THE EFFECTS OF LOGISTICS MANAGEMENT ON PERFORMANCE OF NIGERIAN MARITIME INDUSTRY

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THE EFFECTS OF LOGISTICS MANAGEMENT ON PERFORMANCE OF NIGERIAN MARITIME INDUSTRY

CHAPTER ONE

INTRODUCTION

Background of the Study

It is expedient to note that, over 90 percent of International Trade is done by sea or carried by ships.  It is believed that on daily basis, these ships move millions of tons of cargoes comprising goods and commodities, fuel, crude oil, raw materials, machinery and equipment, foodstuffs, medicaments, around the world. The situation is not different in Nigeria, being a member of international community. It is estimated that well over 90 percent of her visible international trade is sea borne. The maritime industry, if effectively harnessed, has the capacity to be a big factor in the national economy; with revenue at maximum potentials, capable of competing with oil and gas revenue. Maritime revenue can be a major contributor to the Gross Domestic Product (GDP) of a nation. Gross domestic product (GDP) estimates are commonly used to measure the economic performance of a whole country, but can also measure the relative contribution of an industry or sector. The economic growth of a nation depends on how efficient and cost effective, the port is operated and managed. Just as the economic growth of a nation demands for port facilities, also the port facilities must be run or operated efficiently to enable further economic growth or expansion (Emeaghara, 2008). The World Bank’s logistics Performance Index (LPI) and United Nation Conference on trade and Development (UNCTAD’s) Logistics and Supply Chain Index( LSCI) are targeted at  espousing information about countries trade competitiveness in the area of transport and logistics (Jean-Francois and Lauri, 2014).

Due to the trend of nationalization and globalization in recent decades, the importance of logistics management has been growing in various areas. For industries, logistics helps to optimize the existing production and distribution processes based on the same resources through management techniques for promoting the efficiency and competitiveness of enterprises. The key element in a logistics chain is the transportation system, which connects the separated activities. Transportation occupies one-third of the amount in the logistics costs and transportation systems influence the performance of logistics system hugely (Tseng, Yue and Taylor, 2005). Transportation is required in the whole production procedures, from manufacturing to delivery to the final consumers and returns. Only a good coordination between each component would bring the benefits to a maximum.

Maritime industry plays an important role in international freight; it can provides a cheap and high carrying capacity conveyance for consumers. Therefore, it has a vital position in the transportation of particular goods, such as crude oil and grains. Its disadvantage is that it needs longer transport time and its schedule is strongly affected by the weather factors. To save costs and enhance competitiveness, current maritime logistics firms tend to use large scaled ships that incorporate operation techniques. Moreover, current maritime customers care about service quality more than the delivery price. Thus, it is necessary to build new logistics concepts in order to increase service satisfaction, for example real-time information, accurate time windows and goods tracking systems. The operation of maritime transport industry can be divided into three main types: (1) Liner Shipping: The business is based on the same ships, routes, price, and regular voyages. (2) Tramp Shipping: The characters of this kind of shipping are irregular transport price, unsteady transport routes, and schedule. It usually delivers particular goods, such as Dry Bulk Cargo and crude oil. (3) Industry Shipping: The main purpose of industry shipping is to ensure the supply of raw materials. This sometimes needs specialized containers, such as the high-pressure containers for natural gas (Tseng et al, 2005).

It is important to note that economic growth partly depends upon moving goods efficiently and safely through the transportation chain. Since the current scenario of world trade goes to cellular vessels, thus the demand for transportation of goods via sea increases tremendously. In view of this, more and more terminals are expanding in order to cater for available demand (Olayinka and Ogundele, 2015). In other words, improved supply chain and logistics (seaport development) will guarantee trade expansion and larger foreign direct investment. This means that transportation and logistics improvements are critical to trade flows and the competitiveness of an economy’s exports and imports.

Logistics management is very critical for the performance of maritime industry in Nigeria because of its complex nature. Logistics management is needed more than ever before in order to facilitate movement of cargoes from one location to another in efficient and effective manner.  Tilanus (1997) uses ‘five important key terms’, which are logistics, inbound logistics, materials management, physical distribution, and supply-chain management, to interpret the concept of logistics.   Logistics is the entire process of materials and products moving into, through, and out of firm. Inbound logistics is the movement of material received from suppliers. Materials management describes the movement of materials and components within a firm. Physical distribution refers to the movement of goods outward from the end of the assembly line to the customer. Finally, supply-chain management is somewhat larger than logistics, and it links logistics more directly with the user’s total communications network and with the firm’s engineering staff.

