NIGERIAN PORTS: THE PERILS OF DEMURRAGE
Importers and Freight Forwarders have continued to lament over the billions Terminal Operators and Shipping Companies are making out of strangling terminal and service charges they impose on importers. Though the concessionaires claim to be collecting their statutory charges as contained in the concession agreement, high demurrage charges stand out as rather inflationary and to some extent illegal. Recently, in Lagos, leaders of Freight Forwarders operating at Lagos Ports urged the Federal Government to stop Port Concessionaires from charging demurrage during weekends and public holidays. This is, obviously, not the first time Freight Forwarders are putting across this demand but government seems to be paying a deaf ear to their petition. Yet, by all standards, this demand is logical. For importers and their agents, therefore, demurrage needs to be recognised for the plague it has become.
Take the grossly underreported problem of incessant cyber network failure at the terminals, where agents sometimes waste up to 1 week for network to stabilise and for Nigerian Customs Service (NCS) personnel to confirm payments before giving approval for release. Within this 1 week is the 5 days grace period allowed for cargo clearing. That means the agent has already incurred 2 days demurrage for which he must pay the shipping companies and terminal operators. For the terminal operators, demurrage charges are at the rate of N14,500 for a 40ft TEU container while a 20ft container goes for N10,500 per day. Yet confirmation of payment by Customs is just one step in the entire process of clearing.
Two charges are generally levelled against terminal operators. The first is that they rip huge sums of money off importers by delaying the clearing process. The other is that high demurrage costs add up to high port charges which is progressively eroding customer confidence.
Terminal operators claim that because they generate their own electricity, it is more expensive to run Nigerian ports compared to terminals in other countries and, to a large extent that is what determines the amount importers are asked to pay as terminal charges. Again there is the excuse of double taxation and levies paid to government, which according to the concessionaires has made the recoup of their investment capital difficult. But the multiplier effect of delays and high demurrage is already taking its toll on the Freight Forwarders, Importers, and their businesses. About 30 per cent of container deposits collected for shipping companies by terminal operators are not refunded despite the efforts Importers and their agents make to return empty containers on time and in good condition. At a time when the traffic situation in Apapa and Tin-Can Island has become endemic with many container-laden trucks unable to discharge containers on record time and terminals are not large enough to receive and hold empty containers as they come, talk less of handling the overall rise in cargo throughput, Freight Forwarders have definitely become a target for anger from their principals - the Importers. And that has often led to job losses.
Erosion of customer confidence impedes performance as patronage is considered to be the most critical index for ports performance evaluation. A cursory glance at the factors that contributed to cargo diversion from Nigerian ports prior to 2006 would show high port charges as taking the centre stage. Like a ripple, high port charges led to customer apathy and that in turn led to cargo diversion wherein millions of metric tonnes of Nigeria-bound freight were diverted to neighbouring ports of Cotonou, Lome, Tema, Accra, and the rest. Besides financial losses, capacity underutilisation and decay of infrastructure resulting from reduced patronage contributed majorly to the rot that informed the Federal Government's decision to concession the ports. Evidently, one study on port utilisation and performance; 1990 - 1999, shows that for the Lagos Port Complex which has 22 berths, the average arrival rate of ships then was 1 ship per day. The cargo throughput at the ports was about 64 per cent of the designed tonnage capacity revealing 36 per cent underutilisation. It is sad to note that today, almost 10 years into the concession regime; concessionaires have the effrontery to still score neighbouring West African ports higher than the Nigerian ports they were contracted to manage, on the grounds of high running costs, and using same as an excuse to exploit importers.
