Resolving Port Costs and Port Charges


    Eromosele Abiodun posits that the federal government should take a look at the solutions provided by maritime sectors stakeholders at the third annual maritime conference to resolve the problem of port costs and port charges

    Some time ago, one of Nigeria’s leading accounting firm, Akintola Williams Deloitte, in a report, blamed the high cost of doing business at the nation’s seaports on the Nigeria Customs Service (NCS) and other government agencies, claiming that Customs processes are responsible for not less than 82.1 per cent of the charges incurred by consignees.
    The report was titled: “Public Private Partnership (PPP) as an anchor for diversifying the Nigeria economy: Lagos Container Terminals Concession as a Case Study.”

    Akintola Williams Deloitte stated that its value chain analysis of a 20-foot container laden with cargo worth N36.42 million ($100,000) imported into Nigeria from China, revealed that about N6.5million would be required to clear and transport the container out of the port.

    Of this amount, it said about N5.3million (representing 82.1 per cent) is paid to NCS as Import Duty, Comprehensive Import Supervision Scheme (CISS), ECOWAS Trade Liberalisation Scheme (ETLS), Port Development Surcharge and Value Added Tax (VAT).

    According to the report, other actors in the value chain include: shipping companies, Nigerian Ports Authority (NPA), terminal operators, clearing companies and haulage services providers.

    It said shipping companies are responsible for 13.8 per cent of the port cost (N897,000); terminal operators 1.8 per cent (N117,000); NCS 82.1 per cent (N5.3million); transporters 1.1 per cent (N71,500) and clearing agents (N78,000).

    According to the report, “The value chain of a typical container terminal operation begins with the shipment of the goods through a shipping line to the host country. The consignee pays the freight charges for the shipping as well as the container deposit fees. Demurrage charges may apply where the consignee fails to return the containers on time.

    “Upon arrival of the container at the Nigeria port, the consignees pays terminal handling charges, storage charges, delivery charges and customs examination charges to the terminal operators. In addition, the consignees also pay the relevant customs import duty. Consignees pay for logistics services to get the goods out of the terminal. Consignees pay for the services of the clearing agents (where applicable). Large companies are directly responsible for clearing their goods.”

    Notwithstanding their huge investment and meager earnings, the report stated that terminal operators bear the burden of most of the challenges at the port.
    “Terminal operators face huge challenges in the area of storage as the terminals are used as “cheap storage warehouse alternatives” by cargo owners.

    Meanwhile, there are many questions as to why or what is responsible for the high port charges persist across the nation’s sea ports. While some say shipping companies deliberately rip Nigerians off, others believe government over the years has failed to do what is necessary to avert unnecessary charges that drive business away from the ports.

    Taiwo Afolabi’s Solution
    At the third annual Taiwo Afolabi Maritime Conference under the auspices of Sifax Group, held in Lagos, stakeholders called on the regulatory agencies to formulate policies that will be beneficial to every player in the maritime industry.

    In his keynote address, titled: “Port Costs and Port Charges: Issues in the Port Reform Policy,” Chairman, Nigerian Ports Consultative Council, Kunle Folarin said a typical shipping company debit note in Nigeria contains nine different charges such as shipping line/agencies charge, container cleaning/maintenance, container deposit, MOWCA charge, NIMASA sea protection levy, MOWCA Fee, freight levy, document release, demurrage charges, NIPOST Stamp Tax and VAT. He further explained that disputed charges between the NPA and shipping companies include- provision billing, under declaration of weight and volume, excessive extra service charges between NPA and terminal operators, throughput charges, royalty, lease fees, use of foreign currency in computing charges, berthing fees.

    To curb the effects of these charges on the port system, Folarin submitted that there must be a deliberate government policy to reduce Customs duties and taxes and that the revenue target placed on the NCS commands should be discontinued to reduce port cost and charges. He also suggested the setting up of an effective and efficient single window platform and regulation of the port and shipping sector to include both service and costs, port infrastructure development especially in port environment and common user areas.

    He also advocated the establishment of a port community system as a framework for stakeholder dialogue to improve service quality and reduce costs and the encouragement of Public-Private partnership in port business, investment in modern facilities and IT enablers and provision of good quality human services.

    “The issue of rising port costs and charges which has soared unabatedly can be solved if political will which includes the implementation of all agreed process and terms without delay and transparency is entrenched. The landlord model must be administered in the very technical, ethical and objective structure such that concessionaires obligations are not to replace the responsibilities of the port authority and including an inclusive port reform strategy.

