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Punitive destination charges will kill industry, shippers warn

Shipping & Logistics
 A ship docks at the Port of Lamu. [Robert Menza, Standard]

New plans by the State to regulate destination charges afresh will be damaging to the Kenyan economy, the Kenya Ships Agents Association (KSAA) has said.

In a letter to Transport Cabinet Secretary Kipchumba Murkomen and his Maritime Affairs counterpart Salim Mvurya dated October 30 this year, KSAA said over-regulation will discourage investments since it will make Mombasa Port less competitive

KSAA CEO Juma Tellah said highly regulated destination charges will lead to an increase in freight rates which will make the port more expensive to use.

“Freight rates are collected internationally and therefore increasing them will not benefit the Kenyan economy. At present, destination charges are paid to companies incorporated in Kenya that pay Kenyan taxes and employ Kenyan people,” said Mr Tellah.

He argued that if the destination charge component is paid abroad, instead of how it is currently done with local currency, it will worsen the exchange rate.

KSAA has now proposed that the government commissions an independent international consultancy to compare the competitiveness of Mombasa Port and other ports.

“If there is price control in the shipping industry, there is fear it will spread to other industries,” Tellah opined.

KSAA has proposed that shipping lines continue to keep money in Kenya rather than paying increased freight rates outside the country.

“Since shipping lines will need to cover their costs and to pay agents to provide a service, they will need to increase freight,” he noted.

Tellah noted that shipping line charges are only one component of the supply chain. He added that factors such as distance and time to destination, inland road transport fees, customs clearance procedures, border controls as well as port efficiency affect Mombasa Port competitiveness.

“Shipping lines contribute to the Kenyan economy and should be supported. The shipping industry is a major employer in Kenya,” he said.

He maintained that the objective of the shipping lines is to improve efficiency which reduces the cost to the end user - that is the Kenyan importer and exporter.

 A container being offloaded from a cargo ship at Lamu Port. [Omondi Onyango, Standard]

Tellah observed that when ships are delayed at the port, they can be charged between $30,000 (Sh4.2 million) and $100,000 (Sh14 million) a day in operating fees.

KSAA opposed the ongoing push by the Kenya International Freight and Warehousing Association (Kifwa) to reduce shipping line service charges.

Kifwa has accused the shipping lines of collecting many charges at the port of Mombasa, therefore reducing the competitiveness of the facility.

Kifwa national chairman Roy Mwanthi said the charges included equipment management fee, ex-border charge, late documentation charge per the bill of lading, container clearing charge, and logistics fees.

According to Mr Mwanthi, the charges amount to an additional $500 (about Sh70,000) per consignment and contribute to the high costs of doing business at the port.

Mwanthi recently petitioned Mr Murkomen and Mr Mvurya to address the high cost of doing business at the port following the increase in shipping charges.

“In the last three years, shipping lines have been introducing additional charges that have increased the cost of doing business at Mombasa port thus lowering the stature of our port, especially for the transit market that has  migrated to the Port of Dar es Salaam,” Mwanthi wrote.

He noted that the Tanzania Shipping Agencies Corporation (Tasac), which is the equivalent of Kenya Maritime Authority (KMA), stopped the introduction of any further charges by shipping lines.

According to Mwanthi, sometimes shipping lines demand up to $30,000 (Sh4.2 million) as replacement value for transit containers to DR Congo and South Sudan.

He said the shipping lines have also been demanding between $10,000 (Sh1.4 million) and $20,000 (Sh2.8 million) from clearing companies as a deposit for the container revolving fund.

KSAA has countered Kifwa’s sentiments by arguing that the push comes at a time Kifwa is trying to introduce a tariff that will lead to increased fees for Kenyan importers and exporters. KSAA said that the move behind this is to increase their own profits rather than to benefit the Kenyan economy.

This is in reference to a recent announcement by Kifwa that clearing costs will go up by December 1 this year to cushion agents against inflation.

Mwanthi had said that goods handled by air, sea, or land will attract a minimum of Sh5,000 for either 20 or 40-foot container, adding that some unscrupulous clearing agents were under-cutting, charging as low as Sh3,000.

A 20-foot container will cost a minimum of Sh15,000, while a 40-foot container will attract a minimum charge of Sh25,000 or 1.5 per cent of the total cost, insurance, and freight (CIF).

Clearing and forwarding agents will introduce fees of $100 (Sh14,987.99) for 20-feet containers and $150 (Sh22,481.99) for 40-feet containers for export goods.

Transit charges will be as follows: $100 (Sh14,987.99) for 20-foot containers and $200 (Sh29,975.39) for 40-foot containers.

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