Some other strains of high demurrage have more serious economic effect. One example is the growing syndicate of touts who forge shipping and freight forwarding documents on the guise of enabling agents make bank payments ahead of time pending the release of original documents. Incidentally, data available at National Drug Law Enforcement Agency (NDLEA), National Agency for Food and Drug Administration and Control(NAFDAC), Standards Organisation of Nigeria (SON), Nigeria Customs Services (NCS), and other law enforcement and quality assurance agencies attached to the ports show that these touting syndicates go beyond forgery of Bills of Lading. Their sphere of activity now extends to forgery of sensitive documents like the Pre-Arrival Assessment Report (PAAR) which aids agents to obtain illegal release for shipments of arms, hard drugs, and other contrabands. It also enables them to undervalue their consignments and to defraud government heavily on a daily basis. It is pertinent to note here that, in some cases, genuine agents engage in document forgery primarily to beat the Custom's malfunctioning network system, the terminal operator's very short grace period, and ultimately the high demurrage. This proves to be unfair to the Importers whose consignments are liable to confiscation when intercepted by Customs either in the Longroom or on the highways by Federal Operations Unit (FOU).
Price inflation for commodities in our markets derives very much from additional costs like demurrage coupled with cost price of goods, freight, and insurance. Inflation of all kinds devalues everything it infects. It reduces standard of living, promotes crime, puts pressure on government, stimulates counterfeiting and money laundering, and distorts behaviour. A former German Central banker, Karl Otto Pohl, compared inflation to toothpaste: easy to squeeze out of the tube, almost impossible to put back in. The seaport is the gateway to the economy of every nation. Attempts to increase the overall cost of imports would certainly reflect on the unit price of all goods and services in the market. This is inimical to the welfare and livelihood of citizens of the country. There is no doubt that the rising cost of goods and services in Nigeria is linked to the shylock and inflationary pricing system forced down our throats by a cartel of terminal operators who must recoup their investment by all means and in their own terms. For a fact, sources at Nigerian Shippers' Council (NCS) have it that terminal operators are raking in between N9 billion and N11 billion annually from storage and demurrage charges alone.
Terminal operators are on stronger ground when they complain of double taxation and levies by government, and if their claim is anything to go by, one can conveniently say the government is contributing to the distortion of the clearing system and the on-going exploitation at the ports.On the one hand, the shipping companies have identified what they call a dysfunctional clearing system in the nation's ports as responsible for the delay in goods delivery and called on the government to standardise and harmonise the system. On the other hand, the Nigerian Maritime Administration and Safety Agency (NIMASA) was identified as a government agency not taking its role seriously as it takes 4 to 5 days to process ship sailing certificates and 2 days to confirm payments. Nigerian Immigration Service (NIS) is also said to be engaging in arm-twisting tactics which involve confiscation of Seaman Passports of crew members in a bid to extort money from shipping companies, while the Nigeria Police is not left out of the usual business of unnecessarily detaining containers at the terminals.
There is a third charge against terminal operators, to which they and their image makers have paid little attention. It relates to a recent World Bank report that attributed long dwell time of cargo and high port charges to the rent-seeking approach of terminal operators rather than fast-tracking cargo clearance. As it stands, cargo dwell time for Nigerian ports is between 20 and 28 days against 10 to 15 days for Benin Republic, 12 to 14 days for Ghana, and 8 to 12 days for Togo. Again, data from Nigerian Shippers' Council indicate that while Nigeria has 5 demurrage-free days, Benin Republic has 10 days, and Ghana has 8.
Concessionaires had seduced government to believe that stricter terminal charges would put Importers and agents on their toes and speed up the clearing process. But there is no evidence that the clearing process had performed any better since 2006. Instead, terminal operators have continued to milk Importers and agents of hard-earned money by means of a long list of charges numbering between 14 and 20 for port and off-dock terminals respectively.
Looking ahead, the situation is likely to be even worse. Nigerian Shippers' Council – the regulator of ports, has expressed disappointment with the performance of terminal operators and called for the appointment of a Commercial Regulator for the ports. Federal Government should quickly accede to that recommendation. The absence of a Commercial Regulator has created room for a cruel market monopoly at the ports rather than the much envisaged competitiveness among service providers.
Chigozie Chikere, Member, The Chartered Institute of Logistics & Transport, CILT Nigeria. Rector, Emdee Shipping & Maritime College, Apapa, Lagos.
E-mail: [email protected]