How importers plan to use Lamu to lower costs

Kenya Ports Authority (KPSA) gantry cranes offloads containers from a Transhipment Cargo Vessel at the port of Lamu in Lamu County on Saturday, September 18, 2021. [Maarufu Mohamed, Standard]

Lamu Port, with its open harbour and deep channel, can accommodate big vessels that come with economies of scale to lower freight charges.

This is according to players in the shipping industry who have had to contend with a shortage of containers, port congestion and escalating freight rates in recent months.

The cost of freight, according to Gilbert Langat CEO Shippers Council of East Africa (SCEA), has increased threefold due to a shortage of containers that are held up in Asian ports after Covid-19 restrictions were relaxed.

Mr Langat explained in an interview that a small vessel that can ferry 1,700 Twenty-foot Equivalent Units (TEUs) can command $51,000 (Sh5.6 million) a day in a six to 12-month contract.

Conversely, a 4,400-Teu ship can command $100,000 (Sh11.1 million) a day. Ships carrying 6,800 Teas can pocket $111,500 (Sh12.3 million) a day.

This means the cost per unit is significantly reduced when importers use larger vessels.

Lamu Port, which has three berths each with a depth of 17.5 metres and a length of 400 metres, has potential to attract huge vessels with transshipment cargo destined for Tanzania, Mombasa, Somalia, Indian Ocean Islands of Comoros, Madagascar, Seychelles and South Africa.

This, according to Silvester Kututa, Managing Director Express Shipping and Logistics (ESL), makes the port attractive to importers. 

According to Juma Tellah, CEO Kenya Ships Agents Association (KSAA), some of the challenges that affected transshipment business, such as the requirement to lodge entries and bonds, which was a compulsory demand by the Kenya Revenue Authority (KRA) before Lamu became fully operational, have been fulfilled.

“Lamu Port and its open harbour can help importers reduce the cost of freight because of its capacity to handle big vessels,” Kututa said.

In the first three months of this year, transshipment traffic increased to 69,658 TEUs from 41,363 TEUs during a similar period in 2020, according to statistics by the Kenya Ports Authority (KPA).

KPA said increased infrastructural development and cargo handling capacity at Lamu will make transshipment business the next frontier for big profits.

A joint task force by KPA and KRA has recommended major reforms that will remove bottlenecks that make shipping lines shy away from Kenyan ports when it comes to transshipment business.

The team visited three ports - Tangier in Morocco, Colombo in Sri Lanka and Malta in Malta - to benchmark on how they have managed to attract transshipment business.

In a report, the team said the three ports have managed to simplify the processes involved in handling transshipment cargo, which has attracted more shipping lines.  

Handling transshipment in Malta takes less than 24 hours; Colombo and Tangier take less than 12 hours. Mombasa port takes between eight and ten days. 

Meanwhile, Covid-19 has created a logistical nightmare in handling loaded and empty containers.

Empty containers are piled up in cargo ports in Europe and Asia, while others are piled up on vessels especially on transpacific lines.

This has created a huge container shortage is Africa. As the pandemic spread from its Asian epicenter in early last year, countries implemented lock downs, halting economic movements and production.

Many factories closed temporarily, causing large numbers of containers to be held on ports. 

To stabilise costs and the erosion of ocean rates, carriers reduced the number of vessels out at sea.

This put the brakes on import and export, meaning that empty containers were not picked. Importers who get their goods from Asia couldn’t especially retrieve empty containers from North America and some parts of Europe.

Asia, being the first hit by the pandemic, was also the first to recover. So, while China resumed exports earlier than the rest of the world, other nations are still dealing with restrictions, a reduced workforce, and minimal production.

Container ship charter rates now stand at more than double their pre-Covid-19 rates. Charter rates for shipping have more than quadrupled from the start of this year and are now 128 per cent above their previous 2005 peak, according to Clarkson Research Services. 

“I expect this situation to prevail for months to come because of the high demand for imports by US and some parts of Europe as we move towards the end of the year. The situation can only improve next year,” Tellah said.