The Cascading Effect of June 2023 FX Deregulation Policy on Nigeria Shipping Logistics Cost: Assessing Implications on Bunker Fuels (HFO, MGO, VLSFO) and Localized Freight Rate (An Interrupted Time Series Analysis)
Keywords:
DEREGULATION OF SHIPPING LOGISTICSAbstract
This study investigates the empirical impact of foreign exchange (FX) rate deregulation on shipping logistics costs in Nigeria, focusing on the structural shifts induced by the June 2023 Central Bank of Nigeria (CBN) currency unification policy on bunker fuel and freight rate. All dependent variables were transformed using a base-10 logarithm. Exploiting Interrupted Time Series Analysis framework within a review period of 36-months (January 2022 to December 2024), this paper analyses the behavior of base-10 logarithm (Log₁₀) transformed operational cost matrices of Nigeria shipping logistics encompassing Marine Gas Oil (MGO), Heavy Fuel Oil (HFO), Very Low Sulfur Fuel Oil (VLSFO), and Localized Freight Rates for standard 20ft container modules. The empirical estimations spotlights a declining trajectory of -3.1% per month (β₁ = -0.014) in localized freight rate prior to FX deregulation in coherence with post-COVID normalization of international freight rate. Following the June 2023 currency floatation, all four operational sub-indices experienced a statistically significant, V-shaped structural break at1% level (p < 0.001). Post-intervention trends show that localized freight rates reversed into a parabolic expansion of +5.0% per month (β₃ = 0.021), resulting in a nominal cost surge from ₦1.29 million in May 2023 to ₦7.60 million by December 2024—an exponential buildup of 489%. Simultaneously, bunker fuels (VLSFO, MGO, and HFO) recorded post-intervention growth rates ranging between 3.7% and 4.5% per month, consequently inducing a direct, high-volatility cost pass-through mechanism into final freight rates. Evidence from this study clearly demonstrates that the effect of Nigeria’s domestic monetary adjustment following the June 2023 FX deregulation superseded the influence of the global shipping cycle. This created a policy-induced divergence that severely eroded Nigeria’s trade competitiveness. The implementation of the policy without adequate safety nets was economically counterproductive, as it triggered a cost explosion rather than the intended stabilization, further weakening the local currency and diminishing the country’s shipping sector competitiveness. Consequently, the study recommends that policymakers implement targeted stabilization mechanisms, including preferential access to FX for critical sectors and the establishment of hedging instruments to buffer against FX volatility, so as to safeguard industrial supply chains and restore trade competitiveness.
Keywords: Interrupted Time Series Analysis, Foreign Exchange Deregulation, Maritime Logistics, Bunker Pass-Through, Nigerian Economy, Bunker Fuel, Freight Rate, Nigerian Shipping Industry
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