In recent years, there has been renewed interest in understanding the nature of constraints that freight costs impose on trade, investment, and growth, especially in landlocked countries in Sub-Saharan Africa (SSA). There is a consensus about the need for African countries to have an efficient and low cost transport system in order to become competitive in the global market, even though this does not guarantee successful exportations. Longer transport time which leads to slow import processes, dramatically reduces trade.
The delays and the unpredictability increase inventories and result in uncompetitive exports. In the case of ports, long cargo dwell times (CDT) are a critical issue. More than half of the time needed to transport cargo from port to hinterland cities in landlocked countries in SSA is spent in ports for land transport to landlocked countries.
Over the last decade, the international donor community has been investing in projects that facilitate trade and improve trade logistics in the developing world. These projects have assumed incorrectly that customs, terminal operators and other controlling agencies are solely responsible for the long delays in ports, with infrastructure coming in second. In reality, customs' responsibility (especially for month-long delays) may not be as important as usually perceived and in-depth data collection and objective analysis are required to determine the actual drivers of long cargo delays. Such analysis has been lacking so far.
This study is part of a larger project conducted by the World Bank in 2011 which made possible the collection of data from firm surveys in several SSA countries. The paper analyzes cargo delays in ports based on data collected from the surveys conducted in Kenya, Nigeria, South Africa, Uganda, and Zambia. The surveys were conducted from March to July 2011. Each of these surveys includes about 100 observations. Importers - manufacturers and retailers - from the most important sectors have been covered. The ports covered are (South Africa), Mombasa (Kenya), and Lagos (Nigeria). The eligibility condition to qualify for the survey was that the firms import containerized cargo.
The study attempts to identify shippers' demand and practices related to cargo dwell time and perception and how it is linked to private sector market structure.
The findings indicate that several factors have a major impact on cargo dwell time, such as importers and customs and freight forwarders' (C&F) professionalism, cash constraints and strategies. This is actually a strong specificity in SSA. Market structure of the private sector also seems to explain the hysteresis of cargo dwell time.
C&F concentration has two main adverse effects on dwell times: the first one is the low negotiating power of clients with the main C&F agents that leads to low level of service, the second is the development of low cost unprofessional C&F agents that have no choice but to compete on price at the expense of quality for the rest of the market and allow to keep a system based on rent accumulation by public and private agents.
The analysis also demonstrates how weak logistics skills and cash constraints explain why most importers have no incentive to reduce cargo dwell time: in most cases, doing so would increase their input costs. Monopolies and cartels appear to have a stronger incentive to reduce cargo dwell time but in order to maximize their profits (and would not adjust prices downwards).
Moreover, importers from landlocked countries are even more potential victims of long cargo dwell times, and this because of even lower volumes and lower professionalism. Despite the fact that cargo dwell time for transit flows should be lower than for domestic flows, this explains rationally why in reality transit cargo dwell time is longer than domestic ones. Brokers and importers from landlocked countries are more likely to look for cost minimization strategies, which lead to behaviors perceived as irrational. However, inventory management for them is absent in their business strategy.
In most ports in SSA a vicious circle (Figure 1 in report) in which long cargo dwell time (two to three weeks) benefits incumbent traders and importers as well as customs agents, terminal operators or owners of warehouses, constitutes a strong barrier at entry for international traders and manufacturers (Figure 1).
This also explains why cargo dwell time has not decreased substantially for years: The market incentives are not strong enough in most cases, and importers can secure revenues by avoiding competition. This circle has been broken in Durban by the presence of a strong domestic private sector interested in global trade and public authorities willing to support them.
This exercise is, to our knowledge, the first of its type and does not answer all of the questions raised in this field. However, it demonstrates the crucial importance of studying private sector practices and incentives before designing any program aiming to reduce dwell time. The assumption that ―importers are the victims of long container dwell time‖ is likely to be wrong in the case of many ports in SSA, which probably explains the multiple failures of many initiatives in this area. Only a couple of importers may be on the side of reform.
- Introduction to: The impact of demand on cargo dwell time in ports in SSA, World Bank Policy Research Working Paper 6014, March 2012. The 34 page report can be accessed here.