    As a way forward, he said there must be political will to ensure meaningful change adding that all agreed processes and terms must be implemented without delay.

    He added that transparency must be entrenched in the concessioning and port reform process adding that, “laws are made to promote port productivity and fair trade and competition and not to create monopolies. The landlord model must be administered in the very technical, ethical and objective structure. Concessionaires obligations are not to replace the responsibilities of the port authority, a modern productive infrastructure in an element in a Landlord model.

    “Port reform must be total and all inclusive of the key players who provide and consume port services including NCS, statutory agencies, freight and logistics operators, and law enforcement agencies. NPA must monitor performance and compliance of their own obligations as well as those of the concessionaires and other service providers in the enforcement of the Concession Agreement.”

    Determining Appropriate Cost
    In his opening remarks, former Managing Director of NPA and the Chairman of the occasion, Chief Adebayo Sarumi, explained that the regulatory agencies should formulate policies that will be beneficial to every player in the maritime sector.

    He said: “To curb the rising port costs and charges, operators should determine appropriate cost of services in the maritime sector. This is because at present, terminal operators are going through a tough time meeting up with their lessee obligation due to a volatile exchange rate order between the Naira and the Dollars. The private sector should be allowed to run the port because the government is not adequately equipped to run it.”

    On his part, Group Executive Vice Chairman, SIFAX Group, Dr. Taiwo Afolabi said there is a need for the regulatory authorities to harmonise and balance the conflicting viewpoints in order to satisfy all who do business in the maritime sector.

    “I am very hopeful that the a suitable framework for determining the appropriate costs of services in the Nigerian port system will be developed very soon without making our ports unfriendly to users either internally or within the sub-region, ”he said.

    However, Afolabi recognised that the gap and in the last three years, has been bridged successfully with the TAAM conference, himself being a product of the law department of the University of Lagos.

    In a communiqué issued at the end of the conference, stakeholders agreed that the Nigerian maritime sector has been too detached; a situation where everyone in each field was locked up in its own cocoon should be discontinued.
    Meanwhile, stakeholders also agreed that the port reform exercise of 2006 was carried out because NPA was not providing the best of services.

    According to them, the ports were characterised by a lot of challenges, NPA was using a tariff of 1993 as at yesterday 2006, and ship turnaround time was slow, shallow channel among others.
    Terminal operators, they said, were however able to turn around the fortunes of the port in the past twelve years, hence the port concession exercise has been successful.

    Stakeholders agreed that, “there is need to break monopoly and encourage competition among terminal operators, especially in cargoes handled by each terminal, the port were concessioned in a monopolistic manner. Stakeholders suggested a review of the exercise while charging the NPA to address these attendant flaws. It was settled that the maritime sector performance is indeed a major contributor to the economy and therefore must be given attention on any discussion on port cost and port charges.

    “Nigeria is blessed with 200 nautical miles of Exclusive Economic Zone (EEZ) Nigeria husbands at least 70 per cent of the political economy of the West African Region with importation of over 100, 000 million metric tons of non approximately 2 million units of containers a year. Ships traffic into Nigeria by latest data exceeds 5,307 per annum. Over 85 per cent by value of all the goods and services that enters the country comes through the sea ports. The current aggregate exceeds $5,000,000,000 a year through formal import order.”

    Origin of Port Charges
    They said port cost and charges originated in 1993 when the port reform policy of the federal government started and was finalised in 2006 when all Nigerian operating ports were concessioned.
    “That core areas of shipping services that attracts port charges and dues are; scheduled liner services, chattering stevedoring, terminal operations, shipping agency, freight forwarding, destination inspection service, bunker suppliers, hull and marine supretending, equipment leasing and hiring, manning agency for seafarers. That nine elements of charges are being collected by shipping companies, they include: shipping line agency charge, container cleaning and maintenance, container deposit, MOWCA charge, NIMASA sea protection levy, MOWCA fee, freight levy, document release, demurrage charges, NIPOST stamp tax, and VAT.

    “That issues of dispute between port authority and shipping companies include; provision billing, under declaration of weight and volume of cargo, excessive extra service charges. That issues of dispute between the ports authority and terminal operators include: throughput charges, royalty, lease fees, use of foreign currency in computing charges and Berthing fees. That issues of dispute between importers, exporters and terminal freight forwarders operators are: terminal landing charges, cargo transfer charges, cargo storage charges, delivery charges,” they said.

