Transport Cabinet Secretary James Macharia told a Senate hearing last week that the Container Freight Stations (CFSs) had been used by unscrupulous importers and traders to evade taxes and smuggle contraband goods in the country hence why the government was keen on closing them down.
This did not go well with the operators who said that the CS had contradicted himself with his remarks when he added further that the directive that was jointly issued by the Kenya Ports Authority (KPA) and the Kenya Revenue Authority (KRA) in July had since been suspended pending consultations with the stakeholders in the transport sector.
Without the presence of the CFSs in the logistics chain as the government has taken the stand, the ongoing consultations may not yield the desired results since importers will finally result to the use of SGR due to the manner in which the industry has grown in the recent years.
Before the SGR started operations, the licensed CFSs, which at one time stood at 16 and located in Mombasa were handling about 80 percent of the domestics containers imported through the port, a move that provided 1000 trucks with cargo every day.
Mombasa port container traffic has been recording an average growth of 10 percent in the last decade and the facility recently handled over 32 million tons a year. The feasibility study carried out by the China Road and Bridge Construction on SGR in 2011 projected that the port will handle 41 million tonnes of cargo by 2028.
Kenya Institute of Public Policy Research and Analysis (KIPPRA), a government policy think tank, has put the operational capacity of the railway in terms of the rolling stock already acquired and configuration of the line, at 12 trains daily at maximum, 8.7 million tonnes a year. The 2011 feasibility study estimated that the SGR would handle over 22 million tons.
The Internal Container Depot (ICD) in Embakasi also has a serious capacity constraint, which is given at 450,000 TEUs per year. The government has been forced to lease extra storage area outside the ICD which is using to handle overstayed cargo.
This compares poorly with the Mombasa, which an overwhelming has combined capacity of slightly over 2 million TEUs, with CFSs contributing 700,000 TEUs assuming a cargo dwell time of 7 days (time between the cargo being offloaded from the ship to the time of evacuation).
“When the situation stabilizes, the road and SGR will ferry 60 and 40 percent respectively,” said an industry player.
SGR is currently handling Nairobi bound cargo alone. With the extension of the railway line to Suswa and the planned rehabilitation of the Medium Gauge Railway (MGR) line to Malaba, it is expected that it will also handle some transit cargo.
With the existing capacity, the SGR will not be able to handle both the domestic and transit cargo, according to Economist David Ndii, who has written extensively on the SGR.
Mombasa port yard capacity is highly constrained and cannot survive without support of CFSs in long term. The reported holding capacity of port at 70 percent utilization, the recommended rate for a port to be categorized as not congested, was 22,500 TEUs. The port on average held 16,000 TEUs in 2017 per day.
This constraint was offset by the CFSs, with a holding capacity of 38,470 TEUs. An average holding capacity of CFSs at any given time was 21,830 TEUs, thus 58 percent capacity utilization.
“What is of major concern is that CFSs hold more containers than the port. Indeed, if the 21,830 TEUs were to be dumped in the port, one would not get a place to step in at the terminal,” Mr. Gichiri Ndua said in a report in 2017 that interrogated whether the SGR would kill CFSs.
Due to the increased cargo volumes over time that was not matched with infrastructural projects development, the port reached a point of rupture in 2007 that necessitated creation of CFSs. The congestion was so serious that an estimated 60 percent of the cargo volume through the port of Mombasa could not be cleared within the free storage period of 7 days.
CFS investors were supposed to generate their profits by levying storage fee on the overstayed cargo, a move that was highly lucrative though initially opposed by the shippers who accused some stations of deliberate delays to earn more profit.
They proliferated very fast and in a span of a few years, the number had grown to over 10 CFSs. The extra capacity they created gave KPA a breathing space to develop more infrastructural projects-new container terminal, extension and deepening of berths and dredging of the channel to allow huge vessels.
This, in turn, increased efficiency at the port and with the CFS business becoming more competitive, KPA gave importers leeway to nominate cargo to the stations of their choice.
The huge infrastructural development at the port and acquisition of modern equipment by CFS operators meant that the demurrage model could not sustain their businesses. CFSs investment profile is estimated at over Sh 20 billion, according to Ndua report.
With no room for tariff adjustment, CFSs had to innovate to remain afloat. They then introduced tailor-made arrangements with their customers, largely serving as distributive points as well as storage areas for the already cargo cleared by the KRA cleared through the stations.
Some CFSs allowed cargo to stay in their yards for up to 60 days. The CFSs became so popular among the importers that those with good marketing skills had over 80 percent of the cargo nominated to stations by importers themselves as opposed to the KPA.
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