Ports Competitiveness: Pulling Down Private Sector Cartel

When the Federal Government signed the concession agreement nine years ago with the private sector, among other reasons, it was to improve efficiency at the ports and promote competition among players.  Ports concessioning might have succeeded in its goal to improve efficiency in ports operations but the same cannot be said in the area of competitiveness, and this has so far defied solution.

Due to the absence of certain regulatory laws to check monopoly in Nigerian ports, the terminal operators came together to form Seaport Terminal Operators Association of Nigeria (STOAN), a cartel, giving their operations a sort of monopoly that will be difficult to break. The Nigerian Shippers’ Council (NSC), as the ports regulator, is doing all it can to find cracks but can only break-in if the right regulations like the Anti- Trust law is domesticated by the National Assembly.

In a phone chat with MMS Plus, the former special adviser to the President on Export Programmes and Attorney at Libra Law Mrs. Modupe Sasore stated, “Antitrust laws, also referred to as “competition laws” are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy. Antitrust laws are applied to a wide range of questionable business activities, including market allocation. For instance, suppose my company operates in the Northeast and your company does business in the Southwest. If you agree to stay out of my territory, I won’t enter yours, and because the costs of doing business are so high that startups have no chance of competing, we both have a de facto monopoly.

“Another of these practices is, bid rigging and price fixing. In bid rigging, if there are three companies in an industry, and all three decide to quietly operate as a cartel. Company 1 will win the current auction, so long as it allows Company 2 to win the next and Company 3 to win thereafter. Each company plays this game so that all retain current market share and price, so as to preventing competition. While in price fixing, if my company and your company are the only two companies in our industry, and our products are so similar that the consumer is indifferent between the two except for price, In order to avoid a price war, we sell our products at the same price to maintain margin, resulting in higher costs than the consumer would have to pay.” She said.

She added, “So, that is why every industry needs a regulator that can enforce measures to check excesses that can lead to monopoly, to promote competition and make the economy healthy.”

At a one-day symposium on ports competitiveness, recently, the Executive Secretary and Chief Executive Officer of NSC, Barr. Hassan Bello said, “Ports are about competitiveness and that is the essence of having regulations, to make sure there is competition. We know we have the potential  of becoming a maritime hub but this things are not degreed being a hub is a function of competition and that is why when we have problems of arbitrary increase in tariffs, it is not what obtains in other climes. A shipper has the right, from his freight contract, to a choice and the option to take his goods to where he feels makes economic sense, so if you say there is diversion of goods to Cotonou, it is not diversion, it is about choice.

“The shipper brings his goods out of Cotonou within little time, he pays less than he pays in Lagos and he has less papers to sign as opposed to cumbersome , what I call primitive clearance procedures, the shippers has the right to go to where makes economic sense . It is not like before when you say Nigeria is the hub, no, you cannot decree or ordain it, it is a matter of how competitive your ports are. And that is why we say you cannot increase charges arbitrarily, that is why we want to start removing romanticism from the port because we are in competition with ports in other countries.

“Presently the NSC is doing a study on competition because I have not seen terminals in business that do not have bill boards , not one terminal in Lagos does advertising for people to come to their terminal , are they so comfortable that there is no need for them to advertise? We had monopoly in the public monopoly of Nigerian Ports Authority when they were still in charge of the terminals, are we now replacing public monopoly with private monopoly.

“No we can’t, the whole essence of the  concession is for us to have  a choice and monopoly disturbs the markets so they cannot even begin to realize their potential NSC has also had complains of monopoly by Intel’s and what we are saying is that we have nothing against dominant position. in every industry there tends to be dominance by one operator or the other because of their efficiency, that dominance is in fact encouraged because others will strive to do better because the shippers is aware that he has a choice. So competitiveness is central and key to the development of the port industry and also its contribution to national development.” He enthused.

At the same forum, the President of the National Association of Government Approved Freight Forwarders (NAGAFF), Dr. Eugene Nweke stated, If you consider why the ports were concession, the goals of these concessions and why nobody is really following up to ensure that the provisions of this very agreement are met, like those who feel that they have authority because they was no referee like the NSC, now that the Council has come in to regulate it must take time to study this trend to know where to come in. Government opted for the private sector to manage port enterprise and made a set of goals to achieve this, today it will appear that we have moved from public sector monopoly to private sector monopoly and it has become an issue that requires a regulator that is committed to ensure that all elements of monopoly must be removed for the system to thrive.

Also speaking at the event, the Director Shipping Services of the NSC, Mrs. Daboney Shall-Homa explained, “It is insightful to note that the economy of Singapore grew largely on transshipment. Because it is a small country, whatever it imports, it does not consume, it exports. We have the reverse in Nigeria where an Act prohibits transshipment, which in itself, places Nigeria at a gross disadvantage and has made it practically impossible for Nigeria to utilize its comparative advantage in terms of location in the sub region.

