Monday, 30 September 2013

Bonded terminals: The End is Nigh

“If something cannot go on forever, it will stop.”
Herbert Stein
The above quote from the late American economist, Herbert Stein, is sometimes paraphrased as "Trends that can't continue, won't." While Stein used his quote to illustrate why governments should not try to stop economic trends that are unsustainable because they will die naturally anyway, the simple truism is also useful for thinking about how far unsustainable trends can go. How far can bonded terminals go?
Are bonded terminal operations still viable in Nigeria?
My answer - especially with regards to bonded terminals located around the port areas in Lagos – is a definite no. I am talking specifically about the bonded terminals in Lagos and not the Inland Container Depots (ICDs) facilitated by the Nigerian Shippers’ Council located in the hinterland. Those ICDs have their separate headaches and will be the subject of discussion some other time.

The operations of most Lagos-based bonded terminals are no longer sustainable and the earlier their operators start reworking their business models, the better for them.
I am fully aware that I am walking into a war zone. I, therefore, neither desire nor deserve anybody’s sympathy if I get hit in the crossfire but I will say it as it is.
Before I adduce reasons for my argument, I crave your indulgence to cast our minds back to how these facilities came into existence.

Bonded terminal operations actually gained ground in Nigeria, especially in the Lagos area, in the 1990s. They were set up to take pressure off the main ports and reduce congestion caused by the inefficiency of the Nigerian Ports Authority in cargo handling operation. Cargo and Customs related activities were shifted from the main ports to the off dock facilities.
At the height of port congestion in the 1990s up till 2006 when terminal handling operations were passed on to private companies; government – through the Nigeria Customs Service – licensed the bonded terminals to serve as palliative. It was the inefficiency at the ports that gave rise to bonded terminals. It was the same inefficiency that nurtured their existence.
And like many initiatives in Nigeria, their operations were abused. Serving Customs officers used their privileged positions to secure licenses using some clearing agents as fronts. The facilities became enclaves of corruption. There was no standard for licensing them neither were standards for their operation. It was free for all.
Containers that were supposedly under Customs escort grew wings while transiting from the main port to the bonded terminal. Government was short-changed of huge revenue as Customs officers colluded with agents to perpetrate all manners of fraud.

However, the story took a different turn in April 2006 as private firms emerged as port terminal operators. I have heard all sorts of arguments from bonded terminal operators as they try to whip up public sentiment and emotions aimed at blackmailing terminal operators to send containers to their facilities. I disagree with many of their arguments because such arguments lacked business merit and I believe strongly that such desperation will not help their case. Except for those very few off dock facilities owned by two terminal operators at Tin Can Island port, I am very much convinced that the end is near for these businesses.
If you doubt me, just look over Ijora bridge the next time you’re going through that stretch, and look at Lilypond off dock terminal. In the past one year, that facility has become a shadow of its former self. It is easy to see that Lilypond terminal has become the largest unoccupied land in Apapa. The scenario is the same at Kirikiri Lighter Terminal.

Now, why is the end near for bonded terminals?
The first and probably most potent reason is that the circumstances that gave rise to bonded terminals no longer exist. Private terminal operators came along with efficiency. No more congestion; no more waiting time for container ships so no need to send boxes to facilities outside the ports.
Secondly, most of the off dock terminals have not upped their games. They have not invested in modern container handling facilities and processes. They still rely largely on the same kabukabu equipment they used in their early days. Even in those days, those equipment were a source of frustration to many customers as they broke down too often. I know of a couple of bonded terminals that operated with only one tokunbo fork lift.

My third reason; volumes are low. Some off dock facilities stand the chance of receiving containers if the main port facilities get filled up but that did not happen last year and analysts have informed us that the situation might remain so for a substantial part of this year.
Now, the final death knell for bonded terminals is the emergence of deep seaports in the Lagos area. If all the reasons I adduced earlier do not perturb bonded terminal operators, then they should really be concerned that a deep seaport and a mega deep seaport will soon become operational. 

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