On clearing a vital corridor

The bustling Red Sea port of Djibouti as well as two customs posts on the Ethio-Djibouti border were, on May 5 and 6th 2008, the destination of a workshop on Trade Facilitation and Study Tour, organized by the UNECA and complementing a UN Development account project “the interregional partnership for promoting trade as an engine of growth through knowledge management and information communication technologies.”
The overall objective of the workshop was to improve the flow of goods between the two countries along the Addis Ababa - Djibouti corridor by sharing experiences and identifying problems as well as solutions.
The workshop as well as the onsite visits organized in collaboration with Dubai Port World and the Port of Djibouti, were attended by government officials from the two sides and relevant officers from the customs, port authorities, ministries of transport and trade, road and rail authorities, Ethiopian Chamber of Commerce and Sectoral Associations, transit agents, maritime organizations, transport operators, and the private sector.
Within this general context and to elaborate in detail on specific issues regarding the operations of a port that handles almost exclusively all of Ethiopia’s inbound and out flowing trade, Capital’s Teguest Yilma, who was along for the workshop, had the opportunity to discuss at length with Aboubaker Omar Hadi, Commercial Director, Port of Djibouti.

What are the main reasons for the current congestion to Djibouti Port?
Mr. Aboubacar Omar Hadi: The main reason is the high dwell time [the time the cargo stays in port] of the import cargo for Ethiopia which is not cleared on time.
In other parts of the world the transit time of a cargo in port is between 3 to 7 days. In Djibouti we have import containers on dwell time that remain for close to 28 days!
In your view, what are the factors causing such a delay in clearance?
There are several factors; the way the L/C [Letter of Credit] of importers from Ethiopia are financed by the banks is the major cause. The goods are financed 75% by the banks and the importers only clear the cargo from the port when they acquire a market in Ethiopia and are able to pay back the bank. Meanwhile, the goods stay in Djibouti.
You do know that the Ethiopian economy is growing; hence import/export is growing. Some believe that the port may not have taken this into account and adequately prepared for it. Do you think that the port has done all that is required to absorb the increased traffic in terms of acquiring the necessary equipment, expertise and facilities so as to move the goods on time?
We do follow the growth of the Ethiopian economy. We make a traffic forecast of import and export every year and the equipment we have is sufficient to handle the current traffic. The problem is exacerbated due to the congestion. We have sometimes to move up to 9 containers to deliver just one because the cargo has built up and the container that came first is sometimes at the bottom and the latest one is on top. This is consuming a lot of energy. If the cargo were cleared on time this pile up would never happen in the port.
There is a calculation made for traffic of containers and general cargo and the equipment necessary to move it, that is standard worldwide. If you have so much cargo you will need a specific number of equipment.
However, although we have sufficient equipment needed to move the cargo, in the last 12 months it so happens that it has not been used as there was little movement of cargo, for the reasons I just mentioned; the cargoes kept on piling up and ended up congesting the port.
Could it be that the port itself is too small to handle the fast growing traffic? Shouldn’t you have thought of a storage area to stock the cargo so as to ease the problem of delivery?
Again this comes along with a calculation. The capacity of the port of Djibouti is estimated at 22.5 million tons and we are congested at only 7.5 million tons. This tells you a lot of things. The space is not well utilized because the cargo is not moving and the capacity of the port is determined by the transit time of the cargo. If the cargo stays long then the capacity is reduced. If the cargo move fast within 7 days instead of 28, that represents a four fold increase in capacity.
Is this congestion a new phenomenon or has it occurred regularly throughout the years?
No this is a new occurrence. It started in the last 12 months and the reason is the problem of payment as I said. People are importing cargo and leaving it for many months in the port. This does not happen anywhere in the world. Normally you buy what you need in the market for the coming 3 to 4 months. You don’t buy and import in hard currency what you will need in two to three years time and meanwhile you leave it in a port!
But isn’t the port making money in terms of demurrage? In fact some importers complain that the port is very eager to quickly shift the cargo into the storage area so as to be able to charge both for transfer in and out?
Actually, we are losing money. The port’s revenue is not from the storage. We make our revenue from traffic volumes, so if our capacity is limited we cannot accept and accommodate more traffic. You may know that we are not operating only for Djibouti and Ethiopia, we are also working for other Red Sea ports. We have transshipment cargo and are now forced to reject that because we do not have space.
