How port inefficiencies, regulations fuel poor competitiveness

Nigerian shippers are grappling with financial burdens caused by port inefficiencies, rising costs and exploitation by foreign operators partly due to inadequate funding of regulatory agencies, ADAKU ONYENUCHEYA writes.

Despite Nigeria controlling about 70 per cent of cargo traffic in West and Central Africa, its shippers are struggling to benefit or profit from trade due to persistent inefficiencies plaguing the nation’s ports.

Once envisioned as a key trade hub for Africa, Nigerian ports have become focal points for inefficiency and unfair practices, leading to growing frustrations among local shippers.

Foreign shipping companies and terminal operators, backed by extensive resources and global influence, exploit these inefficiencies by imposing exorbitant fees for services that are often redundant or subpar.

Due to inadequate infrastructure and operational bottlenecks, Nigerian ports are among the world’s slowest in vessel turnaround times and cargo clearing.

Vessels often wait weeks to offload cargo, leading to delayed shipment, increased costs as well as demurrage and unjustified charges, frustrating shippers.

Importers and exporters face additional challenges with ineffective transportation systems and poor road infrastructure, which delay the return of containers to ports, resulting in the loss of container deposit funds running into millions.

These systemic issues, coupled with unchecked practices by foreign operators, have driven up operational costs, leaving Nigerian businesses in a cycle of inefficiency and exploitation.
Local shippers struggle to meet domestic demands, lose export opportunities and remain uncompetitive both locally and internationally.

Regulatory failure
The failure of regulatory agencies to enforce necessary laws has created an environment where foreign operators dominate, while Nigerian shippers bear the consequences of being left at the mercy of monopolistic practices.

The underfunding of the agencies lies at the heart of this crisis, rendering them incapable of providing oversight or ensuring a level playing field for both foreign operators and local shippers.

Key among these agencies is the Nigerian Shippers’ Council (NSC), established to protect the interests of Nigerian shippers, as the port economic regulator in the nation’s maritime industry.

The council’s mandate includes minimising the high cost of doing business, offering tariff-setting guidelines to prevent arbitrary charges, and resolving disputes between stakeholders.

However, the NSC is hampered by insufficient funding, primarily relying on the two per cent Port Development Levy surcharge, while being unable to implement its statutory one per cent Freight Stabilisation Fee.

Legislative delays and misclassifications have further constrained its capacity to function effectively, as local shippers are left for exploitation.

For any regulatory agency to function well and discharge its regulatory powers, funding is critical.

The House of Representatives last month directed the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance to refund the 50 per cent deduction from the NSC account in December 2023 and release all outstanding funds from the two per cent of the seven per cent port development levy surcharge owed to the Council.

The lawmaker who moved the motion, Abba Ahmed Sani, stated that the Federal Ministry of Finance had been slow and inconsistent in releasing the surcharge allocated to the Council, noting that the delay has resulted in insufficient and untimely funding.

Sani expressed concern that the Council is incorrectly classified as a revenue-generating agency, placing it in the same category as other such agencies, even though it is not.

He added that this misclassification has led to inadequate budgetary allocations, leaving the Council unable to meet its operational and financial obligations.

Outdated legislations
The lack of legislative backing for the NSC’s 2015 designation as the nation’s Port Economic Regulator has left it vulnerable to legal challenges from terminal operators and shipping companies.

The council faces significant challenges, exacerbated by an outdated Act that no longer aligns with the realities of the nation’s maritime industry.

When the NSC was established in 1978, the Nigerian port system was entirely run and managed by the Federal Government through the Nigerian Ports Authority (NPA).

Private sector participation was non-existent until the 2006 port reforms under former President Olusegun Obasanjo.

These reforms introduced private investors as operators of port terminals, with the NPA assuming a supervisory “landlord” role.

For the NSC to function effectively as the nation’s port economic regulator and curb foreign exploitation of Nigerian shippers, it requires funding and legislation to solidify the powers granted under the 2015 Presidential decree.

Without these, the Council’s ability to safeguard the maritime sector remains constrained.

The Executive Secretary/Chief Executive Officer of the NSC, Pius Akutah, highlighted the urgency of updating the governing Act during a meeting with the Nigerian Maritime Law Association (NMLA).

During a recent working visit by the House of Representatives Committee on Shipping Services, Akutah urged lawmakers to facilitate approval for the statutory one per cent freight stabilisation fee embedded in the Act establishing the NSC.

He explained that with President Bola Tinubu and the Federal Executive Council (FEC) directing the implementation of the Oronsaye Report, the NSC is expected to become self-funded.

To address this, there is an urgent need for the Presidency to assent to the Nigerian Shipping, Port Economic Regulatory Agency Bill 2023, which has passed through the House of Representatives and awaits Senate concurrence.

The bill would provide the NSC with legislative authority to act as the nation’s Port Economic Regulator, thereby empowering it to protect local interests effectively.

Consequences of underfunding
Without adequate funding, regulatory agencies like the NSC struggle to mediate disputes and enforce sanctions.

This leaves shippers vulnerable to excessive fees, port delays and monopolistic practices by foreign operators.

For instance, in the case involving CMA CGM and ASPA POP Investment Limited, a Lagos-based importer, the NSC intervened to secure $5,316 in compensation for damaged goods, an amount higher than the $2,500 initially offered by the shipping company.

Another notable case involved Inland Container Nigeria Limited (ICNL) in Kaduna and USBAB Multi Choice Limited, an agricultural exporter, who utilised ICNL’s facilities to ship cowpea black-eyed beans to Dubai in the United Arab Emirates (UAE) and suffered significant losses due to alleged negligence and delays caused by ICNL and Maersk Line shipping.

The Managing Director of USBAB Multi Choice Limited, Mr. Usman Baba Ahmad, petitioned the NSC, claiming damages amounting to $104,111.75, while terminal and documentation costs incurred totalled N1,653,205.88.

The NSC, upon investigating the matter, penalised the terminal operator and ordered a refund for the export damages caused by negligence.

Such cases highlight the recurring economic disputes between shipping companies, terminal operators, and shippers or importers.

Between 2020 and the first quarter of 2024, the NSC successfully resolved 1,878 trade disputes, saving the economy over N3.2 billion.

However, these achievements are under threat due to inadequate funding, which limits the Council’s capacity to enforce its directives.

These disputes emphasise the need for adequate funding for the NSC to effectively carry out its mandate of protecting local shippers from foreign exploitation and ensuring accountability within the nation’s maritime sector.

The Chief Executive Officer of the Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, called for a more robust regulatory framework and increased funding for agencies in Nigeria’s maritime sector to safeguard jobs, protect local investors, and stimulate economic growth.

Yusuf commended the Nigerian Shippers’ Council for its efforts to strengthen regulation in the maritime industry, emphasising the critical role of a strong regulator in preventing monopolies and ensuring fair competition.