Ending Tariff War at the Ports

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Eromosele Abiodun takes a look at the prolonged dispute between the Shippers Council, terminal operators and ship owners over port tariffs and efforts to settle the matter out of court

Irked by a report that put Nigeria’s loss through illegal shipping charges imposed on Nigerian importers by providers of shipping services at N64 billion, the Nigerian Shippers Council (NSC) on October 29, 2014, published a public notice to terminal operators and shipping companies, directing a downward review of their charges.

The Council, acting as the port commercial regulator, stated that some of the charges had been a subject of controversy and persistent complaints by importers and customs agents.

The charges, which reversal was to take effect from November 3, 2014, include: the progressive storage charge; free storage period; shipping line agency charge; container cleaning and maintenance fee and container demurrage.

The Council had ordered an increase in the container storage period at the ports from three days to seven days and also directed shipping companies to reduce their charges from N26,500 to N23,850 for a 20ft container and from N48,000 to N40,000 for a 40ft container.

It further directed shipping agencies to refund container deposits to importers and agents within 10 days after the return of the empty containers.

The Council had increased the container Free Storage Period to seven days instead of three days. The Council also increased container demurrage-free days to 10 days and directed that henceforth, container deposits must be refunded within 10 days after the empties had been returned to the shipping companies.

The Executive Secretary of the NSC, Mr. Hassan Bello, while confirming the review said the decision was arrived at after several meetings and consultations with the terminal operators and shipping companies.

According to him, “We were all in agreement with this decision. The cost of doing business at our ports is very high compared to our competitors. Once we remove these charges, we would attract more cargo to our ports. Terminal operators are to revert the storage charge to that which was approved as far back as May 1, 2009. That was when the last approval was given. But they unilaterally increased the charge; now, they have to revert.”

He added: “The free storage period, that is, the period before you are charged for storage or demurrage has been increased from three days to seven days. We have also told the terminal operators that the seven days free period will take effect from the time when the container is discharged from the ship. The free period formerly took effect even when the ship had not discharged the container. This is in line with what is happening in the region and in the world all over.”

Bello explained that shipping companies were required to reduce the shipping line agency charge. For a 20 feet container, the shipping line agency charge was reduced from N26,500 to N23,850. For a 40-feet container, it was reduced from N48,000 to N40,000. Shipping agencies were also directed to refund container deposits to importers and agents within 10 working days after the return of the empty containers.

“There is a container cleaning and maintenance fee, which shipping companies charge about N2,500; it has been reduced to N1,500. The free period before which container demurrage is charged has been increased from five days to 10 days. This is just the beginning of the revolution; we want to drive down cost and have efficient ports. We equally want to stop arbitrariness in tariff increase, and to eliminate unnecessary charges,” he added.

Report Outcome
The NSC’s research team had carried out investigation on what Nigeria loses annually to illegal shipping charges imposed on importers by multinational shipping companies and terminal operators who took over cargo handling operations from the Nigerian Ports Authority (NPA) since 2006.

The findings of the team grieved the council, prompting it to reduce some of the shipping charges.
The ports regulator had viewed the illegal charges as ‘imported inflation’ into the nation’s economy by the shipping companies and terminal operators.

A breakdown of the figure, which was collected illegally in 2013 by both terminal operators and shipping companies showed that the sum of N32.04 billion was collected by the affected providers of shipping services on Shipping Line Agency Charge (SLAC); Progressive Storage Charge – N28.8 billion while the sum of N2.5 billion was collected on container cleaning charge.

The research team had also compared shipping charges in Nigeria with those of Cotonou Port, in Benin Republic which has been the haven for diversion of Nigerian cargoes which are later smuggled into the country.

The report revealed that while an importer in Nigeria pays N62,682 and N87,695 as Terminal Handling Charge, customs examination and delivery charge for 20ft and 40ft container, it costs N24,000 and N48,000 respectively for 20ft and 40 ft container in Cotonou port.

On Free Storage Period, the NSC discovered that while it is three days in Nigeria, it is seven days in Cotonou and Ghana and 11 days in Cameroun.
It was also found that unclaimed container deposit being held by shipping companies runs into several billions.

The team also disclosed in their report that the container throughput (laden) for 2013 was 1,010,836 TEU, a figure that was used to calculate what the country lost to the service providers.
All these prompted the commercial regulator to reduce the charges to the pre-May 2009 rates as a way of reducing the cost of doing business at the ports.

War of Attrition
However, despite claim by the shippers’ council boss that there was consultation with the stakeholders before the charges reversal, the affected companies under their umbrella bodies rushed to the courts and obtained an interim injunction stopping the reviews from taking effect.

First to obtain the injunction were the terminal operators under the aegis of Seaport Terminal Operators Association of Nigeria (STOAN). The next day, shipping companies operating under the umbrella of Association of Shipping Line Agencies (ASLA) approached the same court, Federal High Court, Ikoyi, and secured another injunction.

