Businesses in hot water as Red Sea attacks raise cargo costs

Shipping lines are imposing new surcharges on goods bound for Nigeria to offset the costs of diverting ships to longer routes due to the ongoing attacks on the Red Sea.

Maersk Line, Hapag-Lloyd, and CMA CGM are among shipping lines that have placed surcharges on Nigerian-bound cargoes.

As a result, Nigerian businesses are now paying more to bring raw materials and finished goods into the country.

Maersk Line, one of the biggest shipping lines that bring goods into Nigeria, said in a recent customer advisory notice that it will impose a fresh surcharge on import containers this June following the increasing impact of the Red Sea attacks on global supply chains.

This fresh surcharge comes a few months after Maersk applied a $150 Peak Season Surcharge on twenty equivalent units (TEU) of container and $300 on forty equivalent units (FEU) of container heading to Nigeria from China, Japan, Taiwan, and other Asian countries earlier in January.

Read also: Maersk to impose extra surcharge in June as Red Sea situation intensifies

In mid-May, Hapag-Lloyd, a German ocean carrier, started implementing surcharges on cargo coming from Asia to various destinations across Africa including Nigeria.

Another major shipping line that brings cargo into Nigeria, CMA CGM, also imposed a $150 per TEU surcharge on Nigerian-bound cargoes.

“Placing fresh surcharges on imported goods has increased shipping cost into the country as importers paying as much as $5,000 and $7,000 per 20-foot and 40-foot container from Asia to Nigeria would now pay an additional $500 or more in some cases,” said Tony Anakebe, managing director of Gold-Link Investment Ltd.

Citing an example, Anakebe told our correspondent on the phone that shipping lines have also increased charges on reefer containers from N126,000 to N160,000 which is aside from demurrage charges that increased from N58,000 to N65,000.

Giving insight into why the shipping companies apply to impose surcharges, Jonathan Nicole, immediate past president of the Shippers Association of Lagos State, said the increase in freight charges is due to the unfortunate war between Israel and the Palestinians.

This, according to him, has led to unrest that has triggered ripple effects as voyages through the regular routes are now been abandoned to avoid the vessels and crew being harassed by rebels.

Read also: Africa’s trade volume to shrink, higher inflation rate seen on Red Sea attacks

Nicole said shipping lines take longer routes to avoid being kidnapped and other dangerous trends that the rebels could cause.

“Longer routes make charges go up because it results in the imposition of surcharges by liners. This escalates freight cost and increases costs of doing business for shippers,” he said.

BusinessDay discovered that beyond increasing the cost of doing business at the port, the development also indirectly impacts the final consumers by putting inflationary pressure on the prices of commodities.

Nicole said that in addition to the cost of freight increasing by at least 15 to 20 percent, which the importer will recover at the point of sale of the goods, trade volume would reduce as shippers cut down on inventory.

Due to the current economic situation, businesses that depend on Nigerian ports to bring in critical production inputs and finished goods are seriously struggling to keep their heads above troubled waters.

“The development is seriously affecting importers and manufacturers, especially at this time that high exchange rate of naira to dollar and volatile exchange rate for calculating Customs duties are impacting businesses,” Anakebe said.

He said the development would also affect the prices of goods especially now that the Nigerian economy is dealing with inflation.

He said service providers are also increasing their charges to meet economic realities as terminal operators recently raised terminal handling charges from about N65,000 or N80,000 to as much as N204,000 per container.

A recent report compiled by AfreximBank on the implication of the Red Sea attacks on African trade and macroeconomic stability said African countries face the risk of accelerating inflation following the attacks on ships using the vital trade route.

It further projected a shrink in Nigeria’s trade volume as rising prices for food and energy might compel local manufacturers to divest from the region if production costs exceed those of their rivals in other continents.

Usually, surcharges are imposed on goods during peak periods when high demand and importers struggle to secure a slot on ships.

The Red Sea is an essential shipping lane facilitating about 15 percent of global maritime trade volume and over 22,000 transit calls annually.

The Israel-Hamas war, which started in October 2023, has led to attacks on commercial ships along the Red Sea disrupting the global supply chain.

However, Leo Ogamba, president of Shippers Association Lagos State, said in reaction to the development that imposing a surcharge is arbitrary.

He argued that shipping lines must follow due process of consulting with shippers before imposing charges.