Freight Level in Ghana

Table of Contents

1.0 Introduction

2.0 Statement of the Problem

3.0 Objective of the Study

4.0 Literature Review

5.0 Research Methodology/Data Collection and Analysis

6.0 Summary of Research Findings

7.0 Current Situation in Ghana

8.0 Conclusion

9.0 Recommendations

Abstract

The research work examined the level of freight rate at the port of Tema and also looked into how freight rate is determined at the port. It assessed whether freight rate at the port of Tema is high, moderate or low at a time where there were so much concerns and agitations about escalated freight paid by shippers for the transportation of the goods through the Tema port. The study reviewed various literatures predominantly on theory of freight rate; factors influencing freight rate; types of freight, the relationship between liner and tramp rates were also analyzed. Respondents were purposively sampled and both primary and secondary data were collected and findings quantitatively analyzed using simple percentages and figures. The study concluded based on the primary data gathered that freight rate -- at the port of tema -- is high and the shipping companies used Ad valorem method in determining their rate.

1.0 Introduction

According to Branch (1998), freight is the reward payable to a carrier (i.e. shipping company, shipping agents etc.) for the carriage and arrival of goods in a recognized condition. Branch believed that the pricing of a cargo ship’s services is dependent on the forces of demand and supply. However, the factors underlying them are perhaps more complicated with other industries. As with all forms of transport, the demand for shipping is derived from the demand for the commodities carried. However, the demand for the commodities carried is also affected by the competition of substitute goods ships on the any particular route are competing against other carriers on the same route. Vessels serving alternative supply areas, air transport and, in coastal services, inland transport etc[ET1] .

The consideration payable to the carrier for the carriage of goods from the port of shipment to the agreed destination is called freight in the view of Brodie (2006). According to him, the obligation to freight can arise either from voyage charter or a bill of lading contract. However, that is distinguished from the obligation to pay hire under a time charter which is a right to use a vessel for a specific period of time irrespective of the employment of the vessel under the contract.

The study critically examined the level of freight rate shippers pay to shipping companies and also established the method used by shipping lines to determine freight rate at the port of Tema. The objective of the Study was to establish whether freight rate was high or otherwise as it was agitated by industry players at the time of the research.

2.0 Statement of the Problem

There was the need to conduct studies into freight rate because numerous concerns were raised by shippers and other stakeholders alike in the industry about the escalated freight been paid by shippers to shipping companies at the port of Tema. Limited research existed to establish whether there was some of possibility despite the fact that numerous port reforms and innovation aimed at embracing liberalization and deregulation with the view to streamlining the port operations, shippers constantly and continually complained about unnecessary charges and high freight rate charged at the port.

Preliminary interview conducted disclosed that competitions among a number of shipping companies operating at the port could even save the situation. The study was therefore necessary to establish whether freight rate was indeed high at the port of Tema as claimed by shippers and other stakeholders.

3.0 Objective of the Study

The objective of the study was to:

- Establish whether freight rate at the port of Tema was high, low or moderate.
- Ascertain how freight rate is determined at the port of Tema.
- Propose recommendations for policy interventions aimed at stabilizing rate.

4.0 Literature Review

Opinions of prominent writers on the subject matter were reviewed. The level of freight rate is influenced by many factors; the demand and supply of the commodities, competition, the nature of the cargo, the origin and destination, the mode of transport, susceptibility of cargo to damage and pilferage, government shipping regulations etc. according to Park, Yasin and Pak (2006). Also in the opinion of Branch (1998), freight has several constituents; the cargo tariff rate, the customs clearance charges, freight forwarders commission, Value Added tax, disbursements, cargo insurance, transshipment costs, documentation charges, demurrage, handling charges, wharf-age charges etc.

It also important to note that, freight rate defers in terms of liner and tramp service. For instance, liner rates are more stable while tramp rates fluctuate more in the same direction as lamented by Mohammed and Williamson (2003). Determining freight rate generally are based on the stowage factor i.e. rate of bulk to weight, on the value of the cargo and on the competitive situation in the view of Koekebakker, Adland and Sodal (2006).

What can be summarized from the reviewed literatures is that, freight rate is conceptual framework incorporating varied factors and opinions. In that the port facilities, management style and philosophy, location as well as the size of the port can impact on the freight rate charged by shipping companies. For example, larger ports attract large vessels and they enjoy economies of scale which to some extent comes with reduced freight rate .

