14 November 2017

Kenya: Shippers Could Save Up to U.S.$6 Miion Annually in Freight Fees

Kenyan importers could save up to Ksh600 million ($6 million) they pay to foreign firms annually in destination charges for cargo landing at the Mombasa port by paying the freight rates locally.

The levies include delivery order fee of Ksh7,000 ($70) per container, container cleaning charges amounting to Ksh2,000 ($20), container deposits of Ksh5,000 ($50) and an administration fee of Ksh4,000 ($40) per container.

These fees, which a local freight company would ordinarily not charge, contribute to the high cost of goods. There are more than 20 destination charges that are added to the normal rates.

"There are charges foreign freighters quote that importers pass on to the consumer, eliminating which will mean the prices of goods would be lower," said Peter Otieno, the chairman of Car Importers Association of Kenya.

For example, the cost of a secondhand Toyota Vitz, which averages Ksh850,000 ($8,500) would go down by at least Ksh100,000 ($1,000), Mr Otieno said.

Maritime experts say by paying freight rates in the country, importers would help local freight firms secure part of the Ksh300 billion ($3 billion) paid to foreign freighters to import Ksh1.4 trillion ($14 billion) worth of goods annually.

Paying rates locally would also help boost the struggling Kenya National Shipping Line since imports would be channelled through the carrier.

Now, the Kenya Maritime Authority (KMA) is raising awareness among importers on the benefits of paying freight charges to shipping lines and their agents registered locally.

Raising awareness

KMA head of commercial shipping John Omingo said they are educating shippers on the use of appropriate international commercial terms such as cost insurance and freight (CIF), cost and freight and free on board (FOB).

Imports are shipped into the region on CIF terms, meaning all charges are paid in the source country, while exports go by FOB in which case the rates are also paid abroad, depriving local firms of a chance to benefit from maritime trade.

"We have started with big importers and hope to make an impact just like we did with the insurance component," Mr Omingo said.

If quotes are done locally and payments made in the country, there are charges that the importer can be exempted from, or they can negotiate better rates, thus saving on the cost of imports. This would also reduce the dollar import bill, thus strengthening the local currency, according to Mr Omingo.

Some industry players say the introduction of a law forcing importers to pay freight locally would be in line with international practice.

Marine insurance

Since January, when Treasury started enforcing the Marine Cargo Insurance law that requires importers to purchase cover locally, premiums collected from the sector have grown by 64 per cent, from Ksh694.9 million ($6.9 million) collected in the first six months of last year to Ksh1.4 billion ($140 million) over the same period this year.

According to Kenya National Shipping Line acting managing director Joseph Juma, importers should be forced to pay freight charges in the country by amending procurement laws to that effect.

"In other countries, procurement does not end in sourcing of goods. They go to the extent of demanding that the goods should be shipped by local players," he said, adding that internationally, countries come up with a cabotage regime that encourages importers to use ships registered in those regions.

In a cabotage regime, large vessels deposit cargo at designated ports, leaving local ships to redistribute the goods within the region.

A study by the United Nations Conference on Trade and Development (Unctad) observed that the bulk of seaborne cargo is from developing countries yet the bulk of ship owners/operators are from developed countries.

Consequently, the Unctad Code of Conduct for Liner Conferences was adopted to enable developing countries take part in the carriage of their goods.

Implementation of a law in Kenya requiring importers to purchase insurance cover for goods locally has been hailed as a step in the right direction, with maritime experts now focusing on freight rates.

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