Weak naira, inflation pushes terminal operators’ earnings down by 22.4%- Deloitte
Terminal Handling Charges (THC), the major source of revenue earned by terminal operators, has declined by 22.4 percent in the past 10 years (2006 and 2016), following the depreciation in the value of the naira and rising rate of inflation, says a recent report released by Deloitte, a top global accounting and audit firm.
The Terminal Handling Charges is the main source of revenue for the terminal operators. It is also the payment received from transferring cargo from ship or quay side to the yard for release to the importers through their clearing agents. According to the report, at the beginning of port concession in 2006, THC collected by terminal operators stood at $232 per twenty equivalent units of container (TEU), but this dropped to $180 per TEU by 2016.
The report titled “Public Private Partnership (PPP) as an Anchor for Diversifying the Nigeria Economy: Lagos Container Terminals Concession as a Case Study,” said that during the period under review, terminal operators’ business was adversely impacted by the rise in consumer price index (CPI) used in measuring inflation. It also said that foreign exchange (FX) fluctuation also impacted the value of the THC collected in the past 10 years with over 224 percent decrease in the value of naira.”
The report, which was released by Bola Asiru, Deloitte Nigeria’s director of Strategy and Operations; Oladotun Bamigbetan, senior manager and two others, stated that if terminal operators were to adjust the THC yearly in line with changes in foreign exchange and Nigeria’s Consumer Price Index, the rate would have increased to N185,112 per TEU.
“In real economic terms, the operators are losing revenue by not adjusting their THC in line with market realities,” Deloitte report stated.
The report further disclosed that the foreign exchange challenges that Nigeria faces as a result of the fall in global oil prices is further pronounced for terminal operators as a large part of their capital expenditure and operational costs are in US Dollars. It said the operators’ dollar denominated costs includes equipment acquisition and maintenance costs as well as the payment of lease fees to the Nigerian Ports Authority (NPA).
“About 83 percent of terminal operators revenues are received in naira, 17 percent is received in US dollars. Terminal operators have to constantly source for US dollars through the parallel market at very high rates to meet their statutory and operational cost obligations to the Federal Government.”
In the area of storage, the report however observed that terminal operators face huge challenges in this regard as the terminals are used as “cheap storage warehouse alternatives” by cargo owners.
“The current policy provides for free 3-day storage after which a charge of N900 is applied per day and this is regulated by the NPA. Importers take advantage of the low storage charges offered by the terminal operators to store their imported goods at the terminal as opposed to offsite warehousing facilities that charge as much as N60,000 per day. This leads to congestion at the terminal and hinders the productivity and storage capacity of the terminal,” the report added.
During the 10-year period under review, Deloitte said that terminal operators had made huge investments on the acquisition of modern cargo handling equipment; development of port infrastructure such as buildings, quays and storage yard; lighting; automated tracking system; trainings and supply of electricity.
“As a direct impact of these investments, the ports have witnessed increased ship traffic and throughput which has led to 400 percent rise in container throughput from 400,000 TEUs in 2006 to 1.6 million TEUs in 2014.
“The investments have also led to the eradication of ship waiting time at the container terminals, as ships now berth on arrival. Vessel turnaround time has been reduced from five days to 41 hours while average dwell time for cargo clearance went from over 30 days to just 14 days.
“In addition, due to improved security and lighting in the terminals, the ports now run 24-hours (daily) and 7-days-a-week operations. There have also been some major investments made by the NPA on behalf of the government to increase traffic at the ports. Most laudable is the dredging of the channel from 9 meters to 13.5 meters water depth.
On the side of the government, the NPA also invested in the provision of larger tug boats to service shipping companies. “This has led to larger ships calling particularly at the Lagos port and Tin-Can Island port, thereby increasing the throughput.”
“The NPA has been a positive partner in the concession process but there still exists opportunities to further optimise the existing Lagos port infrastructure to meet medium term needs of the sector.”
Uzoamaka Anagor-Ewuzie