CARGO FREIGHT RATE IN LINEAR SHIPPING AND ITS CORRELATION TO HIGH PROCES OF IMPORTED GOODS IN NIGERIA

CHAPTER ONE

INTRODUCTION

1. 1. BACKGROUND INFORMATION

According to Ndikom (2006), The Word freight rate connotes the reward usually payable to the carrier for the carriage and arrival of the goods in a mercantile condition ready to be delivered to the merchant. Maritime z shipping services are usually priced conjunction with land mode of transport and are dependent on the forces of demand and supply. Moreover, the demand and supply of International sea-
transport services are basically derived the demand and supply of commodities (Goods) carried by sea and 15 therefore affected by the elasticity (changes in prices and demand cum supply) for those commodities. Basically normal times, an important factor affecting the exact elasticity of demand for shipping service, is the cost of transport in relation to the market prices of the goods carried.
Although, it may be small, the cost of sea transport is often a significant element of components in the final market prices of many important commodities. Ekwerina (2003) posits that in developing countries, particularly those of the sub-saharan African region, transport cost(Freight rate) consist about Fifteen (15%) to twenty (20%) percent of the costs of imported and exported commodities. Thus, a commodity that may have attracted a low price to purchase in the international market tends to cost 150/0, to 200/0 higher than the actual cost of purchase after it must have entered the sub-saharan African

market. The impact of this is that inflation tends to be the order of the day for imported commodities in Nigeria causing a continuous high rise in the prices of imported goods. Experts thus assert that there exist a direct correlation between market prices of imported goods and the shipping (transport cost) freight rate such that a positive change (upward increase) in liner freight rate brings about an upward increase
in the costs of imported goods while a negative change (downward decrease) in liner freight rate brings about a downward (decrease) change in prices of imported products in Nigeria. Over the years however, the frequency of positive changes (increases) in liner freight rate with attendant Increase in market prices of imported products has been so high that it becomes customary for prices of imported
products to continue to go high without room for decline in market prices.

Ndikom (2006) posit that the continued increase in liner freight rate in sub-saharan African countries can be traced to n umber of factors among which are: high port tariffs and dues charged to ship owners by Government Agencies and terminal operators in ports, high ship turn-round time (STRT) in sub- African ports necessitating the payment of demurrage by ships; delay in cargo clearing processes b::V customs and other government agencies in ports, lack of national shipping lines to carry the countries share of water-borne trade and
insecurity in the waters of the region causing panic to ship- owners that trade in the sub-saharan sea-routes. The effect of this is that, even in the face of port reforms that sort to address majority of the problems of the shipping industry, freight rate in Nigeria has continued to be negatively affected as a result of high cost of doing business in Nigeria ports which has invariably impacted negatively the market prices
of imported goods in Nigeria and turning the economy into an
inflation ridden economy.

In the View of Okon (2006), freight rate, insurance, import duty and handling costs constitutes an important element in the determination of the value of many export and import commodities and also influence the demand for such commodities in the import market. This in essence means that shipping freight rate is an element that increases the cost of products, and thus, the prices of export and import goods in the market as well as exportation and importation is the
main vector of our commercial exchange, since the largest
percentage of Nigerian international trade is carried by sea Hampton,1989). The research will however seek to evaluate the correlation between liner freight rate and market prices of
imported products in Nigeria.

1.2. STATEMENT OF THE PROBLEM

The geometric rise in prices of imported goods in Nigerian markets has been a persistent problem despite deliberate government policies towards its reduction especially as the nation is an import dependent nation. This price hike has negatively affected the Naira as more money is now used in buying imported products thus encouraging inflation which has subsequently affected the economy negatively.

1.3. AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the correlation between freight rate and higher market prices of imported goods in Nigerian markets. Other general objectives of the study are;

1. To examine the major determinants of cargo freight rates in Nigeria.
2. To assess the importance of Nigeria maritime industry and how it affects the economy.
3. To highlight the challenges of the Nigeria maritime industry.
4. To examine the major reasons for increased cargo freight rates in Nigeria.
5. To determine the relationship between cargo freight rate and the increase of prices if imported goods in Nigerian markets.
6. To recommend ways of reducing cargo freight rates in Nigeria so as to enhance the reduction of prices of imported goods.

1.4. RESEARCH QUESTIONS

1. To examine the major determinants of cargo freight rates in Nigeria?
2. To assess the importance of Nigeria maritime industry and how it affects the economy?
3. To highlight the challenges of the Nigeria maritime industry?
4. To examine the major reasons for increased cargo freight rates in Nigeria?
5. To determine the relationship between cargo freight rate and the increase of prices if imported goods in Nigerian markets?
6. To recommend ways of reducing cargo freight rates in Nigeria so as to enhance the reduction of prices of imported goods?

1.5. RESEARCH HYPOTHESIS

1.6. SIGNIFICANCE OF THE STUDY

The study would be of immense importance to economic policy makers as it would proffer solutions to effective reduction of the prices of imported goods in Nigeria markets thus improving the economy of the country. The study would be of immense benefit to students, researchers and scholars who are interested in developing further studies on the subject matter.

1.7. SCOPE AND LIMOITATION OF THE STUDY

The study is restricted to the cargo freight rate in linear shipping  and its correlation to higher prices of imported goods in Nigeria using importers in Alaba international market in Lagos state as a case study

LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.