Moїse and Bris (2013) suggest that improvements on physical infrastructure, proxied in a single index by the quality of ports, airports, roads and railroads, bring the greatest benefits in terms of export performance. Furthermore, gravity-based estimates show that, although the marginal effect of physical infrastructure is increasing with per capita income levels, it remains positively large and significant at all levels of developments.

Simulations show that investments in physical infrastructure (to the level of the regional hub) bring the greatest trade gains in magnitude even for developing economies, suggesting that building high-quality hard transport infrastructure (deep seaport development) should be a high priority to nations( Moїse and Bris 2013).

Tseng et al (2005) further observe that logistics is a process of moving and handling goods and materials, from the beginning to the end of the production, sale process and waste disposal, to satisfy customers and add business competitiveness. It is ‘the process of anticipating customer needs and wants; acquiring the capital, materials, people, technologies, and information necessary to meet those needs and wants; optimising the goods- or service-producing network to fulfil customer requests; and utilizing the network to meet customer requests in a timely fashion (Tilanus, 1997). In a nutshell logistics is customer-oriented operation management.

However, Nigeria Maritime industries is coordinated by Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA).Shipping of cargoes from abroad to Nigeria and from Nigeria to other countries are critical for effective movements of goods and services which in turn facilitate economic development of the country. Maritime industry occupies a very prominent position in the economies of nations all over the world and the industry is one of the sectors that contributes greatly to Nigeria’s internally generated revenue (IGR) as well as GDP (Ndikon, 2013).

The industry in its strict sense embraces all business activities which take place within the maritime environment (Ndikon, 2013).These includes offshore economic activities such as fishing, salvage, towage, underwater resource exploitation/extraction, and onshore economic activities in ports, shipping activities, ship construction, repair and maintenance. Of all these, shipping stands out as the greatest boost to a nations economic growth and international status. This is because all other maritime activities revolve around shipping. The oil and gas sector, for instance depends on shipping, as it is the vehicle that drives it, enabling it to make all the difference in an economy. Due to the close link between shipping activities and economic development, most nations cannot afford to toy with the industry (Ndikom, 2011).

Shipping as one of the world’s most international industries makes seaborne trade in a sense at the apex of world economic activity. As business has become more international, and newly industrialized countries have taken their place alongside the Organization for Economic Corporation and Development (OECD) countries, the maritime industry has provided the vehicle for an extraordinary growth of trade. This has also resulted to the progression from a world of isolated communities to an integrated global village. Shipping is a complex industry and the conditions which govern its operations in one sector do not necessarily apply to another. In terms of its main assets, the ships vary widely in size and type. They provide the whole range of services for a variety of goods, whether over shorter or longer distances. The shipping market is made of the liner shipping, tramp shipping, bulk shipping, the charter market. Shipping is essentially a service industry; hence, ship demand depends on several factors such as price, speed, reliability and security (Stopford, 2003).

Maritime transport is essential to the proper operation of any country’s economy and a vital part of a nations transport infrastructure. A minister of transport in the federal republic of Nigeria was once quoted to have said that transport is to the Nigerian economy what the artery is to the blood circulation (Igbokwe, 2011).

Olufunmilayo (2008) posits that maritime industry has for a long time been recognized as one of the strong catalysts for socio-economic development. Back in 1776, Adams Smith noted that “A business operating in a country without links to the outside world can never achieve high levels of efficiency because its small market will limit the degree of specialization”. This is because shipping is one of the cheapest and efficient modes of transportation over long distances, it has since the ancient times been at the forefront of opening up of the world, and thus a major driver of the process of globalization (Olufunmilayo, 2008).

Shipping, especially container shipping, has been both a cause and effect on globalization. Container shipping could lay claim to being the world’s first truly global industry. In fact, container shipping could claim to be the industry which, more than any other, makes it possible for a truly global economy to work. It connects countries, markets, businesses and people, allowing them to buy and sell goods on a scale not previously possible. It is now impossible to imagine world trade, and ultimately our lives as consumers, without container shipping. Shipping has led to a phenomenal growth in world merchandise trade, which has consistently grown faster than output.

 Maritime industry is viewed as one of the most powerful socio economic and political forces that are shaping the world today. The phenomenon of shipping is moving the world towards increasing and irreversible integration of economic, social, cultural and political systems. Globalization through shipping trade has “decoupled time and space” resulting in the “death of distance”. Thanks to globalization, the once big world has been transformed into “one little village”. Shipping has been one of the main causes and effects of globalization. Shipping connects countries, markets, businesses and people, allowing them to produce, buy and sell goods on a scale not previously possible. It is effective logistics management in shipping that will facilitate quick delivery of cargoes. This therefore calls for a need to establish the impact of logistics management on performance of the maritime sector.

