As the search for ways of
maximising potentials of the shipping industry continues, industry stakeholders
are calling for a change in the terms of trade agreement between the government
and buyers of crude oil that will make it possible for Nigerians to be involved
in the affreightment of the products. Under the crude oil sales contract, the
foreign companies determine the shipping lines that will transport the products
to destination under the Free on board, FOB, trade terms.
But the arrangement as convenient as it is to the Nigerian
National Petroleum Corporation, NNPC, is seen by indigenous shipping companies
as not the best for the development of the nation’s shipping industry. This is
considering the huge economic benefits that are lost under the terms. The
stakeholders are calling for a change to Cost Insurance and Freight, CIF, which
is seen as having multiplier effects on the economy.
Stakeholders said that the present administration may consider
another look at the FOB arrangement for the adoption of CIF terms because of
the gains on the economy. They argued that this should be part of the
transformation agenda of the present administration.
FOB Trade Terms
Sales of crude oil has been on FOB terms over the decades. Under this, the
buyer pays for the products and looks for means of delivery. This arrangement
has left Nigerian indigenous shipping companies in the cold as the buyers of
the products simply reach out to highly capitalised multinational shipping
agencies who transport their goods. To some extent, experts argue that this
saves Nigeria the risk involved in delivery of such goods. But for the local
shipping companies, this has not been good news because of the trade
opportunities that are lost.
The argument of top officials of NNPC is that Nigerian firms do
not have such capacity to be entrusted with the responsibility of wholesome
transportation of products within coastal waters not to talk of when such
products are meant for foreign countries. But stakeholders argue that when such
opportunity is given to them, all they require to do is to reach out to foreign
partners who will provide tanker vessels that are capable of carrying 135,000
metric tonnes (MT) of wet cargoes.
CIF Trade Terms
Under CIF trade terms, the government or NNPC as the exporter of the products
will determine who delivers them to the buyer. With this, Nigerian firms can be
engaged for such contract, and where they do not have capacity, they can
partner with foreign firms. The only disadvantage however is that government or
NNPC as the supplier of the product will have to wait until the goods are
delivered and everything certified okay before being paid. This is unlike FOB,
where the buyer pays for his products and determines how he can take delivery.
Under FOB arrangement, every risk is on the buyer, while in the case of CIF, it
is the exporter that will bear all the risk until the goods are delivered to
the buyer who will then pay up.
This indeed explains the position of the government on
continuing on FOB term. But industry experts argue that introducing CIF trade
terms will help boost the entire economy because of the huge multiplier effect.
Apart from the local shipping industry that can take advantage of this, the
insurance companies can also be in a position to provide coverage. Although,
insurance cover for such goods is usually international, experts argue that
NNPC can encourage the insurance companies to team up in partnership with
foreign big names to qualify for such contracts.
Benefits of CIF by Stakeholders
Stakeholders who spoke to THISDAY believe strongly that there are so much
benefits under the CIF trade terms in crude oil trade than the risk that
government or NNPC may be apprehensive of.
Managing Director and Chief Executive Officer of Indiana Oil and
Gas Company Limited, Chief Festus Obonna said the multiplier effect to the
shipping sector and to a large extent the general economy is unquantifiable.
Obonna said when introduced, both revenue base of the sector and employment
generation will grow. He said such terms will mean that the freight earnings
will go to Nigerians instead of foreigners.
He added that though Nigerian companies do not have the type of
vessels needed for such trade now, they can always charter if given the
opportunity. He also said that this will help in the training of Nigerian seafarers,
adding that with more ships, seafarers can be exposed to training. Obonna urged
the government to implement what he called ‘trial affreightment’ by supplying
some quantity of crude oil under CIF to see how it works.
He however said the revenue that will come from such transaction
should not go to the Federation Account so that government will be able to meet
its obligation. Similarly, a shipping expert, Mr Augustine Otubuiro also argued
that if government hopes to broaden indigenous shipping capacity for more
contribution to the national economy, there is the need to find a way out of
the present FOB of trade terms.
Like Obonna, Otubuiro argued that what is required to address
the issue of capacity among indigenous shipping companies is to partner with
foreign firms. “When we leave everything in the hands of foreigners on the
argument that we don’t have the capacity, we will remain under-developed.
Capacity can be imported and developed and Nigerians will benefit from such
arrangement”, he said.
Executive Secretary, Nigerian Shippers Council, NSC, Mr Hassan
Bello, recently expressed concerns about what Nigeria has been losing for
decades as a result of the terms of trade on the exportation of crude oil.
Calling for reconsideration of the terms, he said that Nigeria loses hundreds
of millions of dollars every year to trading partners as a result of the FOB
arrangement. He opined that such term limits the potentials of the maritime
industry to contribute maximally to the nation’s economic growth.
He said : “For us to maximise our earnings from the maritime
sector, the sales of our exports on Free On Board (FOB) terms must be
reconsidered. We need to sell our products on Cost Insurance and Freight terms
in order to earn revenue in insurance and freight from the carriage of our
exports. We lose hundreds of millions of dollars every year to our trading
partners as a result of selling on FOB. This limits the potentials of the
maritime industry to contribute maximally to the nation’s economic growth”
- Francis Ugwoke, This Day
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