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‘Government to blame for outrageous freight charges by foreign firms’

By Adaku Onyenucheya
04 November 2021   |   3:51 am
Indigenous ship owners have accused the Federal Government of exposing the country to the harsh exploitation of foreign shipping lines transporting goods at a very high cost into the country...

Freight

High freight cost jerks up petrol price, not a subsidy, Wasa insists
• Over $45bn cargo cost lost to foreign firms in five years
• No Nigerian own cargo ships berthing on our waters, says Brown
• NISA moves to set up $500m maritime fund by 2022 to acquire assets for operation
• Shore up trade balance with Export Expansion Grant, Adefeko urges

Indigenous ship owners have accused the Federal Government of exposing the country to the harsh exploitation of foreign shipping lines transporting goods at a very high cost into the country.  

They are also lamenting the government’s neglect of the indigenous shipping industry over the years while the major share of Nigeria’s coastal trade is in the hands of foreigners.
 
Recall that the Minister of Transportation, Rotimi Amaechi, had accused multinational shipping firms of fueling the rise in the cost of goods transported into the country.

According to the indigenous operators, while Nigeria has a major stake in Africa’s shipping business, recording the highest volume of both inward and outbound cargo in the entire region, the government has only succeeded in creating an enabling environment for foreign shipping companies to make a profit out of the Nigerian market while paralysing the capabilities of indigenous ship operators through policies summersault, unfriendly business climate and lack of fund to empower citizens to acquire vessels.

Besides, Nigerian exporters face cost disadvantages on account of infrastructural deficiencies and the high cost of doing business. The cost of logistics in Nigeria is among the highest in the region. The Global Competitiveness Index (GCI) evaluated by the World Economic Forum (WEF), covering 141 economies, measures national competitiveness — defined as the set of institutions, policies and factors that determine the level of productivity.

According to the GCI 2019, Nigeria was ranked 116th with a score of 48.3 compared to Kenya at 95th place with a score of 51.2. Even regional rivals such as Ghana are ranked above Nigeria at 111th place, whereas South Africa, the second-largest economy in sub-Saharan Africa, was ranked 60th with a score of 62.4.
   
Statistics released in the second quarter of this year showed that Nigerians had between 2015 and 2019 paid $45 billion as freight charges to foreign shipping firms, which is an average of about $9 billion lost yearly.

 
According to the Nigerian Ports Authority (NPA), in the period under review, a total of 26,147 foreign vessels berthed at the ports with a dry cargo throughput of 372 million metric tonnes and total wet cargo throughput of 613 million metric tonnes.
 
Chief Executive Officer, Panafric Ocean and Energy Limited, Tunji Brown, said it was unfortunate that no Nigerian owns any of the cargo ships that berth on the country’s waters, adding that foreigners take advantage of this gap to maximise profit at the detriment of the country and her citizens.
   
He said unlike other climes where governments protect their citizens by denying foreigners to operate unchallenged in their waters, these foreign shipping companies do their business in Nigeria freely.
 
“We have two million barrels of crude going out and we have volumes coming in. We don’t own any of these cargo ships, which literally means any container that comes into Nigeria would be brought in by foreign shipping firms. They determine the freight and in fact charge double for the inward and outbound shipping, which affects the cost of goods brought into the country,” he lamented.
   
Brown added that a situation whereby no administration has empowered its people to acquire vessels or empower indigenous operators to come up with an alternative arrangement leaves citizens at the mercy of foreign ship owners, who are out to make a profit, thereby exposing the country to outrageous shipping costs and sundry surcharges.
 
“At a time, we had about 4,000 indigenous ships registered with the Nigerian Maritime Administration and Safety Agency (NIMASA), but most of the ships are no longer operational. Although we still have over 1,000 ships owned by Nigerians, such as offshore handling boats, boats for wet and dry cargo, I don’t think there is any Nigerian cargo ship bringing in containers into the country,” he said.
 
