As NSC Moves To Cut Charges By Shipping Companies
Eromosele Abiodun examines the move by the Nigerian Shippers Council to get shipping companies reduce their charges and the impact it will have on the economy
International shipping is a complex subject that includes many variables. Proper handling paves the way for a reliable and cost-effective management of ocean freight.
That is regardless of whether an importer ships one container now and then, several per month or more than 10 per day.Many businesses depend on viable international shipping to ensure the sustenance of partnerships, clients and profitability.
Avoiding delays is critical to guarantee an uninterrupted operation. However, international shipments could face shipping delay charges resulting from various clearance issues. Sufficient preparation and understanding the different resulting charges in advance is key.
When it comes to clearance delays, importers, as well as exporters seem to throw around three terms interchangeably: demurrage, detention, and per diem. From common usage, it may seem like they all mean storage when they, in fact, do not. If your international shipment stays beyond a certain amount of allowed free time at a site, you face storage charges.
That includes ports, airline terminals, rail facilities or a bonded warehouse. The storage fee compensates the facility for the use of their space and equipment, i.e. a container taking up space or blocking processing. The amount of free days and the charge for storage will differ from one facility to another. This is often also based on the volume an importer or your freight forwarder is passing through the facility.
It is a norm the world over for steamship lines to charge demurrage, a fee to compensate for the use of their shipping containers.
Experts believe demurrage fees are in place to discourage using the provided containers for storage and to compensate for container usage.
“Before you pick up your international shipment, you must pay all demurrage charges in full. The fee may differ greatly from carrier to carrier and from port to port. You are granted a limited number of free days, depending on the carrier and the location. After your free time runs out, you will be charged demurrage for each additional day. These charges tend to increase per day after exceeding a certain amount of days,” said a top player in the maritime sector
The detention charge, he stated, usually applies to domestic trucking adding, “The trucking or drayage company bills you for the so-called detention of their trucker or driver in cases. This happens when the loading or unloading of your shipment or containers takes too long. Detention fees are billed at an hourly rate. You can usually expect a free time or grace period of around one to two hours for loading or unloading a container. But this will depend on whether it is a domestic shipment or destined for import or export.”
He added that per day applies when an importer requires the use of equipment beyond a set amount of free time.
“Steamship lines and airlines charge this fee, and equipment include ocean containers and unit load devices (ULD). You have some free days, depending on the equipment and the carrier, before per diem kicks in. With imports, the charge applies to cargo leaving the arrival terminal. With exports, it applies to shipments leaving the departing terminal.
“Per diem fees accumulate until you return the equipment to the terminal of the port, rail yard dock or airline, “he stated. Analysts believe terms of shipping delay charges, often used interchangeably, results in confusion when receiving bills for detention, demurrage and per day charges,” he said.
While it is a known fact that international shipping is complex and intricate, the confusion in the Nigerian maritime industry over shipping companies’ charges has over the years raised dust with stakeholders at daggers drawn as to who is right or wrong.
Last year, customs brokers plying their trade at Lagos ports declared war on terminal operators and shipping companies over the N4billion demurrage accrued from the recently shelved strike by truck drivers. Also early last year, truckers shunned lifting of cargoes at the ports in protest over alleged extortion by security agencies. Resulting in over N4 billion accrued as demurrages and storage charges that importers had to clear.
THISDAY investigations revealed that N668million demurrage was incurred daily for the duration of the strike which translated to N4 billion. The humongous amount resulted in a running battle between clearing agents, importers on one hand and the service providers on the other. While the clearing agents were calling for waivers over the strike period, the terminal operators remained indifferent. According to a manager in one of the container terminals in Lagos, the terminal operators collected demurrage accrued during the period.
The cost of doing business in Nigeria ports ranks amongst the highest in the world with the ports notorious for high demurrage charges as a result of delay in cargo clearing process; high insurance premium of vessels coming to Nigeria and trucks conveying containers to and from the ports and higher shipping and terminal charges.
This is aside the total annual freight cost estimated at between $5 billion and $6 billion annually, according to the Ministry of Transportation.
According to the World Bank in its 2017 Annual Ease of Doing Business Report, Nigeria ranked 145 among 185 countries with Mauritius ranking 32 as the best in Africa. From the report, trading across borders, an indicator for measuring a country’s ports effectiveness ranked Nigeria very low at 183 out of 185 countries.