Statement of the Problem

Policy inconsistency has been one of the problems encountered in maritime sector in Nigeria, the issue of inadequate policy formulation and implementation; hence the contribution of the maritime sector to economic growth has been a subject of debate. Concessionaires in Nigeria’s seaports situated at Warri, Port Harcourt, Lagos, Calabar, Onne, and Sapele have recently listed obstacles to efficient operation. Inadequate power supply and incessant removal of management of government agencies in the nation’s maritime industry are some of the factors impeding the efficient running of the ports. The concessionaires, who spoke under the aegis of the Seaport Terminal Operators Association of Nigeria (STOAN) in commemoration of eight years of port reforms, cited the aforementioned glitches to be affecting the effective and efficient running of the nation’s seaport. Other hitches are the arbitrary arrest of vessels at berth and attendant consequences, poor power generating system, friction among maritime statutory agencies due to overlapping functions and lack of national carrier capacity for the United Nation Conference on Trade and Development (UNCTAD) 40:40:20 carriage rights. The concessionaires that spoke through the, stressed that since they took over the running of the ports nearly a decade ago, they have been contending with these constraints.The poor implementation of the nation’s Cabotage Act 2003 was one of the factors militating against the growth and development of the Nigerian Maritime sector. It combines with poor implementation of the international port state control policy to encourage the visit to the Nigerian port by aged vessels with archaic handling facilities. In addition, the concessionaires condemned the proliferation of tank farms around the port locations, especially in Lagos, saying that they are constituting security risk to the ports and their users.

In a world of competitiveness, inefficiency in port operation and management brews high cost of doing business in ports which spells doom to the economy. In such a situation, the port inefficiency which manifest in delays and high costs of using the ports in an advantageous positions. Here, the neighbouring ports attract vessels and cargo traffic originally scheduled for Nigerian ports. The inability of the inefficient port to improve means total boycott of the port by the liner. Shippers as well as ship owners calculate a utility for each alternative port and choose the port which shows the highest utility or time efficiency. In other words, when a ship operator chooses a port of destination, he does not only think of reaching the port in time but also the reliability of leaving the port in time.

A higher utilization of the vessel will only be achieved if time in port is improved which will signify that fixed cost by the operator will be spread over increased number of voyage. This will consequently lead to reduced cost of ship operation. Traditionally; the turnaround time of a ship in port is a function of two variables namely:

(i) Waiting time or queuing time

(ii) Service time

The time of a vessel in port is high when either of the two is high compared to normal or the combination of the two.

Waiting time is always high when the demand for berths is higher than the supply. Here the major task of a port planner is to serve the annual vessels efficiently often referred to as the design capacity.In traditional maritime nations such as United Kingdom, USA, the Scandinavians, other European Countries among others, the factors of time, proper planning, co-ordination and implementation of clear-cut policies through government intervention largely account for the enviable levels of efficiency, sophistication and monumental success in their maritime activities especially in respect of its contribution to economic growth. The reverse appears to be the case in Nigeria as the fortunes of the industry have continued to suffer progressive catastrophe over the years.  A very near example is the fact that the Nigerian National Shipping Line (NNSL) which took delivery of 19 (nineteen) brand new tonnages from European shipyards in 1979 and 1980, has not only lost all her vessels but has been liquidated altogether. This is complicated by the inability of governments of different types to float an indigenous national carrier up till date.

However,the maritime industry is international in nature and  acknowledged to be a very dynamic component in the socio-economic configuration of any given maritime nation. Nigeria is no exception. Even land-locked countries such as Mali and Burkina – Faso in West Africa also hinge, their economic fortunes on the maritime sector relying as it were on the port of Abidjan for import and export transactions. The problems highlighted above pose some challenges to logistics management and are expected to affect performance of maritime sector. If the country does not imbibe the logistic management concept in her port operations vessels that suppose to birth in Nigeria will be diverted to neighbouring countries and the country will be losing revenue from that sector. If delay in clearing goods at country is poor will make cost of good to go up and the country product will not be competitive in the market. Lack of online checking will make physical checking tortious and time consuming adding to delay in clearing of goods and will lead to the payment  of additional fees at the port.

  Objectives of the Study

The main objective of this study is to ascertain the effect of Logistic Management on Performance of Nigerian Maritime Industry.The specific objectives were to:

  1.  Determine the extent to which material handling  affects  service quality
  2.  Ascertain the extent of the relationship between customer ordering processing and customer satisfaction
  3.  Determine the effect of warehousing  on revenue of Nigerian ports
  4.  Ascertain the nature of relationship between container traffic and GDP maritime sector contribution.
  5.  Evaluate the extent to which transportation influences cargo throughput of Nigerian ports.