 
According to him, one of the drawbacks of this situation is that the foreign firms manage the freight charges and tag Nigeria as a war risk zone deliberately, using the insurance element to increase freight charges without the Nigerian government doing anything to address this.

“While other countries in Europe, America and Asia pay 0.5 per cent in freight insurance, Nigeria pays about 1.5 per cent with no choice of negotiation because we need their service since there are no indigenous vessels to transport our cargoes.
   
“Other African countries are doing well because their government is alive to protect citizens, while Nigerian government is closing its eyes to allow foreign operators free rein to come into our waterways uninterrupted. You hear about freight cost being higher in Nigeria than Ghana, it is because the regulatory body that is supposed to oversee all these things are not alive to their responsibilities,” Brown lamented.

A huge portion of this cost is said to be coming from a War Risk Insurance (WRI) premium slammed on Nigeria-bound cargoes by foreign insurance firms. But shippers indicated that if WRI is removed from NPA figures, it would bring down the total cost burden on Nigerian importers and exporters.

This development, it was gathered, was the immediate fallout of the collapse of the nation’s shipping line, the Nigerian National Shipping Line (NNSL) and the inability of the private sector to fill in the gap. Consequently, foreign shipping lines and cargo underwriters are said to have capitalised on the situation to impose freight charges and WRI most of which are only applicable to Nigerian cargoes.

Brown, who is a former Secretary-General of Nigerian Shipowners Association (NISA), said ship operators in the country have been working on the possibility of setting up a Maritime Fund for the past five years to pull together $500 million to enable indigenous operators to acquire assets for operations and other ancillaries for the industry. He hopes that the maritime fund would come to fruition by early next year.

Founding President of NISA, Isaac Jolapamo, noted that despite the enactment of the Cabotage law that forbids foreign ships from sailing in Nigerian waters, indigenous ship owners are still faced with the threat of having foreigners take over their business without the government’s intervention.
   
Managing Director, Peacegate Oil and Gas Limited, Ayorinde Adedoyin, said due to the high demand in the volume of cargoes in Nigeria, shipping companies increase their freight charges arbitrarily. For instance, a 20ft container charge went up from $3,000 to $4,500 in the last month.
   
He said this development leaves importers with no choice but to patronise them, and until Nigeria has its own ships that will bring in cargoes, it will have no control of the freight charge.

   
He also lamented that the Cabotage law has failed to protect indigenous ship owners, the majority of whom have lost their vessels in the last six years due to the false contractual agreement with the International Oil Companies (IOC).
 
According to him, it is only in Nigeria IOCs give people contract that states four years agreement on paper and then breach the agreement and terminate the contract overnight.
   
“It is really sad for an industry that is contributing so much to the country, yet the government is allowing foreigners to take all the money away. We will continue to have issues because NIMASA has to make money, whether the money is coming from local or foreign, they don’t care, they need to collect money,” he said.
 
In a bid to seek redress, the House of Representatives Committee on Local Content had last month commenced investigation into allegations of marginalisation by the Nigerian National Petroleum Corporation (NNPC) against indigenous companies in shipping contracts.
 
Nigerian ship operators had petitioned the National Assembly over alleged refusal by the state-owned oil company to allow them to benefit from the $14 trillion yearly global cabotage market.
 
The committee summoned the Minister of Transportation, Rotimi Amaechi, and NNPC Group Managing Director, Mele Kyari, before it to explain the award of a multi-billion naira contract for coastal shipping of petroleum products in the downstream sector to an unregistered foreign shipping company, UNIBROS, a Greece-based firm, in breach of the Coastal and Inland Shipping (Cabotage) Act and the Presidential Executive Order No. 5, signed by President Muhammadu Buhari.
 
 
At the public hearing, the indigenous ship owners alleged that NNPC conducted a closed bid and awarded the contract to 11 foreign-flagged coastal tanker vessels, owned by Norwegians and Chinese nationals, who made about $50 billion half-year profit.
   
