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Manufacturers squeezed as container scarcity hits raw materials supply

Manufacturers in Nigeria that depend on machineries, spare parts, chemicals, and other raw materials from China and India say they are finding it extremely difficult to source their critical production inputs due to the disruption in the global supply chain caused by container scarcity.

They say it now takes longer than usual to be able to load imports from China and India as manufacturers now wait for an average of three weeks before being able to receive containers to ship their consignments particularly raw materials to Nigeria.

Container scarcity, triggered by COVID-19 induced congestion in some major ports around the world, particularly in the United States, early this year, has, in addition to disrupting the global supply chain, resulted in higher freight costs globally.

The situation is making it difficult for factories that depend on Chinese-made parts and chemicals in the rest of the world to have full production. Importers, according to a source, now pay as much as $15,000 per 40-foot container from India to Nigeria, as against less than $4,000 before container scarcity hit the global maritime business.

Fidelis Ayabae, the managing director/ CEO of Fidson Healthcare Plc, said shipping cost from China where the majority of raw materials for local manufacturing in Nigeria come from, has increased by 400 to 500 percent compared to August 2020.

According to Ayabae, who doubles as the chairman of PMG, Manufacturers Association of Nigeria (MAN), freight charges have risen drastically ever since China revived its export operations after the lockdown caused by the COVID-19 pandemic.

Read Also: Nigeria’s imports trapped overseas over container scarcity

“Apart from the backlog of goods awaiting shipment from China after the lockdown, the decline in the production of new containers during the pandemic also affected the availability of containers globally. The shipment time from China to Nigeria ports has significantly increased from two months to five months depending on the efficiency of the shipping lines,” he explained.

container scarcity

Ayabae further noted that the delay in transit time has made many manufacturing companies in Nigeria increase their inventory holding, and this has put a lot of pressure on the working capital.

“The landing cost of all materials, equipment and spares to support manufacturing operations in Nigeria has surged significantly due to increase in freight cost and all associated costs attributed to delay in transit time. This has led to a sharp reduction in profit margin because only a fraction of this cost can be passed on to consumers,” Ayabae added.

Ohai Ehimigbai, export manager at Aarti Steel Group, says the situation is affecting manufacturers that are importing chemicals because their inputs need to be packaged in containers.

“If the foreign partner cannot get container to package the chemical for the manufacturer, it will increase the cost of production because of the delay. The longer it takes to get containers, the more the Nigerian manufacturer, who is importing the goods from China, would pay owing to the foreign exchange volatility in Nigeria,” Ehimigbai explained.

Citing an example, Ehimigbai said when his company wanted eight containers to ship products to Ghana; it took them three weeks to get four out of eight because of the scarcity.

“Before now when there was no scarcity of containers, one can easily get any number of containers in less than 24 hours if there is no gridlock in the port,” Ehimigbai added.

Ola Adebayo, director, Haffar Industrial Company, told BusinessDay that the container scarcity, which is a global problem, is presently impacting Nigeria’s manufacturers.

“It now takes longer time than usual for us to get containerised imports from China because of the container scarcity. The time now varies. It is how quickly one can secure a container that determines when the imports will come into the country,” Adebayo said.

Adebayo, who pointed out that shipping cost has also doubled due to the container scarcity, said the cost of production has also increased for manufacturers as what used to cost $2,500 to import, now costs $6,000.

“Even at the local port, clearing cost has also gone up and we the manufacturers are afraid of transferring the entire cost to consumers because of their low purchasing power,” Adebayo said.

This year has witnessed extraordinary disruption in global shipping due to container shortage and this has made the cost of freight which is an important part of the total cost of shipment rise dramatically. In addition to the increase in freight cost, getting materials and products from overseas countries to support local production has become very difficult because of this container scarcity.

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