AN ANALYSIS OF COST OPTIMIZATION OF

PORT OPERATIONS IN NIGERIA:

A LINEAR PROGRAMMING APPROACH

BY

CHIBUZO JONATHAN ON-WUAMADIKE

20111785566

A PROJECT SUBMITTED TO THE DEPARTMENT OF

MARITIME MANAGEMENT TECHNOLOGY
SCHOOL OF MANAGEMENT TECHNOLOGY
FEDERAL UNIVERSITY OF TECHNOLOGY, OWERRI.

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE

AWARD OF BACHELOR OF TECHNOLOGY (B. Tech.) DEGREE
IN MARITIME MANAGEMENT TECHNOLOGY

OCTOBER, 2016

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 CERTIFICATION

This is to certify that the Research project titled “Analysis of Cost Optimization of
Port Operations in Nigeria: A Linear Programming Approach was carried out by
Chibuzo Jonathan Onwuamadike, with Registration Number 20111785566 in
partial fulfilment of the requirements for the award of Bachelor of Technology (B.
Tech.) Degree in Maritime Management Technology, Marine Technology Option.

__________ __________
Dr. I. C. Nze Date
(Supervisor)

____________ ___________
Dr. C. Onyemaechi Date
(H.O.D MMT)

_____________ ____________
Prof. C. C. Ibe Date
(Dean of SMAT)

______________ ____________
Prof. S.B Arokoyu
(External Supervisor) Date

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 DEDICATION

This project work is dedicated to God Almighty for his knowledge and wisdom
while working on this research.

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 ACKNOWLEDGEMENTS

I am indebted to my supervisor, Dr. I.C. NZE for his diligence, kindness and
painstaking supervision over this research work. He actually went out of his way,
sacrificed his time and effort to see to it that this work piece meets required
standard. May God bless him and replenish his efforts. A huge appreciation goes to
my wonderful lecturers, Prof. K. U. Nnadi, Dr. Chinedum Onyemaechi, Dr I.O.
Nwokoro, Dr G.C. Emeghara, Dr. Obed Ndikom, Dr. Donatus Onwuegbuchulam,
my course adviser Mr Okechukwu Okeke and Mr Theophilus Nwokedi who jointly
embedded the present skills and knowledge acquired so far by me, especially in
contribution to this research work and also there moral and academic advice. I
most especially express my gratitude to my Mum, Mrs. Emilia Onwuamadike and
siblings who through their love, advice and support made my stay in the University
a meaningful one.

My profound gratitude extends to my close friends, Ukah Stanley, Ezejiugo

Chigbo, Ekeh Francis and Idoghor Shedrack, my course mates, my Uncle and
Aunty, Doc. and Doc. Mrs Aguocha who have also supported me immensely while
carrying out this research work.

Above all, I am grateful to God Almighty for all He has endowed me with, which
has enabled me to achieve this research.

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 ABSTRACT

This research study is determined to optimize the cost of port operations in Nigeria
with a view to critically analyse it from a linear programming perspective. The
quantitative estimates used here were concerned with the activities associated
with the operations of Nigerian ports, the costs and the benefits derived by users
of these ports. A linear Programming Model was formulated from the cost
components associated with the vessels-port relationships. With the aid of excel
solver for windows software, an optimal solution is obtained. The results provided
indicates the minimum cost of port operations – N137,346 (million) as well as the
optimal time estimate for the decision variables of port operations – Marine
services=12.56hrs, Port dues=87.4hrs, Cargo dues=0hrs, Terminal handling
Charges=1.086hrs, Bunkers=16.1hrs, Gov. Requirements=0hrs, Supplies=0hrs,
Loading and discharge=0hrs, Storage=0hrs, the optimal cargo flow and reduced
terminal cost – N101.046 (millions) and improved terminal and port performance
to achieve optimum operational efficiency. These provide a basis for future
projections so as to determine the range of values of the constraints and decision
variables for which the Nigerian port operations could be at minimal cost.