Numbers released by the Nigerian Ports Authority (NPA) showed that averagely, container traffic at the nation’s seaports across the country (Lagos Port Complex, Tincan Island Port, Delta Port, Onne Port, Rivers Port and Calabar Port) stands at 822,868 annually.
THISDAY findings from customs agents revealed that it takes about N6.5 million to clear and transport a 20-foot container laden with cargo worth N36.42 million ($100,000) imported into Nigeria from China.
Of this amount, about N5.3 million (representing 82.1 per cent) is paid to the Nigeria Customs Service (NCS) as import duty, comprehensive import supervision scheme (CISS), ECOWAS Trade Liberalisation Scheme (ETLS), Port Development Surcharge and Value Added Tax (VAT).
Shipping companies are responsible for 13.8 per cent of the port cost (N897,000); terminal operators 1.8 per cent (N117,000); Customs 82.1 per cent (N5.3million); transporters 1.1 per cent (N71,500) and clearing agents (N78,000).
This means that N5.34 trillion is required to clear the 822,868 containers annually while the shipping companies’ charges stands at N738.112 billion annually. However, when the 35 per cent reduction comes into effect after the MOU is signed, the shipping companies’ charges will be reduced to about N479.77 billion annually.
Shippers Council Steps In
In a bid to put an end to the persistent wrangling between customs agents, importers and the negative impact excessive charges is having on the economy, the Nigerian Shippers Council (NSC) embarked on a mission to get the shipping companies to cut down charges. The move is yielding results as the council, all things being equal, will in the days ahead sign a landmark agreement with the shipping companies to reduce charges. Analysts and stakeholders have applauded the effort, positing that the Nigerian economy will be the ultimate beneficiary.
THISDAY had exclusively reported recently that after almost two years of negotiations, the NSC would, on behalf of the federal government, sign a landmark agreement with shipping companies that will see charges by shipping companies reduced by 35 per cent or N258.38 billion annually.
Confirming the development to THISDAY, the Executive Secretary/Chief Executive Officer of the NSC, Hassan Bello said he was hopeful the agreement will be signed.
According to him, “You know in negotiation you can only be hopeful. We have been negotiating for one and half years. We have a small knotty problem, which we hope to resolve by next week. Some I am hopeful we will conclude with the shipping companies.
“However, we will run the agreed MOU by the Ministry of Transportation, major stakeholders such as; shippers freight forwarders, Manufacturers Association of Nigeria (MAN) and Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA). This will take four days, then we will sign the MOU.
“Further, the total reduction would be 35 per cent reduction but the most important thing is we have come up with sustainable mechanism of settling dispute, which means no arbitrary or unilateral fixing of cost at the ports.”
Besides the reduction of port charges, he said the Council has also abolished the container cleaning fee hitherto being collected by shipping companies, just as fifteen other port charges were removed from the list of charges.
Bello also said that the moment the MoU comes into effect, the implementation also becomes inevitable.
In his reaction, National President, of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Mr. Lucky Amiwero praised the federal government for the effort, adding, however that 35 per cent reduction is not enough.
He said: “The most important charge by the shipping companies is the demurrage and their charges are higher than the terminal operators, which is not supposed to be so. The shipping companies don’t have the right to be collecting the charges. In other countries of the world most of those charges are not applicable because they don’t provide services for the charges.
“What they have is just the container and that has been charged to the freight cost already. There charges are contestable and it is a very serious issue. The shipping companies are doing what they are doing because Nigerians don’t go to court, if Nigerians can go to court they will find out that the charges by the shipping companies are illegal.”
On his part, the Chairman of the Lagos State Shippers Association, Mr. Jonathan Nicol, said his group would protest the new charges if they fall below their expectations.
He said that the shipping companies must withdraw the court case they instituted against NSC resisting the council’s demand that they refund certain monies to some shippers.
The association also described the resort to the court by the shipping companies as an insult on the Nigerian government.
“The NCS has been involved in the negotiations of charges with these foreign shipping companies before they went to court. They must withdraw the case before the negotiations can take place. They went to court when the negotiations were going on, we are an interested party in the case because we are the ones paying the monies,” he said.