The Managing Director, Seajammer Vessel Management Limited, Josiah Wasa, said the government was responsible for the $45 billion lost in freight to international shipping firms that bring cargo inbound Nigeria, adding that consumers were paying for the high freight charges indirectly as the cost of goods keep skyrocketing.  
   
Wasa revealed that the factor responsible for the increase in prices of petroleum products is the high cost of freighting and not a subsidy, which he said the government is using as an excuse.
 
“We bring in petroleum products from outside because our refineries are down. The ships that bring in the products, we have to pay for the freight, insurance, landing cost and whatever that is on it – that is what we are paying – but the government is using the word subsidy, which is very vague.
   
“The bottom line is that we don’t have indigenous ships in Nigeria that can leverage or control this freight element. If we have the ships, it can set the pace or determine how much other ships owners outside Nigeria can ask us to pay for the freight,” he explained.

DESPITE latest oil price rally, the Federal Government is not reaping much from its crude sales as the nation continues to buy refined crude at high prices due to the moribund state of domestic refineries.
With oil prices expected to reach $100 a barrel in coming weeks, Nigeria will spend more on fuel importation, frittering away its market advantage.

   
He also added that Nigeria is unable to have indigenous ships to move its cargoes due to political factors, especially having the wrong people driving the industry.
   
“You cannot appoint an engineer to head the judiciary, you cannot appoint a judge to come and head the maritime industry. The maritime sector requires people with industry knowledge and expertise to drive it.
 
“If you don’t understand the geography of shipping, it will be difficult for you to get it right. If you don’t understand how the shipyards are configured or how you can acquire ships from the shipping market, there is no way you can fit in. You can’t just bring in anybody, especially a politician to come and head the maritime industry and that is where we have got it wrong. We have the wrong leaders given to us in the sector.”            
 
A ship-owner, Capt. Taiwo Akinpelumi said shipping is capital intensive, the reason government of other countries deliberately push interventions to ensure its growth and sustenance.

He lamented that the situation is embarrassing were a country with abundant natural resources and a population of more than 200 million people conceded the transportation of its export and import cargoes to foreign carriers thereby denying the country the huge economic gains derived from the maritime business.

He said Nigeria has not always lost its freight revenue to foreign ship owners, especially during the time when the nation’s national fleet, NNSL was still operational.

“Shipping accounts for about 80-90 per cent of the international movement of cargo. Ship-owning nations with good capacity can be said to be great nations. The vacuum created by the collapse of NNSL is till today yet to be filled.”

MEANWHILE, speaking on how to strike a balance and optimise shipping logistics with commensurate export, Mr. Ade Adefeko, chairman of Agricultural Trade Group of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said government and stakeholders should employ the Export Expansion Grant (EEG) scheme as a vital policy instrument to boost the competitiveness of Nigerian products in the international market and grow non-oil exports.

“Nigeria’s non-oil exports are still negligible and account for less than five per cent of the total merchandise exports of $62 billion. The exports plummeted to $34 billion as global demand for crude oil crashed in 2020.”

Even compared to our African peers, there is a great potential to increase export performance.

“The merchandise exports (mostly agricultural goods) of leading sub-Saharan African countries are significantly higher than those of Nigeria (Ivory Coast: $12.2 billion; Kenya $6 billion). While Nigeria’s exports in 2020 crashed, the above countries mainly exporting agricultural products even sustained their exports during the pandemic.

“Nigeria’s competitiveness in export is impacted by a lack of enabling infrastructure and skills. Also, multiple taxations at federal, state and local government levels have a cascading effect and add to the cost of goods exported. Therefore, in a way, we are “exporting taxes with the goods” in the absence of a mechanism to neutralise the incidence of taxation. EEG helps to mitigate and cushion these cost disadvantages, although it is apparent that the prevailing EEG rates only provide a partial relief and are certainly not sufficient.”

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