Explore Contracts of Affreightment, time-charter arrangements, indigenous shipowner urges Dangote Group

A former President of the African Shipowners Association (ASA), Captain Ladi Olubowale, has lauded Dangote Group over the company’s plan to acquire vessels to distribute all its products across West and Central Africa, urging the conglomerate to consider medium- and long-term Contracts of Affreightment (COAs), time-charter arrangements and other bankable cargo commitments to technically boost indigenous shipping in Nigeria.

Speaking in an interactive session with selected maritime journalists, Captain Ladi Olubowale, said there is nothing inherently wrong with Dangote Group owning vessels but should consider giving part of the cargo requirements to competent Nigerian shipowners to lift.

Olubowale said, “There is nothing inherently wrong with the Dangote Group owning vessels. A major industrial organisation must secure its supply chain and move its products efficiently and competitively.

“But I believe there is a greater opportunity. Rather than building an entirely vertically integrated shipping system in which the industrial producer ultimately owns most of the vessels carrying its products, part of that cargo requirements could be deliberately structured to develop competent Nigerian shipowners.

“This can be achieved through firm, medium- and long-term Contracts of Affreightment (COAs), time-charter arrangements and other bankable cargo commitments awarded to technically qualified indigenous operators.”

Olubowale, who is the Managing Director of Seamate Group, maintained that the planned acquisition has exposed Nigeria’s inadequate indigenous vessel capacity.

“We have already seen the consequences of Nigeria’s inadequate indigenous vessel capacity. When Nigerian operators do not possess vessels of the appropriate size, specification and operational capability required by major cargo owners, commerce will not wait for us. The cargo will move. And somebody else’s ships will carry it,” Captain Olubowale said.

He said in shipping, cargo is the foundation upon which fleets are built, expressing confidence that the enormous cargo from Dangote’s industrial operations could become the catalyst for building a new generation of Nigerian shipowners and positioning Nigeria as a major African shipping hub.

“I believe it can. And if properly structured, the economic impact could extend far beyond Dangote, beyond the maritime industry and even beyond Nigeria,” he said.

On ship acquisition, Captain Ladi Olubowale spoke against the idea of buying a ship simply because financing is available.

He said if shipowner wants to buy a cargo worth of $25 million and approaches a bank, the immediate questions will be on vessel type, what trade, the charterer, the cargo, the contract terms, loan repayment, etc.

According to him, “Shipping is attached to trade. Before acquiring a vessel, a serious shipowner must understand the cargo, its volume, the route, frequency, vessel specification, charter structure and duration of the commercial opportunity. Once there is identifiable cargo backed by a firm, long-term contract, vessel financing becomes a significantly more bankable proposition.

“And Nigeria has cargo. Oil and gas generate cargo. Agriculture generates cargo. Cement generates cargo. Fertiliser generates cargo. Manufacturing generates cargo. The Dangote Refinery generates cargo on a scale capable of influencing regional maritime trade. The challenge is converting these cargo opportunities into sustainable Nigerian shipping capacity.

“But imagine the same Nigerian shipowner approaching that financial institution with a firm multi-year cargo contract from a major industrial company such as Dangote. That is a fundamentally different financing proposition. The cargo becomes the foundation of the financing. The contract gives visibility to future earnings. The vessel becomes connected to an identifiable trade. The lender has greater visibility over repayment. And the shipowner has an opportunity to build a sustainable business rather than merely acquire an expensive asset.”