Many vessels have been left unattended to following the continuous instability in the nations exchange rate to the Dollar, checks by the Nigerian Tribune can reliably confirm.
According to findings, many indigenous shipowners have had to abandon their ships after initial plans to dry dock their vessels failed due to lack of insufficient funds following the continuous changes in the nation’s foreign exchange rate.
Speaking with the Nigerian Tribune, President of the Ship Owners Association of Nigeria (SOAN), Mr. Sonny Eja lamented that he had to source for funds outside his initial budget when he last dry-docked two of his vessels in 2024.
According to the SOAN President: “The shipping business, the vessel business is extremely dollarised. When our vessels are due for dry-dock, of course we need to bring in spare parts for the dry-dock which of course is a plan maintenance period for the vessel; that is maintenance of both the vessel underwater, the hull, all the spare parts that I will need has to be imported into the country.
“Let me give a case in hand, last year, we dry-dock two of our vessels and at the time we made budget for this dry-dock, we have to pay in US Dollars to bring in spare parts into the country. Don’t forget that we also have to pay Customs duties and taxes.
“Now, when we made our budget, we based it on the N564 exchange rate to the naira which was the exchange rate at the time. By the time the spare parts arrived, the exchange rate had jumped to N800 or N900 to a Dollar. The impact was shocking for my business. It hit my bottom line.
“Instead of spending say about $1.8 million US Dollar that we had initially budgeted for the dry-dock, we ended up spending close to $3.2 million dollars for the dry-dock of those two vessels. So, you see how just one aspect of the exchange rate fluctuation hit our operational cost in the year 2024.“
“The other aspect of the unstable FX rate is that it trickles down to every of our operating cost that we have to incur as a business. Regular operation and maintenance of the vessel, staff cost were all affected. The exchange rate fluctuation trickles down to every aspect of our business in the shipping industry, whether it’s in terms of crew wages, ships chandelling and all that. Everything was affected by the cost of this exchange rate fluctuation in Nigeria.”
When reminded that shipowners earn in US Dollars and should be smiling to the banks due to the unstable exchange rate, the SONA President stated that, “Anybody that tells you that is very myopic in way of thinking. That is why a lot of people rush into this business and rush out because they failed to carry out some feasibility studies about this business. Many vessels have been abandoned because many didn’t factor in this cost.
“Yes, you are paid in US Dollar but like I explained to you, you are not paid hundred percent in UD dollars. You are paid sixty percent in US dollars and forty percent in Naira.
“Now from day one that you have that contract, you are supposed to start saving for your dry-dock which is a mandatory class requirement. Every five years, you have to dry-dock your vessel. if you don’t dry-dock your vessel, if she goes out of class, then you cannot trade. It’s not possible.
“Now, once you are working and earning revenue from the contract that you have you will have major breakdowns. some of them are not covered by insurance. I mean we’ve had these cases where we’ve gone back and forth with insurance. I have seen cases where we make so much profits but then one major breakdown, it erodes the entire margin out of that business.
“I have about seven vessels in my company that are currently working. What i do as MD of my company is that I tell my CFO to analyze our business profitability vessel by vessel before we now put everything in
one basket.
“it is a fallacy for anybody to say that when you own a vessel and get a contract for the vessel, you are smiling to the bank. Don’t forget also that some of those vessels are financed by bank loans, so you are paying back your loan to the bank which of course, if you don’t know, has interest rate in excess of almost 25 or 26 percent.
“So, if anybody wants to have that conversation with me, I always urge them to join the business and see how we are smiling to the bank. It’s not farfetched, you start with getting the vessel and then securing a contract for the vessel. Sometimes, you don’t have long contracts, sometimes you have short contracts for about three months or six months and after the contract, your vessel is without a job. And for that vessel to be without a job you are still incurring cost because you still have your crew onboard. The crew has to feed. The vessel has to be powered on. You have to pay the crew wages; I mean a lot of logistics go into the vessel business. It’s not a case of you smiling to the bank.”
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