Members of the ASLA include Alraine Shipping Agencies, Cross Marine Services, CMA CGM Delmas, Comet Shipping Services, Grimaldi Agency and Gulf Agency.
The others are Hull Blyth Nigeria Limited, Lagos and Niger Shipping Agencies, Maersk Nigeria Limited, Mediterranean Shipping Company, Mitsui OSK Lines, PIL Nigeria Limited and Sharaf Shipping Agency.

The suit number FHC/L/CS/1646/2014 was filed on behalf of ALSA and its members by a Senior Advocate of Nigeria (SAN), Mr. Chidi Ilogu.
However, a week later, the injunction earlier granted STOAN was reversed. The Presiding Judge, Ibrahim Buba, said that the parties which came by way of originating summons did not tell the court the issues for determination and struck out the suit by the terminal operators. He said the counsels to the plaintiffs failed to raise questions which they wanted determined in the originating summons.

“Since the court cannot proceed without knowing the right and interest of the parties which are inextricably tied to the question of determination, the court cannot proceed on that,” Buba said.
But counsel to STOAN, Mrs. Funke Agbor described the development as a temporary setback. She said the issues raised by the Judge would be addressed while the case would be re-listed. Consequently, the STOAN lawyers went to work and before close of business on that day got the case re-listed.

Joining the Fray
Meanwhile, in a bid not to be left out, the Shipping Association of Lagos State (SALS) joined the fray. Lead counsel to the plaintiff, Ilogu had earlier objected to SALS joining the suit as second defendant on the ground that the case at hand had nothing to do with it. He said the matter at hand was for the court to determine whether the NSC had the powers to unilaterally determine shipping line agency charges.

But ruling on the argument in favour of SALS, Justice Buba said the association could join in the suit as second defendant provided it undertakes not to slow down the determination of the case. He also said that SALS would not be allowed to file any amendment to the plaintiff’s position.

SALS lawyer, Mr. Osuala Nwagbara, who explained his client’s interest in the matter agreed to the conditions set by the Judge. Justice Buba consequently adjourned the matter to 1st December 2014 for definite hearing.

Stopping Terminal Operators
While the matter was yet to be determined by the court, the operators and shipping companies continued collecting the tariff. In a bid to put an end to this, human rights activist and maritime lawyer, Dr. Olisa Agbakoba (SAN) filed a suit before Justice I.N Buba of the Federal High Court, Ikoyi, against the terminal operators over alleged continued collection of some shipping charges in disobedience to the court’s judgment granted in favour of the NSC as the Ports Economic Regulator.

Agbakoba, who is counsel to the NSC, sought an order of the court to compel the service providers to refund the sum of N150 billion as the money they have collected since the ports regulator issued a notice barring them from collecting such charges.
He maintained that the continued collection of the charges was in disobedience to the judgment of the court on the matter, explaining that the essence of the judgment obtained by the NSC was for the overall general good of the Nigerian economy.

Agbakoba in a statement said: “We refer to the newspaper publication by Messrs Femi Atoyebi SAN/Ayo Olorunfemi, advising the general public that they are not bound to follow the judgment of Mr. Justice I.N Buba of the Federal High Court declaring arbitrary port charges imposed by Terminal Operators illegal and ordering refunds of illegal charges estimated at N1 trillion.

“Messrs. Femi Atoyebi SAN/Ayo Olorunfemi claimed that the Terminal Operators have the licence to continue the collection of the illegal charges because there is a pending application for stay of execution of the judgment and an appeal. In essence, Messrs. Femi Atoyebi SAN/Ayo Olorunfemi are saying that the pending application stays execution and the appeal have arrested the effect of the judgment.

We disagree with this position. The mere fact that there is a pending application for stay and an appeal does not remove the effect of the judgment.
“Our position is supported by Supreme Court decision in Okafor v. Nnaife[1987] 4 NWLR (P. 64) 126 at 138, where the Court held that it will be unfair to allow a losing Defendant “to continue cutting down and selling economic trees on the land” adjudged by the trial court not to belong to them simply because of a pending application for stay of execution and an appeal.”

In his concurring judgment, Aniagolu, JSC, refused the application for stay in the following words: “what the appellants who have been found not to be the owners of the land in dispute want of this court, in effect, is for the court to lend its authority to the Appellants, for them to continue devastating the land in dispute by being allowed to continue cutting down and selling the economic trees on the land while the owners of the land – the Respondent – sit back and watches, helplessly, the fruits of his judgment being denied and deprived him. That will be justice inverted. I will not be a party to such an inversion.”

He added: “This Supreme Court decision is apt to our case. Applying the decision, it is clear that the Terminal Operators cannot continue to impose and collect illegal charges on the pretext that they have filed a pending application for stay or appeal. The statement attributed to Messrs. Femi Atoyebi, SAN and Ayo Olorunfemi advising the general public to ignore the judgment of a court is wrong. We advise the general public to disregard the publication.

“In any event, we have now filed an application before Mr. Justice I.N Buba to compel the Terminal Operators to comply with the judgment pending the determination of the Application for stay of execution and to immediately refund the sum of N150 billion illegally collected in disobedience of the judgment.”

