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NigeriaDecides2023

How congestion in US ports affects Nigerians

Today in the United State of America there have been reported cases of protracted port congestion, especially in key hubs such as Los Angeles, Long Beach, and New York. The situation has become such that ships are stuck outside the ports of Los Angeles and Long Beach, California, which handle 40 percent of all containers entering the country.

The alarming congestion in US biggest ports has been having a great impact on the global supply chain, as there is serious crisis experts have predicted would likely last for several months, even into 2022.

Before COVID-19, it was unusual for more than one ship to wait in a berth, and the backlog is linked to surging demand for imports as the US economy has reopened after lockdown. This resulted in a global container shortage where importers had to wait for weeks to secure a space onboard a ship.

Just recently, it was reported that drone captures 80,000 containers clogged in US ports. This is in addition to the long queue of vessels on US waters that are waiting for berthing.

BBC once reported that about 65 cargo ships were forced to queue outside two of America’s biggest ports due to the supply chain disruption that is hitting the US.

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Nigeria, the world’s sixth-biggest exporter of crude oil, according to the Organisation of Petroleum Exporting Countries (OPEC), which depends largely on importation to bring in raw materials to serve as a critical input for the local manufacturers and finished products for its 200 million populations, has been facing serious difficulties due to the supply chain crisis.

Here are four ways disruption in the supply chain caused by congestion in US ports affect Nigerians:

High freight rate

With the congestion in the US ports that trapped container carriers and thousands of containers, the cost of the freighting container from Far East Asia, particularly China and India, to Nigeria has increased dramatically.

“Today, moving a 40-foot container from India to Nigeria and China to Nigeria now costs $15,000 instead of $3,000 plus charges by shipping companies in the past,” says Tony Anakebe, a maritime analyst.

On his part, Fidelis Ayabae, managing director/ CEO of Fidson Healthcare plc, notes that freight charges have been going up ever since China revived its export operations after the lockdown caused by the outbreak of the COVID-19 pandemic.

“On an average, shipping cost from China where the majority of the inputs in terms of raw materials for local manufacturing in Nigeria come from, to Nigeria ports has increased by 400 to 500 percent compared to August last year,” says Ayabae, who doubles as the chairman – PMG, Manufacturers Association of Nigeria (MAN).

This was why reports have established that the majority of shipping lines have benefitted from high freight rates and increased container demand. And most of them have been reporting record financial results and strong forecasts for the upcoming period.

Shipment delay

Currently, Nigerian shippers now wait a long time to secure containers to load their imports in the country of origin into Nigeria. Check shows that it now takes between two and three weeks for Nigerian importers to secure containers from shipping companies.

According to Sea-Intelligence, almost all trades have been impacted by bottlenecks in the global supply chain.

It states that while there was an initial pandemic increase in delays during the first half of 2020, after a brief period of improvement in summer 2020, the delays then escalated significantly in late 2020 and early 2021.

Sea-Intelligence further states in another report that the schedule reliability of international carriers was still very poor in September 2021 and that the average delay for late vessel arrivals also dropped to 7.27 days, which has been a theme throughout 2021.

This means that even when Nigerian shippers manage to secure containers to load their goods at the port of origin, it does not mean that the vessel that is supposed to lift the container comes as scheduled. In most cases, it takes an average of seven to eight days for the vessel to arrive at the port to lift the container.

At the moment, there is a backlog of Nigerian-bound goods awaiting shipment from Europe, America, China, and India due to the scarcity of containers to load the goods. With this, goods that ought to spend three weeks before getting to the destination port may take longer than one month.

“The shipment time from China to Nigeria ports has significantly increased from what used to be two months to about four to five months, depending on the efficiency of the shipping lines. 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,” Ayabae states.

Fred Agu, an Italian-based importer, says he has not been able to secure a container to ship his imports into Nigeria since the past three weeks, noting, “I was given a two-week schedule to get a container to load my goods that are met for Nigeria, but three weeks down the line, I am still hoping to secure a container.”

The skyrocketing cost of production

The congestion in US ports, which has resulted in a global scarcity of containers, has begun to have high-cost implications for businesses in Nigeria, particularly those that depend on imports for critical inputs.

According to Ayabae, the cost of running manufacturing operations in Nigeria that depend largely on imported materials for their production has become so high.

This, he says, has got to the point that small and medium manufacturing companies are struggling to survive while others have closed shops, waiting till when the current situation will possibly change.

Continuous inflation

The market prices of goods in Nigeria, particularly food and other household consumables have continued to increase. This can be attributed to two factors including the increasing exchange rate of naira to dollar and the high cost of production, which is as a result of a delay in sourcing raw material and high cost of freight.

Anakebe notes that the development would seriously affect the prices of goods, especially now that the Nigerian economy is dealing with high inflation.

The importer, he says, must increase prices to recoup the invested capital through high prices of goods.

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