Lack of cabotage law costing importers, economy money

Freight fees that could accrue to local firms end up overseas, hence denying our economy much-needed revenue. [Omondi Onyango, Standard]

Although Kenya has enacted several shipping-related laws over the last 15 years, the area of cabotage law remains untouched despite its potential economic and security benefits.

The absence of cabotage law continues to cost local shipping and logistic firms millions of shillings every year.

Freight fees that could accrue to local firms end up overseas, hence denying our economy much-needed revenue.

Players in the shipping sector say if the law is enacted today, it would enable Kenyan importers to save up to US$6 million that they currently pay to foreign firms annually in destination charges for cargo landing at the Mombasa port. Such money would be payable to local firms.

The levies include a delivery order fee of US$70 per container, container cleaning charges amounting to US$20, container deposits of US$50 and an administration fee of $40 per container.

These fees, which a local freight company would ordinarily not charge, contribute to the high cost of goods. In fact, up to 20 types of destination charges are added to the normal rates. These effectively contribute to the high cost of goods due to the expensive supply chain.

By paying freight rates in the country, importers would help local freight firms to secure part of the US$3 billion paid to foreign freighters to import US$14 billion worth of goods annually.

Imports are shipped into the region on cost, insurance, and freight (CIF) terms, meaning all charges are paid in the source country, while exports go by free on board in which case the rates are also paid abroad, depriving local companies a chance to benefit from maritime trade.

CIF is an expense paid by the seller to cover the costs, insurance and freight against the possibility of loss or damage to a buyer while cargo is on transit to an export port named in the sales contract.

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.

There is therefore need to amend the procurement laws and come up with cabotage law. Cabotage principle encourages importers to use ships registered in those regions. It also encourages vessels to deposit cargo at designated ports, leaving coastal ships to redistribute the goods within the region.

Paying rates locally would also help in restructuring the Kenya National Shipping Line since imports would be channeled through the carrier.

The form of cabotage policy a country adopts largely depends on its economic, political and security concerns. Some countries such as the United States claim that their strict cabotage regime, beyond economic purpose, is aimed at averting international terrorism.

Mr Mwangura is a public intellectual at Nautical Advisory Services