Nigerian businesses paid foreign shipping lines a whopping $45 billion (about N21.6 trillion) as freight charges between 2015 and 2019.
With increases in the charges since 2020, the unofficial figures is expected to be around $60billion (about N28.8 trillion) by end of this month, assuming cargo throughput remains at same level.
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 was removed from the Nigerian Ports Authority, NPA, figures, then the inclusion would have brought the total cost burden on Nigerian importers and exporters to the region of N32 trillion over the period.
This development, Financial Vanguard learnt during the weekend, 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 capitalized on the situation to impose freight charges and WRI most of which are only applicable to Nigerian cargoes.
Confirming the situation last week with a breakdown of the nation’s shipping position, the out-going Executive Secretary of the Nigerian Shippers Council, NSC, Hassan Bello, said during the period under review, a total of 26,147 foreign vessels berthed at Nigerian ports with a dry cargo throughput of 372 million metric tonnes and total wet cargo throughput of 613 million metric tonnes.
With the benchmark of $92.5 per metric ton for dry cargo applied by the Nigerian Maritime Administration and Safety Agency, NIMASA, the total freight for dry cargo for the period will be N16.3 trillion ($34 billion).
Also a benchmark freight rate of $18 per metric tonne for crude oil to Europe will accumulate a freight bill of N5.28 trillion ($11 billion) during the same period under review.
Speaking through the Deputy Director, Consumer Affairs Department and Secretary to the Nigerian Fleet Implementation Committee, NFIC, Mr Celestine Akujubi, at a book launch Bello stated further that ”this is an economic loss to the nation and as a country, Nigeria did not benefit anything as freight from the carriage of her cargo due to the absence of the Nigerian fleet plying the international route.”
He lamented that the situation is embarrassing where a country like Nigeria 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 that 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.
He explained that “the benefits of shipping and, indeed, ownership of ships in international trade cannot be overemphasised. Shipping accounts for about 80-90 per cent of the international movement of cargo. Shipowning 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.”
He listed some of the challenges facing the industry which resulted in the domination of shipping in the country by foreign interests as follows: The nation’s ship registry, which does not meet up to the internationally acceptable level, the absence of incentives for the maritime industry and human capacity issues.
Others, according to him, are the absence of institutional framework as well as the terms of trade which he said is not favourable to the country in a situation where Nigerian exports are shipped “Free on Board ‘FoB’ while its imports are shipped ‘Cost, Insurance and Freight ‘CIF’.
Financial Vanguard learnt that apparently in response to the huge financial drain the Minister of Transportation, Rotimi Amaechi, had to set up the NFIC with members drawn from the public and private sector maritime stakeholders to actualise the establishment of a Nigerian fleet.
Akujubi said that the decision to constitute the committee was to avoid the failures and pitfalls of the past attempts, diversifying the economy, and address the imbalance in the Nigeria shipping sector to enable the country play a significant role in the carriage of its import and export cargo.
He also stated that the NFIC has identified the major challenges hampering the development of the Nigerian fleet and it is working with relevant government ministries, departments, agencies, and the private sector in the rejuvenation of indigenous shipping capacity and to accelerate participation in international maritime shipping services.
Some of the issues being addressed by the NFIC according to him are: revitalisation of the Nigerian Ship registry; pioneer status for ship repairs and scrapping; review of the nation’s trade policy and exemption from import duty on vessels and spare parts.
Others are; provision of low corporate import tax; application of tonnage tax; provision of single-digit interest rates; right of first refusal for national carriers; special forex rates and support funding.
He stated further: “The quest for the development of a sustainable national fleet for Nigeria remains a task that must be achieved for the overall growth and development of the national economy.
“In order to do this, it is pertinent to provide the required business environment to encourage private sector buy-in into this crucial government initiative aimed at ensuring that Nigeria regains control over her international trade, while also restoring the nation back into her rightful place among ship owing nations of the world,” he concluded.
NIMASA fights War Risk Insurance
Meanwhile, against the backdrop of the import/export freight cost burden, the Nigeria Maritime Administration and Safety Agency (NIMASA), last weekend, expressed worry over the persistent slamming of War Risk Insurance, WRI, by foreign shipping firms in collaboration with their insurance counterparties on Nigerian bound cargoes, calling for its removal. Consequently, the agency has launched a campaign to end the practice.
A statement issued by the Head, Corporate Communications of NIMASA, Philip Kyanet, and made available to Financial Vanguard quoted the Director General of the agency, Dr Bashir Jamoh, as saying that the campaign was as a result of the falling piracy incidence in the Nigerian waters and the Gulf of Guinea since February when NIMASA deployed the Integrated National Security and Waterways Protection Infrastructure popularly known as the Deep Blue Project.
The statement added that Nigeria’s maritime trade is threatened due to the increasing WRI premium paid by Nigeria-bound vessels.
According to Jamoh, piracy in the Nigerian waters is waning, stakeholders in the industry are worried that offshore underwriting firms still insist on very high premium to be paid by those conveying cargoes to Nigeria.
The statement reads in part: “War risk insurance is a type of insurance, which covers damage due to acts of war, including invasion, insurrection, rebellion and hijacking. Some policies also cover damage due to weapons of mass destruction. It is most commonly used in the shipping and aviation industries.
“It generally has two components: War Risk Liability, which covers people and items inside the craft and is calculated based on the indemnity amount; and War Risk Hull, which covers the craft itself and is calculated based on the value of the craft.
“The premium varies based on the expected stability of the countries to which the vessel will travel, the war risk phenomenon, which was only known to countries with high rate of piracy such as Somalia, also found its way into Nigeria following massive involvement of youths in the Niger Delta in militant activities.”
Speaking during the recent official flag-off of the deep blue project in Lagos by President Muhammadu Buhari, Jamoh said: “Since the deployment of the deep blue project assets in February, there had been a steady decline in piracy attacks in the Nigerian waters on a monthly basis.
“We, therefore invite the international shipping community to rethink the issue of war risk insurance on cargo bound for our ports. Nigeria has demonstrated enough commitment towards tackling maritime insecurity to avert such premium burden,” Jamoh said.
The statement quoted nonprofit Oceans Beyond Piracy’s 2020 reports, saying that the total cost of additional war risk area premiums incurred by Nigeria bound ships transiting the Gulf of Guinea was $55.5 million in 2020 alone, and 35 per cent of ships transiting the area also carried additional kidnap and ransom insurance totaling $100.7 million.
“Insecurity got so bad in the region before the deployment of the deep blue project that global insurance firm Beazley now offers “Gulf of Guinea Piracy Plus,” a bespoke insurance plan for maritime crew traveling through the area.
“The plan provides compensation for illegal vessel seizures and crew kidnappings even in the absence of ransom demands. It tracks insured vessels on a 24-hour basis, but because the risks are so high, it limits claims to $25 million.
“Effect of this additional spending by shippers is the transfer of the burden on final consumers in form of higher cost for imported goods.
“While the deep blue project enters implementation stage, NIMASA will not be complacent as it will continually evolve strategies including wide consultation with stakeholders and application of cutting edge technology in the fight against maritime insecurity,” the statement disclosed.