THE EFFECTS OF LOGISTICS MANAGEMENT ON PERFORMANCE OF NIGERIAN MARITIME INDUSTRY

CHAPTER ONE

INTRODUCTION

1. 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.

1. 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;