Radar | Jun 17,2023
The state monopoly over the logistics sector will end soon, with federal authorities allowing up to five private operators to be involved in moving cargo shipments under the Free on Board (FoB) shipping terms.
Approved by the National Logistics Council, the decision will repeal the age-old provision in the logistics sector whereby importers were limited to using the state-owned Ethiopian Shipping & Logistics Services Enterprise (ESLSE) under Free on Board (FOB) shipping terms. However, experts see this move not as full liberalisation but broadening the number of players from hegemony.
Signed by Kassu Ilala (PhD), a former minister under Meles Zenawi in the late-1990s, an infamous directive instructs all banks in the country (through the central bank) not to open letters of credit for imports before they secure waivers from the ESLSE should they want to use other shipping companies. Rarely the Enterprise gave these waivers; instead, it leased slots from itscompetitors, in effect making money from the margins issuing bills of lading. It has been a source of misgivings among private sector operators for two decades.
One of the flagship policy reforms promised with the ascent of Prime Minister Abiy Ahmed (PhD) to the office was liberalising the logistics sector. The multimodal logistics operations are to open up, with a new legal framework surfacing four months after the Maritime Affairs Authority (now the Maritime Authority) approved a directive that liberalised the sector.
FOB shipping entails suppliers deliver cargoes to the ports from where the buyer takes over responsibility for arranging transportation and covering costs, such as insurance. This shipping scheme is often cheaper than Cost, Insurance and Freight (CIF) shipping, which gives exporters control over the shipping process, resulting in higher prices. Private operators can now get permits to operate under both schemes.
The directive on multimodal operators requires businesses wishing to transport items under FOB to have 350 million Br in registered capital, while the minimum is 25 million Br for those looking to operate under CIF. Entities that have fulfilled these requirements can apply for a permit from the Maritime Authority.
The Logistics Council, a 10-member body comprising officials from the central bank and Investment and Customs commissions, hopes the move will stimulate the country's logistics industry and cut back on foreign currency expenditures for shipping.
"Allowing up to five operators will encourage competition and improve efficiency," said Dagmawit Moges, minister of Transport & Logistics.
A maritime trade expert disagrees.
"They`ve simply expanded the multimodal operator from one to five, hardly a liberalisation move," he said. "And they want forwarders to do the business, contrary to the whole concept of multimodal."
What Ethiopian authorities say is that "bring the cargo to Djibouti and one of the five companies we license will carry the containers up to Modjo", which is not liberalisation, the expert observes.
According to the new directive, dry, containerised and non-containerised cargo, metal, vehicles, and food aid are covered under the FOB. Shipping covered by the state and inputs imported by foreign investors to produce domestically manufactured items is also included. Materials used to set up manufacturing facilities by foreign investors, inputs for export items, and aid or gift items whose shipping fees are not covered by the state are ineligible for FOB shipping.
Multimodal transporters with permits from the Transport Ministry are obliged to collect shipping and port payments locally. The company can do otherwise if the importer is paying overseas, using its own source of foreign currency. Importers settle payments using letters of credit obtained from commercial banks. Shipping agents who pay for cargo shipment and port fees are paid in foreign currency by the importer, while other fees, such as customs clearance, are settled in local currency.
This progress comes on the heels of the severe global logistical crisis brought on by the COVID-19 pandemic. Disruptions and lockdowns led to a drastic surge in the cost of containers and their transportation and a rise in commodity prices across the world. The cost of transporting around the globe quadrupled within a year. Since COVID-19, the major global lines are preoccupied with serving North America and Europe. Moving a 40-foot container from any part of China to ports in Djibouti costs 12,000 dollars, 10 times more than what it used to cost pre-COVID-19. Yet, the lines earn 15 times more catering to shipping to the United States and Europe. Hence, their reluctance to serve ports in Africa, according to the maritime trade expert.
Container handling in Djiboutian ports has seen a decline of 20pc in 2020, from an annual average of 340,000 units.
This has meant trouble for the state-owned shipping enterprise, ESLSE; it could not find lines to lease slots as it used to do for many years. It owns less than a dozen vessels, not enough to cover ports across the globe. Thus, the Ministry of Transport and the Maritime Authority officials are forced to allow other lines to move cargoes independently.
MACCFA Freight Logistics Plc is one of the private operators, established over a quarter of a century ago, that has its eyes on multimodal transport operations. However, operational details remain unclear, Mulugeta Assefa, board chairman of MACCFA, told Fortune.
His company is waiting for clarity on how the Customs Commission accommodates private operators and whether privileges extended to the state-owned Enterprise would also be available to them.
"It'd be hard to start the process before that," said Mulugeta.
Officials from the Maritime Authority were not available for comment.
PUBLISHED ON Oct 09,2021 [ VOL 22 , NO 1119]
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