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 Table of Contents

TITLE

CERTIFICATION................................................................................i

DEDICATION....................................................................................ii

ACKNOWLEDGEMENT...................................................................iii

ABSTRACT........................................................................................iv

TABLE OF CONTENTS.....................................................................v

LIST OF TABLES.............................................................................vi

CHAPTER ONE

INTRODUCTION..............................................................................................1

1.1 Background of Study......................................................................................1

1.2Problem Statement............................................................................................4
1.3 Objective of Study............................................................................................5
1.4 Research Questions...........................................................................................6
1.5 Research Hypothesis........................................................................................6
1.6 Significance of Study.......................................................................................6
1.7 Scope of Study................................................................................................7
1.8 Limitation of Study...........................................................................................7

CHAPTER TWO

LITERATURE REVIEW.................................................................................................8

2.1 Conceptual Framework.......................................................................................8

2.1.1 The concept of cost optimization....................................................................8
2.1.2 Cost Control ..................................................................................................12
2.1.3 Cost Reduction...............................................................................................12
2.1.4 Why Cost Reduction Programs Fail................................................................12
2.1.5 Push Cost Optimization as a Movement........................................................13
2.1.6 Common Problems for Tackling Cost issues..................................................14

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2.1.7 Need for cost optimization strategy..............................................................14
2.1.8 Steps in cost optimization...........................................................................…15
2.1.8.1 Build consensus and commitment on goals and scope..............................16
2.1.8.2 Select the right methodologies...................................................................18
2.1.8.3 Determine how efficient and effective the organization is and set targets
for change...............................................................................................................19
2.1.8.4 Develop a plan to hit the target..................................................................19
2.1.8.5 Drive implementation of the changes........................................................20
2.1.8.6 Make the Change sustainable.....................................................................21
2.1.9 Historical origin of Linear programming.......................................................22
2.2 Theoretical Review...........................................................................................24
2.2.1 Implementation of cost optimization............................................................24
2.2.2 Classification of shipping cost........................................................................25
2.2.2.1 Cargo or direct costs...................................................................................25
2.2.2.2 Port charges and dues................................................................................26
2.2.2.3 General port dues...................................................................................... 26
2.2.2.4 Specific port tariffs......................................................................................27
2.3 Empirical Review...............................................................................................28
2.3.1 Economics of scale in ship design and port cost control...............................28
2.3.2 Cargo handling rates and port delays............................................................30
2.3.3 Problems militating against operational efficiency.......................................32
2.3.4 Port reforms/concessions as a tool to improve port efficiency.....................37
2.3.5 Optimization of costs of port operations in Nigeria: A Scenario for emerging
river ports...............................................................................................................40
2.4 Summary of Reviewed Literature.....................................................................41

CHAPTER THREE

RESEARCH METHODOLOGY....................................................................................42
3.1 Research methodology.....................................................................................42
3.2 Reinstatement of hypothesis............................................................................42
3.3 Research approach...........................................................................................42
3.4 Study area.........................................................................................................43
3.5 Data collection..................................................................................................43
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3.6 Method of data analysis...................................................................................43
3.6.1 The linear programming model.....................................................................43
3.6.2 Basic requirements for the use of a linear programming technique.............45
3.6.2.1 Objective Function......................................................................................45
3.6.2.2 Decision Variables.......................................................................................46
3.6.2.3 Structural Constraints.................................................................................46
3.6.2.4 Parameters.................................................................................................46
3.6.3 Definition of the variables for objective functions........................................46
3.6.4 Definition of variables for the constraints equation......................................48

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION.......................................50

4.1 Data Presentation and Analysis........................................................................50
4.2 The linear programming model obtained.........................................................62
4.3 The optimum solution using excel for windows software................................62
4.4 Discussion of Results Based on Research Questions........................................65
4.4.1 Question 1.....................................................................................................65
4.4.2 Question 2.....................................................................................................66
4.4.3 Question 3.....................................................................................................66
4.4.4 Question 4.....................................................................................................67

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION.............................................68

5.1 Summary of Major Findings..............................................................................68
5.2 Conclusion........................................................................................................68
5.3 Recommendation.............................................................................................69

REFERENCE

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 LIST OF TABLES

Table 4.1: Marine Service Cost...............................................................................50

Table 4.2: Port Dues (Gross Registered Tonnage in Millions).................................51
Table 4.3: Cargo Dues.............................................................................................52
Table 4.4: Terminal Handling Cost..........................................................................53
Table 4.5: Bunker Cost............................................................................................54
Table 4.6: Government Requirements...................................................................55
Table 4.7: Supplies..................................................................................................56
Table 4.8: Loading & Discharge..............................................................................57
Table 4.9: Storage...................................................................................................58
Table 4.10: Ship Turnaround Time.........................................................................59
Table 4.11: Berth Occupancy..................................................................................60
Table 4.12: Ship/Port operations and Expenses Generated Based on Averages of
Different Kinds of Cargo for 5years........................................................................61
Table 4.13: Linear Programming Model.................................................................63
Table 4.14: Ranging Table.......................................................................................64
Table 4.15: Variable Definition Table – Solution Table...........................................65

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