against national economy is the negative image of insecurity it portrays to the outside world. Although many nations have strikes and workers’ protests, etc, a similar incident in Nigeria, with its problems in the Niger Delta, if combined with port congestion, will be seen in bad light by observers of socio-political developments around the world.

Conclusion

There is no gainsaying the fact that port congestion and strikes are the least desired conditions for operating in the Nigerian maritime industry today. As a Terminal Operator and Ship’s Agent, I can say with all confidence that no good thing can ever come from these two operating situations and we are ready to work assiduously with all agencies and the Federal Government to ensure that the conditions that cause port congestion and strikes are eradicated and we hope this can be done expeditiously.

             
   

2nd Quarter 2009

 
   
 

 

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