The world recession and our sea ports

The world recession and our sea ports

INTRODUCTION The world economy is experiencing a global downturn following the global economic crisis due to the global credit crunch. World trade growth in volume and value is slowing down sharply as a result of the collapse in demand.

The recession has been made much worse by panic and despair.

When the financial system was at the brink of collapse, investors shunnedall but the safest assets, consumers stopped spending and firms shut down.

While the global financial crises continues unabated, business leaders are still bullish about Africa for 2009. Many leading businesses expect their operations in Africa to continue growing at rates above the global average in 2009, albeit slower than in recent years, Sectors such as oil and gas, banking and finance are all set to grow in Africa.

The main characteristic of the maritime industry is that it operates in a global worldwide environment and is therefore put under permanent competitive constraints from activities all over the world. It may well be true that the maritime industry is particularly vulnerable to the recession problems because the relationship between trade and the Port is symbiotic.

However, we should regard these problems for what they are, a major challenge to management of the Port and the Government. Both parties can do a great deal to cater for and tackle the situations which will arise.

Every crisis is different, except in one respect; they all create opportunities for those who can identify them and are ready to act. After all people do not stop buying in a downturn, they just buy more carefully.

SHIPPING
There have of course, been some negative effects on shipping caused by these events (financial crisis) but it has to be said that with a few exceptions, the crisis produced fewer shocks for participants in the industry than we had originally feared. Considering the Port of Tema, Vessel calls reduced from 1672 vessels in 2007 to 1568 vessels in 2008.

Meanwhile, Grimaldi Lines have just added a new ship by name “Grande Ghana” to their list of fleets. It made its maiden voyage to Takoradi in March and to Tema in April where it was outdoored on 20th April, 2009 with a brief dinner ceremony on board the vessel. Investors who had the courage and confidence to seize opportunities during the crisis period will soon be rewarded.

PORTS
If Shipping operations are to be efficient and attract new business, they have to be properly integrated with services in the Ports. The Costs of Port operations represent a significant element of the total cost of maritime transport, so in this trying times of recession, the Ports must be up and doing. Being an essential link of the economy (because more than 90% of the external trades of Ghana passes through the Ports), the Ports are particularly affected by the recession.

The Port expects a drop of activity as a direct consequence of the recession. At the imports level, the drop can be explained by a rise in prices and a decrease in the purchasing power of the populace. Exports, we believe will stagnate, or even experience a slight rise.

This would however not make up for the recorded losses at the import level for the following reason. Already the traffic of our Ports is unbalanced as it is for our economy. The imports for Tema Port stood at 6,120,583 tones in 2007 and rose marginally to 6,248,797 in 2008. The export however was 1,099,055 in 2007 and increased to 1,303,123 tonnes in 2008. Our imports always far outstrip our exports.

Again, cost of investments are high particularly those financed in foreign currencies, coupled with declining traffic could compromise Port development projects.

The rising prices of suppliers resulting from the sharp fall in the value of the cedi as well as demand for wage increases by employees made inevitable by the recession are creating new situations which our Ports have to face and deal with.

Furthermore, with the world in recession and global trade shrinking at a fast pace, the misery of mass unemployment is inevitable.

Servicing of Port debts due to the recession is another problem. Servicing of the debt has practically doubled causing unbearable financial strain on the port. The recession and the accompanying high interest rates and falling value of the local currency has practically been the cause.

SO WHAT NEXT – RECOMMENDATIONS
From the view point of a Port worker, looking at the sector as a whole and thinking of the long-term impact of its decline, the arguments to intervene to ensure a continued and sizable presence of Ghana in the Maritime industry are compelling.

1. Investment in required projects
The speed of change due to the crisis and the magnitude of its impact are taking on new proportions, but let's look ahead, 2020. It would be very difficult for anyone to project or paint a picture of what the world would be like in 2020.

However if you consider the scale and the economic life of Port infrastructure and investments, it is necessary to make such bold predictions to enable the organization chart a path that would enable it fulfill its vision.