 Research Questions

With the above objectives in focus, the study seeks to find answers to the following questions.

  1. To what extent does material handling affect service quality?
  2. What is the extent of the relationship between customer ordering processing and customer satisfaction?
  3. What is the effect of warehousing on revenue of  Nigerian ports?
  4. What is the nature of the relationship between container traffic  and GDP maritime industry contribution?
  5. To what extent does transportation influences the cargo throughput of Nigerian ports?

Research Hypotheses

These hypotheses were proposed for the study:

  1. Material handling  significantly promotes service quality
  2. There is a significant positive relationship between customer ordering processing and customer satisfaction
  3. Warehousing has a  positive effect on revenue of Nigerian ports.

iv        There is a significant positive relationship between  container traffic and  GDP maritime industry contribution.

 v         Transportation significantly enhances cargo throughput of Nigerian ports..

Significance of the Study

The study has a good number of components that would be beneficial to the operators of Nigeria maritime industry, scholars, students, corporate organizations and individuals. Logistics which is the main concept this study dwells on is needed by every organization to effectively facilitate its operations. Logistics management is critical to Nigerian ports because of number of activities that would be executed before importers receive their consignments. The key driver of logistics management is transportation which helps to create value along the supply chain.

The findings that will be established in the study will make important information available to the operators of maritime industry in Nigeria as well as other stakeholders.

Nigerian ports are crucial to Nigerian economy because maritime industry is one of the sectors that contributes greatly to internally generated revenue (IGR) of the country. Apart from oil and gas sector, maritime sector is one of the main focuses of the government. Hence, a work in this sector would be welcome by the government, the operators of maritime sector and other stakeholders.

The findings of the study would be useful to Nigerian Ports Authority (NPA), Nigerian Maritime Administration and Safety Agency (NIMASA), Standard Organization of Nigeria (SON), National Agency for Food, Drug Administration and Control (NAFDAC) and Concessionaires amongst others for policy formulations and decision making.

The study will also close the knowledge and theoretical gaps through provision  of theoretical and conceptual approaches towards enhancing knowledge in management, logistics and logistics management with particular reference to maritime through publications in local and international journals.

Scope of the Study

The study was focused on impact of Logistics Management on the Performance of the Maritime Industry in Nigeria. Related studies on logistics, logistics management and performance with reference to Maritime industry in Nigeria and abroad were examined.

The study  evaluated logistics management in Nigerian ports through such variables as containerized cargo through put, bulk cargo throughput, dry cargo through put and liquid cargo throughput as well as container traffic.NPA and NIMASA websites visited in the course of this research for relevant information and data that may be useful in this study.

A review of theoretical and conceptual framework, methodology and empirical study relevant to this research was made. The study spanned  a period of 2007 to 2014 based on the period expected for data availability. Six ports in Nigeria that ie Lagos port complex, Tin Can Island port, Calabar port, Delta port, Rivers port/Port Harcourt and Onne port were considered in this study. A review of the activities of Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA) in relation with the maritime sector were made. Data were sourced from NPA and NIMASA websites together with those of the six ports and CBN Statistical bulletin.

Limitations of the Study

The limitation of the study were:

Attitude of the Respondents

Some of the respondents showed negative attitude towards the study because there was  no financial benefit attached ,Some refused to supply the necessary information required for fear of  leaking   the secret of their organization. The researcher was able to overcome this limitation through the help of the Managing Directors who sensitized and educated them on proper purpose of research as an academic exercise.  

1.9 Operational Definition of Terms

Maritime Industry: This  is  described as carrying on business, commerce and trade at sea by ship.

Gross Domestic Product (GDP): It is defined as  economic activities  that are concerned with total goods and services produced in a country and quantified in monetary terms.

World Bank Logistics Performance Index (LPI): This is described as giving  out information about countries trade competitiveness in the area of transport and logistics.

Logistics: This is the management of inventory at rest and in motion. It is the transportation and distribution of goods and services.

United Nation Conference on Trade and Development Logistic and Supply Chain Index: This body generates information about countries trade competitiveness in the area of transport and logistics for decision making.

Baltic and International Maritime Conference (BIMCO): This body is based in Denmark and has been in existence for almost 100 years. It is a forum in which ship owners, organization and people involve in shipping business and industry meet to discuss matters affecting the industry and exchange useful information on the business. Baltic and International Maritime Conference (BIMCO) have played the role of centre for the exchange of information and possesses vast amount of information and database on world ports, facilities and exchange

Maritime Security Agency (MASECA): The body was formed in order to  oversee the issue of maritime workers welfare, safety and security in the maritime sector of the economic

Maritime Academy of Nigeria (MAN): This body was established to  produce technical manpower for the maritime industry.