ANALYSIS OF COST OPTIMIZATION OF PORT OPERATION (A CASE STUDY OF APAPA PORT IN LAGOS STATE)
CHAPTER ONE
INTRODUCTION
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 thedesire 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 timeand 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 timeand 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.
