CARGO FREIGHT RATE IN LINER SHIPPING AND IT’S CORRELATION TO HIGH PRICES OF IMPORTED GOODS IN NIGERIA

ABSTRACT

The research is organized into five chapters. The objective of research is to assess the impacts of high freight rates to prices of imported goods in Nigeria. Chapters one, two and three dealt with introduction, literature review and methodology respectively. Chapter four dealt with data analysis and discussion of findings while chapter five Dealt with conclusions and recommendations

 

CHAPTER ONE

INTRODUCTION

1.1   Background to the study

According to Ndikom (2006), The Word freight rate connotes the reward usually payable to the carrier for the carriage and arrival of the goods in a mercantile condition ready to be delivered to the merchant. Maritime z shipping services are usually priced conjunction with land mode of transport and are dependent on the forces of demand and supply. Moreover, the demand and supply of International sea-transport services are basically derived the demand and supply of commodities (Goods) carried by sea and 15 therefore affected by the elasticity (changes in prices and demand cum supply) for those commodities. Basically normal times, an important factor affecting the exact elasticity of demand for shipping service, is the cost of transport in relation to the market prices of the goods carried.

Although, it may be small, the cost of sea transport is often a significant element of components in the final market prices of many important commodities. Ekwerina (2003) posits that in developing countries, particularly those of the sub-saharan African region, transport cost(Freight rate) consist about Fifteen (15%) to twenty (20%) percent of the costs of imported and exported commodities. Thus, a commodity that may have attracted a low price to purchase in the international market tends to cost 150/0, to 200/0 higher than the actual cost of purchase after it must have entered the sub-saharan African

market. The impact of this is that inflation tends to be the order of the day for imported commodities in Nigeria causing a continuous high rise in the prices of imported goods. Experts thus assert that there exist a direct correlation between market prices of imported goods and the shipping (transport cost) freight rate such that a positive change (upward increase) in liner freight rate brings about an upward increase in the costs of imported goods while a negative change (downward decrease) in liner freight rate brings about a downward (decrease) change in prices of imported products in Nigeria. Over the years however, the frequency of positive changes (increases) in liner freight rate with attendant Increase in market prices of imported products has been so high that it becomes customary for prices of imported products to continue to go high without room for decline in market prices.

Ndikom (2006) posit that the continued increase in liner freight rate in sub-saharan African countries can be traced to  n umber of factors among which are: high port tariffs and dues charged to ship owners by Government Agencies and terminal operators in ports, high ship turn-round time (STRT) in sub-  African ports necessitating the payment of demurrage by ships; delay in cargo clearing processes b::V customs and other government agencies in ports, lack of national shipping lines to carry the countries share of water-borne trade and

insecurity in the waters of the region causing panic to ship- owners that trade in the sub-saharan sea-routes. The effect of this is that, even in the face of port reforms that sort to address majority of the problems of the shipping industry, freight rate in Nigeria has continued to be negatively affected as a result of high cost of doing business in Nigeria ports which has invariably impacted negatively the market prices of imported goods in Nigeria and turning the economy into an inflation ridden economy, In the View of Okon (2006), freight rate, insurance, import duty and handling costs constitutes an important element in the determination of the value of many export and import commodities and also influence the demand for such commodities in the import market. This in essence means that shipping freight rate is an element that increases the cost of products, and thus, the prices of export and import goods in  the market as well as exportation and importation is the main vector of our commercial exchange, since the largest percentage of Nigerian international trade is carried by sea Hampton,1989). The research will however seek to evaluate the correlation between liner freight rate and market prices of imported products in Nigeria.

1.2   Problem Of Statement

Most market products and commodities in use In public places, private homes and industrial places in Nigeria today are virtually imported. Okon (2006) stated clearly that Nigeria is an import dependent economy (IDE) with 900/0 of its imports carried by sea. It is however a common knowledge that the ability of a nation to sustain its populace with an average living standard depends to a great extent on the market prices of commodities, products and services and its affordability by majority of the citizens. World Bank record on poverty among

countries of the world list Nigeria as one of the countries whose seventy percent (70%) of its citizens lives on less than two Dollars ($2), that is, about three hundred and twenty naira (N320) per day. This is directly connected to the high prices of market products and services in Nigeria making it an inflation ridden economy where citizen no longer afford to pay at ease the cost of running their living in an economy where virtually all household items are imported by sea.