    They added that: “issues of dispute between shipping companies and importers and exporters, freight forwarders include: demurrage charges, administrative fees, container deposit refund, publication and notification of operating tariff and arbitrary amendment. That port costs is a collective responsibility of both government and the private sector, it is the monetary measure of what port users pay to the port authority, terminal operators, and other ancillary service providers for using facilities and services of a port. Port cost is an important component of total transport costs.

    “That the port economic regulator has a critical role to play in setting port costs, Port charges and costs cannot be imposed, it has to be discussed, hence, the port economic regulator which is the Nigerian Shippers Council must ensure fair hearing, anti-monopoly and fair trade practice, ensure rights and obligations of all practitioners, ensure mediation, conciliation and arbitration.”

    They added that strategies to reducing port cost should include deliberate government policy to reduce Customs duties and taxes, to set up an effective and efficient single window platform, to regulate the port and shipping sector, to develop port infrastructure especially in port environment and common user areas.

    Also, they said port community system should be established as a framework for stakeholder dialogue to improve service quality and reduce costs.

    They stressed that PPP should be encouraged in port business; invest in modern facilities& IT enablers; provide good quality human resources.

    Landlord Model
    The landlord model, they said, must be administered in the very technical, ethical and objective structure.
    “Concessionaires obligations are not to replace the responsibilities of the port authority, a modern productive infrastructure in an element is a landlord model. The NPA must monitor performance and compliance of their own obligations as well as those of the concessionaires and other service providers in the enforcement of the concession agreement. Both the technical and economic regulation enforcement guidelines that protect and ensure the realisation and sustenance of the objectives of the Reforms must be established.

    “Major restructuring of the port industry must commence with the review of the applicable laws and building of capacity for the management and staff of the NPA, NIMASA, NPA, NCS and NSC. The terminal operators must consent to yearly operational plans that can be measured. The economic regulators must issue guidelines that are open, transparent and enforceable. Its operations must exhibit very professional ethical behavior and must not be compromised, “they submitted.

    The stakeholders in the communiqué warned that corruption which is clearly endemic in port must be challenged adding that documentation processes must be IT Compliant.

    They said: “That given the externally dynamic and mercurial unpredictability of the movement of the exchange rate of the Naira to the dollar, special consideration should be given to terminal operators especially in payment of lease agreement to NPA Naira. A review of the charges by terminal operators and shipping companies should be effected to reflect the present economic especially, the astronomical changes in the foreign exchange regime.

    “Despite appointment of the NSC as the port economic regulator, much result has not been achieved in enforcing sanity in the maritime sector. The Shippers Council has met stiff opposition and has not been able to function properly as a result of a suit filed by Seaport Terminal Operators Association of Nigeria (STOAN) and shipping lines. The court case should be withdrawn while arbitration should be embraced.”

    They said responsibilities of the port reform must be borne by all parties both NPA and the terminal operators should fulfil their bargain as signed in the concession agreement.

    NPA, they said, has been failing in its responsibilities and terminal operators now bear un-anticipated cost of running the ports including provision of electricity, bore hole and so on.

    “That all operators must work hard to reduce the economic impact of delays in positioning containers for examination, the attendant traffic gridlock on access to Tin Can and Apapa ports. That a platform for periodic dialogue among operators should be created, where there are increase in port charges by terminal operators and shipping companies, it must be communicated to the clearing agents and importers for downward transmission to the consumers.

    “That indigenous terminal operators are doing fine and are more customer friendly than the foreign owned terminals. A review of the port concession exercise is imminent with a view of reducing the number of concessionaires currently in play. The ports were concessioned out in 2006 based on political considerations. The concession agreement should also be backed by law. That collaboration and synergy is important to efficient port system, there is need for building of strong relationships among all operators to work together.”

    Stakeholders called on the 8th National Assembly to ensure quick passage of the Ports and Habours Authority Bill, saying that the Bill remains one of the solutions to reduction of high port charges and port costs
    They concluded that the problems emanating from disparity in charges and misunderstanding between maritime regulators and operators is as a result of the inconsistent policies of the federal government. “Government needs to be sincere in all its policies while an enabling environment should be created for business to thrive,” the stressed.