What percentage does the demurrage/storage income represent of total revenues?
If we compare it with the total revenue of the port it is less than 1%, which is also encouraging the importers to leave their cargo in the port, because the rate is so low and the free time long.
The free storage time used to be 30 days, then it was reduced to 15 days and now there are rumors that it is going to be 7 days. How far is that true?
It is possible, as we need to do everything possible to help move the cargo quickly out of the port. When we discharge the container or the general cargo, our job is finished and we need the space to discharge other cargo. You know, some believe that port space is like hotel accommodation. It is not. You are saying we are full so we should be happy. Yet port business can be compared to the barber shop chair. When you are finished you have to go; if you stay there, that means the barber is not making money.
Has DP World concentrated on Doraleh so much that it has not given due attention to the existing port?
Not at all. It is a different team that is working on Doraleh port. A construction company is responsible for that and we have a person that follows up the work progress, but until the completion, we [Djibouti Port] have nothing to do with it.
We even have started ordering equipment destined to be operated in the Doraleh port that we are receiving 6 months earlier. We plan to use the equipment now in Djibouti port so as to cope with the level of congestion. That is the only way we can justify expending money on new equipment, as for the current level of traffic, we cannot invest on new machineries.
The traffic is low and we are not paid for shifting and moving several containers to deliver one that is hitched for many months. In any port in the world this is not accepted. We have now received the first machine and we are expecting to receive five others in the coming week.
How much of the transshipment business are you losing because of the congestion in terms of possible revenue for the port?
The transshipment traffic is growing very fast. Ethiopia and Djibouti combined represent 120,000 container imports, and for transshipment alone we have 50,000. Also, when we move to Doraleh the main traffic will be transshipment because the port will be able to handle 1.5 million tons.
Djibouti’s and Ethiopia’s traffic will be, both import and export, 200,000 containers.
Still, before DP World came into the picture, when Djibouti port was handling the business, it also had the transshipment business. When Ethiopian traffic fully turned to Djibouti after the troubles with Eritrea, you had to cope with the overnight flow. Was there as much of a bottleneck as now? It seems as though you were able to handle it better then than today, when you were comparatively less prepared in terms of expertise, management, equipment, as well as financially...
At that time we were handling a huge transshipment traffic, bigger than the Ethiopian traffic. When the Ethiopian traffic fully transferred from Assab to Djibouti we lost the transshipment traffic in a few weeks, because we could not handle both. Now the transshipment traffic is coming back. There was a heavy congestion for a few months as well, then, as the Ethiopian traffic came almost overnight.
On your presentation, you stated that the trade balance of USD 5 bln export and USD 1.2 bln imports, costs today USD 1.4 million loss per day to the Ethiopian economy. How is that?
This is only a financial cost analysis and does not include the opportunity cost. That can only be calculated by the importer, considering the loss of revenue encountered due to the delay in the delivery.
From the day the importer’s bank pays the foreign currency to the seller’s bank, the cargo is yours. For the delays in the factory, transit time at sea, and in the port, you incur financial cost in terms of interest. The USD 1.4 million is hence calculated from the LC opening day to the delivery day at the final destination, ie. the value of import (5 billion USD) and the interest rate of the bank, considering the delays of roughly 45 days. So the loss per year for Ethiopia’s economy is USD 1.4 mln multiplied by 45 days.
Would you say the outcome of the trade facilitation workshop was successful?
It was really a good thing as all stakeholders were there. We visited both corridors, Djibouti-Galafi and Djibouti-Dewaleh, and we have seen that the flow of cargo is very smooth and the border passage time was very short. The documents were checked by customs, immigrations and then the trucks, both coming into Djibouti from Ethiopia and out of Djibouti were leaving rapidly.
We have listened to each other and tried to raise all the issues pertaining to the trade facilitation and the utilization of Djibouti port and the corridor.
At the outcome of the workshop it was planned to set up a committee/commission that would follow this up. Was that done? Did you set a time when you will meet again?
That committee already exists since over 3 years ago; it was created by both governments and decided by the joint ministerial commission between Ethiopia and Djibouti. But they had never met until now because there was no problem on the corridor. Now we have had a problem for the last twelve months and hence, it was decided to revive that committee, which is a good thing. Now as decided by the participants of the meeting, we will make it wider, including more private business people.
Any comment on the meeting?
Djibouti and Ethiopia are growing together, and it is a win-win situation that we should develop further.