Since the argument persist that the major reason for the high cost of market product in Nigeria is the high freight rate paid by importers in importing them. The research identified the following problems which it seeks solution to:

(a)    There is the problem of higher liner freight rates involved in bringing goods to Nigeria compared to other neighboring African countries.

(b)    There is the problem of inefficiency of stevedoring companies occasioned by the use of aging cargo handling equipment and poor handling skills which has led to increase in the time of vessel stay at berth and increase in ship-turn-round time which the ship owners in turn use as excuse to increase freight rate on goods coming to Nigeria.

(c)    High port tariffs, dues and charges cum demurrage cost occasioned by port congestions also increase freight rates charged by liners in bringing goods into Nigeria.

(d)    There is the problem of high time of doing business with the ports due to delay in cargo clearing processes with customs and other government agencies responsible for clearing of goods.

(e)    Lack of a national shipping line responsible for carriage of Nigerian seaborne trade constitute a part of the reason why liner freight rate has continued to go high Nigeria.

(f)     There is the problem of galloping prices for imported goods and services in Nigeria.

These are the problems which the research attempts to find solution to.

1.3   Objective Of The Research

The researcher identified some goals and objectives which the research aims to actualize. Some of these objectives are tied to the problems statement in 1.2 above and the realization of the research objectives will mean that, solutions has been identified for the numerous problems mentioned in 1.2 above. The general objective of the research is to assess the correlation between liner freight rate and the high prices of imported market commodities in Nigeria.

Some specific objectives of the research include the following:

1. To determine how much time it takes on the average to do business (clear goods) in Nigeria ports and the relationship between this time and linear sea freight rate.
2. To determine the time it takes to handle a ship in Nigeria port terminals on the average and determine the relationship between the ship- turn round time and freight rates charged by liners.
3. To determine the effects of high port dues rates and charges as well as port congestion on shipping freight rates and market prices of imported products.
4. To assess the effects of lack of a national shipping line of Nigeria in the carriage of Nigeria sea born trade on liner freight rate charged by foreign ships involved in the carriage of Nigerian imports
5. To determine the effects of galloping prices of imported market commodities on the economy Nigeria and its citizens.
6. To proffer recommendations on the basis of the research findings.

1.4   Hypothesis

As a guide to the realization of the research objective, the researcher proposed a null hypothesis. The acceptance and or rejection of the null hypothesis will help the research to develop a valid opinion about the research objectives.

Hypothesis Ho: There is no direct correlation between liner freight rates and the market prices of imported goods in Nigeria

1.5   Justification Of The Study

The study will be great importance to the Nigerian shipping industry operators and Government Agencies as well as the general public and importers.

To start with, understanding the nature of relationship existing between liner freight rates and market prices of imported products in Nigeria will ignite efforts amined at achieving lower freight rates in order to achieve a reduction in market prices of imported commodities.

Secondly, Since the ability of a nation to better the living standard of its citizenry depends on the stability of its economy which in turn depends of how inflation -free (stability in the prices of goods), the economy is. A research on the correlation between shipping freight rate and market prices of imported goods will provide avenues to create all inflation free economy where the living standard of the citizenry can be bettered.

Moreover, the study highlights Areas where corruption of customs officials, government agencies in the ports and general maritime fraud contributes in the increasing of shipping freight rates which is later transferred to the market prices of such imported goods by importers in Nigeria. With the above points, the research is timely, significant and justified.

1.6   Scope Of The Study

The scope of the study is limited to assessing the correlation between linear freight rates and market prices of imported goods in Nigeria. The study is limited to ascertaining the level of freight rate charged in the Nigeria shipping industry without extension to other sub-saharan African countries and the impacts of this freight rate to market prices of imported commodities in Nigeria.

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