5 October 2017

Kenya: Shippers Seek Stake in Kenya's Line

Multinational shipping lines are scrambling to control the Kenya National Shipping Line (KNSL) as the government looks to revive the struggling parastatal.

Sources say that PIL, Maersk and Mediterranean Shipping Company (MSC) are all eyeing control of the shipping line, with a guarantee of handling over Ksh500 million ($5 million) worth of business from government annually.

In March this year, the government announced plans to revive the parastatal by restructuring its ownership. The shipping line has been ailing for decades and previous efforts to revive it have failed.

"Negotiations are at an advanced stage for the exit of foreign shareholders who have expressed desire to cease working with KNLS, which has become a parastatal," State House spokesman Manoah Esipisu said in Mombasa.

However, it is understood that negotiations for restructuring have stalled, with PIL and Maersk angling for the business. MSC is not willing to exit since its money is held up in the company.

It is also estimated that at least Ksh200 million ($2 million) will need to be pumped into KNSL to make it operational.

MSC is understood to have invested more than Ksh50 million ($500,000) in KNSL more than 20 years ago.

The shipping line was formed in 1987 under the Companies Act as a Joint Venture between the government of Kenya and Unimar, a German company. Kenya Ports Authority owned 70 per cent and Unimar held a 30 per cent stake.

Unimar later invited DEG, a German investment company working in developing countries, to take up half of its shares.

Liquidity problems

However, in the first five years of operation, KNSL experienced liquidity problems due to lack of financial control among agents in Europe, which led to huge foreign debts from container leasing companies.

At the time, KNSL was limited to trading in containerised goods only while most international trade to regional ports is either conventional or bulk cargo.

To revamp operations, MS Oceanfreight Ltd was brought on board; under the new arrangement, KNSL shipped containerised cargo with MSC as the service provider.

In 1996, through MSC, Heywood Shipping injected Ksh53.4 million ($534,000) into the company and got two director slots with voting powers.

Speaking during an interview with The EastAfrican, KNSL acting managing director Joseph Juma said there was need to enact a law to guarantee allocation of cargo by the government to bring the carrier afloat.

He said that just like Kenya Airways is protected by law such that there are restrictions on foreign airlines flying to local destinations and special treatment by the Kenya Airports Authority, the same should be done for the sea national carrier.

Mr Juma said one of the ways of reviving KNSL would be to allocate a percentage of cargo to be shipped thorough the line, and encourage partnerships with major international shipping lines. This is in addition to government cargo that should as a matter of law be shipped by KNSL.

"Each year, Kenyan importers pay over $3 billion as freight charges to foreign firms and if we would allocate at least five per cent of this to KNSL it would be a major boost," he added.

Imports are shipped into the region on cost, insurance and freight (CIF) terms, meaning that all charges are paid in the source country while exports go by free on board (FOB) terms, where case rates are paid abroad.

"By importing CIF and exporting FOB, everything is paid for in the foreign countries, so we lose on both sides. The industry does not benefit from maritime trade," Mr Juma said.

He said KNSL would remain in the doldrums if the government does not initiate urgent measures to revive it, and that the procurement law should ensure that importers use local shippers.

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