International Shipping Competition Benefits Ethiopian Traders

The competition between international shipping lines has soared to the extent that it has begun to benefit the end users, including Ethiopian importers.

This has come as the state-owned monopoly, the Ethiopian Shipping and Logistics Services Enterprise (ESLSE), announced discounts on overseas shipments, ranging from 10 to 23pc for various items – effective for six months from April 1, 2016.

The services to benefit from this price cut include 20 and 40-foot containers from 303 ports, vehicles from 48 ports, construction steel from 11 ports and wrapped materials from six ports. The discount does not include fuel import.

Fuel, unlike the other imports that ESLSE conducts, is not brought in through freight on board deals (FOB). It is, therefore, not handled by the Enterprise.

The two to seven-dollar cut rate for construction steel and five to 15-dollar discount for shipments not packed in containers, is dependent upon the volume and area of the shipment.

The majority of the Enterprise’s nine vessels dedicate their carrying capacity, limited to 25,000 tonnes each, to construction materials – mainly steel bars for the Renaissance Dam project. Other shipments, both private and state-owned, are carried through a slot chartered from mega shippers globally, including MAERSK, ALP and MSC this is done exclusively by the enterprise. The Country’s exports however are handled by any company other than the ESLSE.

These are huge carriers, operating more than 300 vessels, with a capacity in excess of 15 to 18 thousand containers each.

“It is the competition of these giants that has led to such a decline in the tariff,” said Mulugeta Assefa, President of the Ethiopian Freight Forwarders and Shipping Agents Association.

The new tariff announcement comes right after the Enterprise inked a deal with these mega carriers, with contracts to be renewed on a biannual basis. It’s not yet clear if the price reduction will last only for the duration of this contract period.

The decline in freight rates globally has continued one month after the announcement. During the past week, the average spot freight rate fell to a five-year low of 700 USD for a 40-foot shipping container, according to the World Container Index – a company that analyses data on the sector, compiling info from the top eleven major routes globally.

The nation’s sole shipper takes charge of all shipment deals in the country, without any competition. It has, however, extended the price revision not only to those shipments carried by slot chartering companies, but also to its own vessels.

“Had it not been for this incidental decline in the global market, this season would have been the most expensive time, considered peak for business,” said Ahmed Tussa, Chief Executive Officer of the Enterprise.

Ahmed also says the decline is mainly related to fuel price decrease

Players in the sector, however, argue otherwise, as this incremental decline in price has existed for quite some time – particularly after mega shipping lines began targeting Africa as “the new market”, following the other focus in goods and services migration.

The Export side particularly has seen a significant decline. Over the past two years, the sector has enjoyed a price reduction amounting to an average of 200 USD for a 40-foot container.

The supply-demand imbalance, though advantageous for slot charters, like the state enterprise, leads to its partners suffering in the business.

MAERSK, a major partner of the state shipper, for instance, reported just a 37-million-dollar revenue in the first quarter of this year – a 95pc decline compared to same time last year. This is despite a seven percent carriage increase during the same period. Of the 12 billion the ESLSE earned in the first nine months of this fiscal year, the second quarter experienced a drop in sales, which the third quarter did not manage to reverse.

A slowdown in international trading creates an over capacity of lines, with very low demand in the market. Yet Ethiopia’s demand has been sustained, with over 129,000 twenty-foot equivalent unit (TEU) having been imported. This acted as another driver for the Enterprise’s price deductions on shipping transport.

In 2016, the ESLSE provided an average discount of 21pc per TEU, across eight major ports, compared with the previous year. For the twenty-foot containers, the Mumbai Shipping Company takes the lead in reducing its freight rate to the enterprise by 27 pc. This is followed by the Shanghai Shipping Company at 25 pc, while Tianjin is the lowest at 16pc. On average, the companies reduced their freight rate to the enterprise by 21pc for twenty-foot containers, despite the fact that the Enterprise only managed to reduce its price by 19pc.

“Our company has imported an average of eight 20-foot equivalents in the month of March this year, and we had to pay close to 117,000 Br,” said Abel Meshesha, general manager of BMN Trading Plc – a company working in freight forwarding, customs clearance and transit.

If the import was in April, they would have saved a little over 22,000 Br.

“The discount will reduce our expenditure on the shipping line, but the real discount is for the public,” Abel continued. “When the cost of importing decreases, the same thing happens to the price of goods sold.”

Though not certain about the significance of the impact trickling down to end users, Mulugeta, on his side, said that the impact will be huge for the economy of the country.

Ethiopia is a country known for its high transportation costs – an area identified as a retarding factor for its import-export activities. Ethiopia ranked 166th in the world for trading across borders in the World Bank’s 2016 Ease of Doing Business report. Among the many indicators cited, the country performed worse than its sub-Saharan counterparts in the costs related to imports.

Studies also show that customer satisfaction is registered as low. Research conducted by Tadesse Kenea Amentae and Girma Gebresenbet, from the Swedish University of Agricultural Science’s Energy and Technology Department, in February 2015, found that 56pc of customers were either dissatisfied (37pc) or very dissatisfied (19pc). This was based on questions related to departure accuracy, promised running times, instruction clarity and tracking information. The cumulative results across different categories also indicated that the number of dissatisfied and very dissatisfied customers was higher than the number of satisfied and very satisfied customers.


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