CHAPTER
ONE
INTRODUCTION
1.1 Background of the study
In
many markets, firms compete over time by expending resources with the purpose
of reducing their costs. Sometimes, the cost reducing investments operate
directly on costs. In many instances, they take the form of developing new
products that deliver what customers need more cheaply. Therefore, product
development can have the same ultimate effect as direct cost reduction. In fact
if one thinks of the product as the services rendered to customers, then
product development often is just cost reduction. The globalization of trade
and subsequent breakdown in trade barriers has generated tremendous growth in
maritime transportation. Thus the stiff competitions among part operators have
increased the desire to attract port uses. Therefore, port operators will have
to optimize the cost of their operations if they must benchmark good
productivity and performance for their terminals. There is no doubt that the
maritime sector especially the port system is vital and instrumental to the
national economic survival of the country. Nigeria is a popular nation,
renowned for her international nature of business. Quality customer service is
the benchmark principle for the maritime professional and customer care
techniques. Therefore, the economic justification of a port is its ability to
satisfy its customers at a lower price and also be able to make profits. With
regards to costs emanating from the vessel, it can be affirmed that port costs,
above all are the most significant, since theydepend on the gross tonnage of
the vessel and the time it spends in the port. Bulk carriers are those which
tend to spend most time in port as well as being the greatest in size. The
costs of towing, which depend on the circumstances of the movement, tend to
represent approximately 10% to 15% of the cost scale of the vessel [5]. More
so, other costs due to the vessels stay at port, including agency fees average
approximately 5 or 10% of the total. The port tariffs on the merchandise are
situated at less than 50% of the total. Where all costs of unloading are
considered in relation to port costs, the former are situated at about 70% of
the total where all costs are also included storage, weighing etc. With a clear
tendency to drop when using cranes of greater efficiency and capacity, about
30% would correspond to port costs. It is evident that Nigerian ports operate
at very low optimal capacity, in spite of the expected large volume of cargo
traffic that passes through it. It is very pertinent to note that vessel delay
period is a very serious problem that contributes to over 60% of our ports low
productivity problem in recent times. Ndikom [3], further confirms that
regrettably, at Lome port, dock workers load 700mts per day as against less
than 250mt per day at Nigerian ports. The five days difference in loading
arrangements between Nigerian ports and other ports in terms of ship delay rate
billings of US$4,000 is rather too staggering and unfortunate. In clear terms,
this is enough to deny Nigerian ports cargo and revenue that would ordinarily have
come our way. Kaspi, et al, looked at the minimization of cost and optimum port
performance as anchored on reducing port turnaround time. They developed a
regression model to relate turnaround time and port cost which was highly
related with allocation of port facilities. Beatriz et al, argues that the
optimal organization of the industry can be studied by means of cost and
production functions. They reviewed the literature on econometric ports’
structure and propose that the calculation of key cost indicators (economics of
scale, scope and so forth) is best in determining optimal port structure is
order to minimize the cost of port operations.
1.2 Statement of the problem
It
is evident that Nigerian ports operate at very low optimal capacity, in spite of
the expected large volume of cargo traffic that passes through it. It is very
pertinent to note that vessel delay period is a very serious problem that
contributes to over 60% of our ports low productivity problem in recent times.
Ndikom [3], further confirms that regrettably, at Lome port, dock workers load
700mts per day as against less than 250mt per day at Nigerian ports. The five
days difference in loading arrangements between Nigerian ports and other ports
in terms of ship delay rate billings of US$4,000 is rather too staggering and
unfortunate. In clear terms, this is enough to deny Nigerian ports cargo and
revenue that would ordinarily have come our way. Kaspi, et al, [2], looked at
the minimization of cost and optimum port performance as anchored on reducing
port turnaround time. They developed a regression model to relate turnaround
time and port cost which was highly related with allocation of port facilities.
Beatriz et al [1], argues that the optimal organization of the industry can be
studied by means of cost and production functions. They reviewed the literature
on econometric ports’ structure and propose that the calculation of key cost
indicators (economics of scale, scope and so forth) is best in determining
optimal port structure is order to minimize the cost of port operations.
1.3 Significance of the study
This
study attempts to optimize the cost of port operations in Nigeria.With regards to costs
emanating from the vessel, it can be affirmed that port costs, above all are
the most significant, since theydepend on the gross tonnage of the vessel and
the time it spends in the port. Bulk carriers are those which tend to spend
most time in port as well as being the greatest in size.In the light of the
above, this study attempted bridging the gap by offering an optimal cost to
port operations in Nigeria.
1.4 Objectives of the study
The broad objective of
the study is the analysis of optimum cost of port operations. The specific
objectives include:
1.
Determination of the minimum cost of
port operations.
2.
Determination of the optimality range
of cost variability.
3.
Determination of the optimality range
of resource variability.
1.5 Research questions
1. Is there a minimum cost of port
operations?
2.
What is the optimality range of cost variability?
3.
What is the optimality range of resource variability?
1.6 Research hypotheses
1. Ho: There is no minimum cost of port
operations.
Hi:There is minimum cost of port operations.
2. Ho: There is no optimality
range of cost variability.
Hi: There is optimality range of cost
variability.
3. Ho: There is no optimality
range of resource variability.
Hi: There is optimality range of resource
variability.
1.7 Limitations of the study
a.
Financial constraint- Insufficient fund
tends to impede the efficiency of the researcher in sourcing for the relevant
materials, literature or information and in the process of data collection
(internet, questionnaire and interview).
b.
Time constraint- The researcher will
simultaneously engage in this study with other
academic work. This consequently will cut down on the time devoted for
the research work.
1.8 Scope of the study
The study focuses on the analysis of
cost optimization of port operations using Apapa port as a case study.
1.9 Definition
of terms
Cost:
This is an amount that has to be paid or
spent to buy or obtain something.
Cost
optimization: This
means finding an
alternative with the most cost effective or highest achievable
performance under the given constraints, by maximizing desired factors and
minimizing undesired ones.
Port:
This refers to a town or city with
a harbor or access to navigable water where ships load or unload.