Agbakoba explained that, “the essence of the judgment obtained by the Nigerian Shippers’ Council is for the overall general good of the Nigerian Economy. It is to stabilise prices and ensure more cargo throughput to Nigerian Ports and stem the yearly loss of over N2 trillion potential revenue to the Nigerian government caused by excessive and illegal port charges by Terminal Operators.”

He noted: “Nigerian Ports are now characterised by poor service delivery, cumbersome cargo clearance procedures, non-compliance with regulations, arbitrariness and indiscriminate billing systems, proliferation and duplication of charges and numerous tariff heads by these Operators.

“As a result, this has led to diversion of cargo to neighboring ports in the region thus depriving the Nigerian government and economy about N2 trillion potential revenue from port use every year. The Nigerian Shippers Council as economic regulator will continue to perform its statutory functions by ensuring that ports regulations are enforced.”

Settling Out of Court
Meanwhile, there are strong indications that the NSC and the Seaport Terminal Operators Association of Nigeria(STOAN), the umbrella body for all concessionaires in all the seaports, may opt for out of court settlement.
In what appeared a new turn of events, Bello, while speaking at a one-day seminar on 10 years of port concession in Nigeria, hinted that the parties may likely opt for out of court settlement.

He noted that as a regulator, the council is not supposed to be a ‘head master’ rather than an unbiased umpire, who only seeks to protect the interest of both service providers and users with a view to maintaining equilibrium.
According to him, globally, tariffs whether at the seaports or elsewhere, should not be frozen but reviewed from time to time in line with economic trends and realities, arguing that in doing that due process must be followed and all relevant parties must be carried.

He also hinted that withdrawing the cases from court would pave the way for an amicable settlement of all conflicting issues.

According to him, this is in response to interventions by several well-meaning stakeholders on the need to seek a more amicable resolution of the issues that gave rise to the court case.
The NSC boss also observed that the council is aware and conscious of the fact that most of the port stakeholders including terminal operators and shipping companies are operating under very harsh socio-economic conditions.

However, the Executive Vice Chairman/Chief Executive Officer of ENL Consortium Limited, operators of Terminals C and D of the Lagos Port Complex, Apapa and Chairman of STOAN, Vicky Haastrup told THISDAY in an interview recently that terminal operators were not opposed to settling the matter out of court.

She, however, stated that the NSC is not ready for settlement, adding that there are trust issues yet to be ironed out for out of court settlement to take place.
According to her, “Well, the terminal operators are not opposed to peaceful resolution of conflict with anybody, as it is now the court process still continues. I will be lying if I say we are settling out of court. Efforts were made to settle out of court, which I was not opposed to but there is issues that bothers on trust. That is where we are, nothing has changed. We are not saying there can’t be a peaceful resolution of the conflict, but we are still in court. I particularly was working towards it. Trust is key to out of court resolution, as it is now, there is no trust. We can’t see it happening now.”

Impact of high Tariff
A tariff is a tax imposed on imports, which are goods coming into a country. The tax may range from a few percent of the cost of the good to well over 100 per cent of the cost of the good! This tax is ultimately passed on to consumers, resulting in higher prices.
Experts believe the bid to drive down cost of doing business at the port was a good plan handled in the wrong was.

“Every time you go shopping, you likely pay higher prices because of tariffs and quotas. It is hard to believe that some of the goods you may be purchasing cost you more than twice as much as they could because of these economic measures! Dairy products, vegetables, tobacco, wool clothes, auto parts, brooms, Chinese tires, leather shoes, peanuts, and chocolate are just some of the common items we pay more for because of tariffs or quotas.

“A quota sets a numerical limit on how much of a product can be imported into a country. This helps to protect producers of domestic products from facing too much competition and ultimately going out of business. Ultimately, quotas benefit and protect the producers of a good in a domestic economy, though the consumers end up paying more if the domestically produced goods are priced higher than imports, “said a player in the industry who do not want his name in print.

He stated that there are many reasons that tariffs and quotas may be used adding that the most common reasons are often geared towards protecting newer or inefficient domestic industries that are seen as important to the economy and the production of jobs.

He added: “The government view is that by protecting these domestic industries, we can maintain jobs through increased sales of domestic goods. This ultimately can lead to higher tax revenue collected. The additional tax, or tariff, on imported goods can discourage foreign countries or businesses from trying to sell products in a foreign country.

“The additional taxes make the foreign import either too expensive or not nearly as competitive as it would be if the tariff didn’t exist. This can lead to fewer choices of goods and a lower quality for consumers. The amount of chocolate, fruits and vegetables, and automotive parts you have to choose from are all subject to the effects of tariffs.”

Domestic producers, he stated, benefit by ultimately facing reduced competition in their home market, which leads to lower supply levels and higher prices for consumers.
He said, “When a consumer does purchase a higher-priced imported good with a tariff imposed on it, the consumer now has less money to spend on other things. This forces consumers to either buy less of the imported good or less of some other good, ultimately lowering the purchasing power of consumers. It is important to remember that although consumers may pay higher prices because of tariffs and have limited options, the potential benefit is that domestic sales of goods can increase, ultimately leading to higher domestic sales and more jobs for companies inside the country.”