“If Nigeria was allowed to transship cargos to smaller countries within the sub-region, it will have benefited from the numerous ports that we have in the sub region, especially in the Gulf of Guinea, (GOG). Small transshipments would have been made to those countries in the GOG and that would have enhanced our position. However NSC did not take any body to court rather NSC was taken to court for allowing the government to correct the disorders in the working of the free market.

“If the free market is working correctly, there will be no distortions and no disorder and there will be no need for a regulation in the first instance, the regulation became necessary because there were grievous distortions and disorders in the Nigerian ports systems and that brought about a need to create some order out of the chaos.

“There must be a national strategy through which institutions can grow; a regulator like NSC can look at the national strategy for port development and growth. We have devised a market intelligence that enable us to know some of these issues even before the stakeholders tell us, so that we can actually meet the stakeholders half way in whatever we are doing in the industry, we have suggested to government that we need an inter-ministerial body, so that while we are talking to these agencies that are in one way or the other connected to trade either through transport, finance, national planning or other ministries, there is harmony.” She said.

Meanwhile, Patrick Utomi who was a guest speaker at the symposium reiterated, “When the system does not work seamlessly there is transaction cost, it is this transaction costs that really make as our ports uncompetitive. Part of the goal for concessioning was to reduce the time it takes to move cargos in and out of the ports, so it extends beyond competition among the various players to competition in the whole economy of a nation.

“Communication is the key; we have to first of all build trust and platforms of dialogues to use to communicate. The breakfast meeting is an idea, where people with common interest come together once a month, eat together and build bridges of trust. Leadership is very important, the followers needs to understand that they are all working for the same cause, then the players themselves will learn to trust each other and the more they frequent in the meeting, the more they will be responsive to issues .I think this will help significantly.

“Another solution is to domesticate the outcome of some of the summits we attend, some of the reasons why we do not see these domestications are because there is no champion to drive the vision. Most times representatives just attend summits and come back and mention it in passing. We need champions who can go to the National Assembly with the draft law, follow it up and ensure that  interested parties are brought together to pressure the passing of the summits into law. It is important that we learn to let go of self-interest and work on everybody’s interest  because we do not need strong men what we need is strong institutions, private monopoly is more dangerous than public monopoly so there must be regulation to check this kind of monopoly.” He emphasized.

STOAN and foreign shipping firms went to court to challenge the authority of the NSC as the regulator. NSC upon assuming the regulatory status wrote to the shipping lines and terminal operators to stop their imposition of shipping line Agency Charges (SLAC) at the current rate of N31,700per TEU;   non refund of container deposit by terminal operators; upward review of container cleaning and maintenance fee by shipping companies currently at the rate of  N2,500.00 per TEU.

NSC enumerated these illegal charges among others as the factors that make the cost of clearing cargo in Nigerian ports very expensive. The regulator equally increased free demurrage period from five (5) days to ten (10) days. Before this intervention, the comparative free demurrage period in selected African countries shows that Nigeria has the least number of days; 3days, Benin Republic has (10) days; Ivory Coast, nine (9) days; Ghana, seven (7) day, while in Namibia it is fifteen (15) days.

The federal High Court, Ikoyi, Lagos in one of the judgments delivered in the suit filed by STOAN and shipping companies against NSC as the economic regulator also ordered the terminal operators to refund all illegal charges collected over the years, amounting to N150billion.

The idea behind regulatory laws is that in every market there should be robust competition, if in each market there are many sellers busily competing against one another to sell a particular kind of product or service to paying customers, no seller will be able to take unfair advantage of the buyers, but rather each seller will be obliged to offer its goods or service on attractive terms, and each will be responsive, honest and efficient in its dealings with buyers, who otherwise will simply turn to another, better seller.

The antitrust laws are supposed to promote and protect competition, or, if you will, competitive processes in relevant markets. This alone is their proper purpose. They are not intended to punish big companies merely on account of their size or because of their commercial success. Most importantly, the antitrust laws have never been anti-market or anti-business in their underlying conception or in their implementation. On the contrary, they are intended to promote market economics and healthy vigorous competition in every market, while checking the abuses that sometimes arise in different markets.

The scope of regulatory laws, and the degree they should interfere in an enterprise’s freedom to conduct business, or to protect smaller businesses, communities and consumers, are strongly debated. One view suggests that these laws should focus solely on the benefits to consumers and overall efficiency, while a broad range of legal and economic theory sees the role of regulatory laws as also controlling economic power in the public interest. At the core, regulatory provisions are designed to maximize consumer welfare.

By Ifeoma Uguamanam