5.0 Research Methodology/Data Collection and Analysis

The rather large and decentralized population of shippers, freight forwarders, shipping companies and other stakeholders were purposively sampled into 70 respondents. Primary data for the research were predominantly gathered using questionnaires with open ended questions.

Furthermore, the collected data from the 50 questionnaires obtained were quantitatively analyzed with tables and figures (pie and bar graphs). Some interviews were also made with a guide from officials at the Ghana Shippers’ Authority and the Ghana Ports and Harbours Authority with a well-developed interviewer’s guide questions.

6.0 Summary of Research Findings

The questionnaires obtained from the 50 respondents were quantitatively analyzed and inferences were made on simple majority. The following findings were observed:

- The study disclosed that 80% of industries players at the port that responded to the questionnaires believe that freight rate at the port of Tema is high. However, the Ghana Shippers’ Authority believed freight rate was rather moderate.
- Findings of the research established that 72% of respondents believe the demand for tonnage at the port of Tema is high.
- The findings of the research indicated that 58% of stakeholders who responded to the questionnaires believe the supply of tonnage at the port of Tema is low.
- 42% of stakeholders who responded to the questionnaires believe competition between shipping companies at the port of Tema is low.
- The studied also ascertained that shippers were charged unreasonable freight rate by shipping companies and was indicated by the 70% of the total respondents that took part in the research.
- 41% of the respondents acknowledged that freight rate is predominantly determined by shipping companies using Ad valorem method. And 64% of the respondents believe that ad valorem is the best method and widely used.

7.0 Current Situation in Ghana

Interestingly, today and 6 years on (after the study), the port authority and the government of Ghana have jointly initiated interventions for the expansion of the two major sea ports (Tema and Takoradi). This is expected to increase throughput at the ports, reduce congestions and the turnaround time of vessels etc. aimed at making Ghana the trading hub in West Africa. The introduction of the Single Window Reform System according the president when he launched the current edition of the Import, Export and Transit Manuel developed by the Ghana Revenue Authority in 2016, is already showing positive signs pertaining to reduction clearing time; increased revenue generations and the issue about unnecessary charges.

8.0 Conclusion

It was concluded from the findings of the survey that stakeholders at the port of Tema believe freight rate is high based on the quantitative analysis. This could be attributed to the high demand for tonnage, low supply of tonnage, low competition existing between shipping companies and shipping companies arbitrary charging shippers at the port of Tema. However, according to the Ghana Shippers’ Authority the situation at the port of Tema is better comparing the condition at the port of Tema to neighboring country ports like the ones in Togo and Benin.

Shipping companies at the port of Tema predominantly determined freight rate using Ad valorem rate and stakeholders considered the Ad valorem rate as the best method.

9.0 Recommendations

Some recommendations were made aimed at addressing some of the issues which stakeholders identified for the high freight and ensuring efficiency at the port of Tema as well as reduce freight rate at the port. The recommendations were directed at the major stakeholders in the shipping industry; shippers, shipping companies (carriers) and the port authority (government). Shippers were encouraged to support the Shippers’ Authority to be able to negotiate freight rate on their behalf. Shippers were encouraged not to compromise on the payment of bribes and to also streamline the activities to prevent the payment of demurrage to shipping companies amongst others. Shipping companies were advised to streamline their administrative operations to cut down costs, explore innovative ways to cut-down costs, continue the use of published tariffs, explore economies of scale by deploying large vessels etc. The Port Authority was admonished to increase infrastructure efficiency at the port, carryout port expansion project to accommodate large vessels amongst others.

10.0 References

Branch A. E (2005), Elements of Shipping, Routledge, London.

Branch A. E (1998), Maritime Economics Management and Marketing Third Edition, Stanley Thomas ltd, London.

Brodie P. (2006), Commercial Shipping Handbook Second Edition, Informa, London

Koekebakker S, Adland R and Sodal S. (2006), Pricing Freight Rate Options, Agder University College, Norway.

Mohammed S. and Williamson J. W. (2003), Freight Rate and Productivity Gains in BritishTramp, UK.

Pak M, Yasin J. and Park J. J. (2006), An Econometric Analysis of Ocean Freight Rates, Journal of Korea Trade.

Stopford M. (1997), Maritime Economics Second Edition, Routledge, London

Wong W. G (2001), Factors Influencing Container transport Rates, China etc.