CARGO FREIGHT RATE IN LINER SHIPPING AND ITS CORRELATION TO HIGH PRICES Of IMPORTED GOODS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND INFORMATION
According to Ndikom (2006), the term freight rate refers to the reward typically paid to the carrier for the carriage and arrival of goods in mercantile condition ready for delivery to the merchant. Maritime z shipping services are typically priced in conjunction with land modes of transport and are subject to the forces of supply and demand. Furthermore, the demand and supply of international sea-transport services are derived primarily from the demand and supply of commodities (goods) transported by sea, and are thus affected by the elasticity (changes in prices and demand cum supply) for those commodities. During normal times, the cost of transportation in relation to market prices of goods is an important factor influencing the exact elasticity of demand for shipping services.
the goods carried.
Despite its small size, the cost of sea transport is frequently a significant component of the final market prices of many important commodities. According to Ekwerina (2003), transport costs (Freight rate) account for approximately 15% to 20% of the costs of imported and exported commodities in developing countries, particularly those in the Sub-Saharan African region. Thus, a commodity that may have attracted a low purchase price in the international market tends to cost 150/0 to 200/0 more than the actual purchase price after it must have entered the Sub-Saharan African market.
market. As a result, inflation is the order of the day for imported commodities in Nigeria, resulting in a continuous high rise.
Prices of imported goods have risen. According to experts, there is a direct correlation between market prices of imported goods and the shipping (transport cost) freight rate, such that an increase in the liner freight rate causes an increase in the costs of imported goods, whereas a decrease in the liner freight rate causes a decrease in the prices of imported products in Nigeria. However, the frequency of positive changes (increases) in liner freight rates with attendant increases in market prices of imported products has been so high over the years that it has become customary for prices of imported products to continue to rise without room for market price declines.
Ndikom (2006) contends that The continued rise in liner freight rates in Sub-Saharan African countries can be attributed to a number of factors, including: high port tariffs and dues charged to ship owners by Government Agencies and terminal operators in ports; high ship turn-around time (STRT) in Sub-African ports necessitating the payment of demurrage by ships; delays in cargo clearing processes by customs and other government agencies in ports; and a lack of national shipping lines to carry the cargo. As a result, even in the face of port reforms aimed at addressing the majority of the shipping industry’s problems,
The freight rate in Nigeria has continued to be negatively impacted as a result of the high cost of doing business in Nigeria ports, which has invariably impacted market prices of imported goods in Nigeria, turning the economy into an inflationary economy.
According to Okon (2006), freight rate, insurance, import duty, and handling costs play an important role in determining the value of many export and import commodities, as well as influencing demand for such commodities in the import market. This essentially means that the shipping freight rate is an element that raises the cost of products, and thus the market prices of export and import goods, as well as exportation and importation, are the main vectors. Because the majority of Nigerian international trade is carried by sea Hampton,1989), our commercial exchange is dominated by the sea. The study will, however, attempt to assess the relationship between liner freight rates and market prices of imported goods in Nigeria.