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More Competition, Not Less, Advances Multimodal Transportation         




Fundamental economics states that scarcity leads to efficiency. Contemporary management, on the other hand, identifies integration as the bedrock of efficiency. The Revolutionary Democrats seem to have understood both well, as can be seen from their maritime transport strategy.

The integrated transport of shipments is the pinnacle of the maritime strategy of the EPRDFites, as stated in the GTP. The plan envisions the reduction of transit time and cost of logistics as well as procedures for processing imports and exports. A multimodal transport system (MTS), which involves the integration of seaway and inland transport, is believed to be the way to get them all right.

As rough as the planning of the strategy was, so goes the implementation. With the opening of the scheme for private importers, the debate has taken a new turn. At the heart of it lies the tacit monopolisation of the system by Ethiopian Shipping Lines (ESL) and the role of the private sector.

On the one hand are those who support the protection of public enterprises for reasons of economy of scale, market integration, financial capacity, investment in research and training - and sometimes efficiency. On the other extreme are those advocating liberalisation and private sector involvement in the shipping and inland cargo transportation sectors. The reasons that the latter mention range from consumer choice to price factors.

Global experience in the shipping sector shows that the price of shipping is highly sensitive to market liberalisation. Recent research also asserts that competitiveness in the inland freight transportation market correlates with import demand elasticity.  With over 90pc of the world’s trade being shipped internationally, where the operation of merchant ships only contribute to around five per cent of global trade, the price impact of a competitive shipping market is enormous.

The significance of the global shipping industry could also be discerned from the fact that it transported over 7.7 billion tonnes of cargo in 2008.

The presence of over 50,000 merchant ships around the world sailing with flags of different countries also signifies the sheer size of the industry and its role in global trade, according to UNCTAD.  

However, a closer look at the situation in Ethiopia shows a different model of the shipping and freight transportation market. The country has only one national shipping carrier, Ethiopian Shipping Lines (ESL), which was established in 1964 in a joint venture (JV) with the Ethiopian government and a US company named Towers Investment. Sheltered under policy and regulatory protections by the Imperial and Socialist regimes, the national carrier extended its domination in the maritime market of the country.

The implicit protection of the national carrier seems to have continued even after the Revolutionary Democrats took power. As a result, the market share of the national carrier in the importation of consumer goods has witnessed a significant increase from around 20pc 1970s to 60pc in 2010. The number of vessels owned, managed, and operated by the carrier has increased from two to eight.

A recent addition to the tacit protective measures is the newly introduced strategy of a MTS. The new system, which would enable ESL to expand its reach to Modjo and Semera dry ports, would even give it a disproportional advantage in market share.

By contrast, the global shipping market is highly competitive, according to UNCTAD’s Shipping and World Trade Index. As of 2009, Greece benefits from the largest fleet, with 16pc share, while Japan and China have shares of 15.7pc and nine per cent, respectively. In terms of gross volume, Panama is at the top with shipping 193 million tonnes.

While countries such as Liberia and Denmark have each witnessed 99 million tonnes and 10.6 million tonnes of shipping, in that order, the tonnage carried by ESL as of 2010 has remained at 2.4 million tonnes. This is low in comparison with these countries, but its share of 40pc of the total national import and 60pc in the consumer goods category makes it the only mega sized shipping company in the country.  

With the introduction of the MTS to Ethiopia, the competitiveness in the shipping and inland transport markets had to change. What is contentious is the direction of the change.

The Revolutionary Democrats say that the new system will reduce transit time and costs, but, they do not state the negative side, i.e. opportunity costs of the new system.

In what could be a historic move to integrate the national freight transportation system, they planned to increase the proportion of import cargo deployed through the MTS from two per cent in 2010 to 80pc in 2015. This, as per their plan, would reduce the transit time of imports and exports by over 30pc, from the baseline of 30 days to 20 days in 2015.

Critics of the MTS range from freight forwarders to importers and onto transport companies. Worst hit by the implementation of the new system would be freight forwarders. With ESL controlling around 60pc of consumer goods importation and the new system avoiding middlemen, freight forwarders would have limited options by which to survive in business, if they do not close.

When the new system was partially operational, serving only public organisations and NGOs, private forwarders thrived on serving private importers. Yet, as the system is now open for private importers, these forwarders might go out of business. Importers, on the other hand, claim that the system is expensive, opaque, and tacitly monopolised.

They mention the absence of a cargo tracking system as the major problem. The resentment of transport companies stem from the higher price fixing ability of the national carrier.

The debate goes on, as does the uncertainty surrounding the new system of integrated transportation. For the time being, the debate is rather focused on the immediate advantages and disadvantageous of the MTS. What should matter are the structural changes brought by the new system.

Equally important are the broader assumptions and implications of the system. While these points have been given less attention, this does not mean that there is a consensus. The overall state of the situation stipulates justifiable answers for the fundamental questions.

How competitive should the shipping, transit, and inland transport sector of the country be? What should the role of the private sector be?

As laudable as the policy objectives established by the Revolutionary Democrats are, so should be their implementation. With the growing role of private investment in the country, policies should be designed and implemented to facilitate it. The fact that private investors have registered to invest in 900 projects with a capital of 34 billion Br in the first half of the 2010/11 fiscal year substantiates this claim.

However, the recent intervention of the government in the market has eroded business confidence. The startling reaction of the government to inflation through imposing a lending cap on banks and fixing retail prices of certain commodities has even worsened the situation. Aside from making imports very expensive, these measures have restrained supply.

As a result, the consumer is facing the dual problems of supply shortages and price increments. No doubt, the ambiguity surrounding the MTS is adding to prevailing business uncertainty.

No matter how improbable the road ahead is, it is more competition, not less, that would advance the envisioned objectives of multimodal transportation. Sheltering the national shipping carrier from competition is not the way out. Rather, innovative ways of involving the private sector should be sought.

The proactive engagement of the private sector in policy planning as well as implementation processes would also help to clear the haze at the outset. Establishing a competitive freight transportation system centred on the private sector should not be the last resort.





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