Organizations and people, who will be successful in 2020, will be those not afraid of change. This is not the first time it is happening. There was a global slowdown in 1998 due to the Asian crisis and further bouts of financial turbulence associated with the Russian and Brazilian crisis.

By the second half of 1999, however, financial market confidence was returning to most economies that were affected by the crisis. Oil prices had recovered and declines in many other commodity prices had been arrested. Global growth projections for 1999 were revised upward significantly.

There are several strong reasons for believing that despite the severe shock to the world economy caused by the financial crisis and subsequent problems in other emerging markets, global general cargo and container volumes will continue to grow for many years to come. Two factors are especially important in this context.

Firstly, the globalization of the world economy, the rate of world merchandise trade growth has been running well ahead of world output growth for many years. This is a direct reflection of the globalization strategies adopted by leading multinational companies.

The second item of importance relates to trade liberalization. This is affecting the mode of shipping rather than the overall volume. This would lead to further increases in the container share of the general cargo market.

These developments should give rise to “substitution growth” in container traffic. Container traffic for Port of Tema grew from 4,226,225 tonnes in 2007 to 4,745,478 tonnes in 2008. In Twenty Equivalent Unit (TEU) terms Port of Tema made 555,009 TEU's in 2008 as against 489,147 TEU's in 2007 indicating a 13.5% increase.

Again, continuous increases in the incidence of transshipment will promote “induced” growth in the level of container traffic. This will directly impact upon Port throughputs and also on the number and size of ships needed to handle world container trade.

Although the rate of growth in transshipment will be slower in future, additional demand will be prompted by fewer port calls, as even larger vessels are deployed on mainline services.

The fact that most of the global port development is aimed at the transshipment sector is being undertaken directly by carriers who control the route of cargo and containers give a high degree of confidence to such projections. Transshipment traffic for Port of Tema increased from 119,728 tonnes in 2007 to 195,326 tonnes in 2008.

My intention is not to encourage you to misinterpret the glimmers of hope as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing.

2. Internal Cost Cutting
The Ports Management would have to put in place stricter management policy aimed at internal cost cutting (e.g. overtime, etc.) and better guarantee of returns. Some measures aimed at maintaining the staff wages at levels compatible with the requirements of competitiveness should be taken. On the other hand, marketing expenditure should not be cut down unnecessarily.

Research has shown that organizations which increase and hone their marketing spending in recessions are those who emerge strongest when recovery comes.

It is still vital to communicate effectively during a recession. How else will customers know what you can offer them? Do not also forget that “out of sight, out of mind”. By reducing marketing spend; you risk being forgotten by the consumer.

3. Promotion of Private Investment
The Ports Authority should adopt a policy that promotes private investments in the Port, in order to make private investors participate more effectively.

4. Port Community
The creation of a Port community or association for the production of the interest of the Ports is critical. It is a way of bringing together all stakeholders in the operations and processing of ships and goods. The association will work together for the promotion of the Port and for the evolution of the traffic.

5. Flexible Port Tariff
Port Management should be given the freedom to manipulate the Port tariff to contain the inflationary tensions caused by the recession.

CONCLUSION
This article provides a case against panic cuts for investing in projects and marketing activities of the organizations during the recession. In tough times, many organizations are tempted to cut back on every type of expenditure.

The paper suggests that it is those organizations that remain committed to their activities and focus on necessary investments that do well in recessions and emerge stronger when recovery begins.

The lessons learned from the crisis will result in stronger public institutions, more public awareness of the need for good corporate governance, more transparency and a wider openness of markets.

The nation should be able to maintain the performance of the export sector and government must support major infrastructural projects to ensure that Gross Domestic Product (GDP) growth remained average.

With the statistics given of Tema Port one can conclude that, though the recession is affecting the operations of the Port negatively, the Ports are still not doing badly. This is due to prudent management decisions by GPHA and the other stakeholders working in the Port.

With this, I do not intend to create an impression of complacence. Our Ports should stay focused and go ahead with its development and infrastructural improvement plans.

Despite the decrease in some of our activities, it is not the time to panic.

It is the time to strategize to be more efficient. All Stakeholders in the Port Community should be calm and strive for higher efficiency in the face of the recession.