he shift of the cargo clearance back to Mombasa port is set to boost the Container Freight Stations (CFSs) and road transport businesses. Kenya Transporters Association (KTA) chairman Mr. Newton Wang’oo and Container Freight Stations Association (CFSA) Chief Executive Officer (CEO) Mr. Daniel Nzeki applauded the presidential order issued by President Dr. William Ruto that port operations are returned to Mombasa.
Kenya International Forwarding and Warehousing Association (KIFWA) chairman Roy Mwanthi said they expect booming business because it will not be mandatory to move cargo via the Standard Gauge Railway (SGR).
“The move by President Ruto is commendable and now we want the executive order to be implemented immediately,” said Mr. Mwanthi.
Fred Seka, the President of the Federation of East African Freight Forwarders Associations (FEAFFA), said that the logistics sector welcomes the move by the government to allow the business community to commercially determine their preferred mode of transport from the port of Mombasa.
FEAFFA and other logistics stakeholders had raised concerns with the initial directive, especially on mandatory transportation of cargo using the SGR.
Before the Standard Gauge Railway (SGR) started cargo freight, trucks were evacuating over 1,200 containers every day from CFSs in over 800 trucks. In a directive issued by the government to have all Nairobi- bound cargo be transported through the SGR, CFS operators were only allowed to handle Mombasa-bound cargo. This is less than 10% of the total Mombasa port volumes. This in turn led to the deterioration of Mombasa’s economy.
Maritime Business and Economic Consultants, in a study of the future of the CFS in the wake of the SGR done in 2017 found out that CFSs employed 1,804 employees, raking a monthly salary of Ksh102 million.
“Out of this number, 1,276 are permanent staff and 528 contracted staff,” the study led by Mr. Gichiri Ndua, an economist and former Kenya Ports Authority (KPA) managing director said.
At any given time, there was over 500 casual staff mainly involved in container cleaning, transfer of vehicles from port to CFSs, and general labour used for stripping, the report observed.
The permanent capacity constraint of the SGR against the impressive growth in the cargo volumes through the port of Mombasa led experts to question the rationale behind the government to vanquish road transport.
“Over the next few years, as cargo throughput increases and the SGR becomes more efficient, the two models will co-exist and therefore share on 40:60 at best for rail and road respectively,” Ndua’s study said.
Mombasa Port container traffic has been recording an average growth of 10% in the last decade and the facility currently handles over 33 million tons a year. The feasibility study carried out by the China Road and Bridge Construction (CRBC) on SGR in 2011 projected that the port will handle 41 million tonnes of cargo by 2028.
Mombasa Port yard capacity is highly constrained and cannot survive without the support of CFSs. This constraint was offset by the CFSs, with a holding capacity of 38,470 Twenty-Foot Equivalent Units (TEUs). An average holding of CFSs at any given time was 21,830 TEUs, thus 58% capacity utilization.
“What is of more 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,” Ndua’s report observed.
Although they had stabilized the logistics industry, the development of CFSs in the manner they did in Mombasa was largely unforeseen. The original idea was for the stations to earn profits by charging demurrages for cargo that was not cleared within the free storage period, which then stood at 7 days. Therefore, they were to serve as an extension of the port with a mandatory requirement for them to apply the KPA tariff.
Due to congestion at the port, ship turnaround deteriorated and, for the first time in history, KPA faced a Vessel Delay Surcharge (VDS), a highly punitive fee the shipping lines levy for unusual delays, which can go as high as Ksh30 million a day depending on the size of the vessel or the type of the cargo.
The congestion was so serious that an estimated 60% of the cargo volume through the Port of Mombasa could not be cleared within the free storage period.
CFSs became lucrative and 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 the acquisition of modern equipment by CFS operators meant that the demurrage model could not sustain their businesses. CFSs investment profile was estimated at over Ksh20 billion in 2017.
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 Kenya Revenue Authority (KRA) through the offices they hosted.
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% of the cargo nominated to stations by importers themselves as opposed to the KPA.
The writer is an editorial consultant and can be reached at firstname.lastname@example.org