Logistics industry stakeholders in Kenya have applauded a recent initiative by a Swiss-based firm to offer an alternative to the punitive container deposit, seeing it as a major reprieve to grow cargo volumes along the corridor.
Viaservice Container Solution (VCS) was introduced in the Kenyan market mid-last year to address the long-standing and menacing container deposit, one of the biggest regional non-tariff barriers. The rigorous container deposits the shipping lines ask shippers and clearing agents to pay to allow them free access to empty boxes for a limited number of days is a serious non-tariff barrier.
Robel Nuguse, Director at Ronash Limited, a company involved in clearing South Sudan-based cargo and who has already been onboarded into the solution, says that it is one of the greatest transformations the freight forwarders industry has witnessed in recent years. The service they are offering, he said, has solved a very big problem in the cargo-clearing logistics.
“The main challenge in this industry is container deposit. For a clearing agent to pay for a single container for transit, US dollars 4,000, and when one has 20 containers, this translates to over US $100,000 US dollars. It takes about 25-30 days to take cargo to South Sudan and another 15 days to have the deposit refunded by shipping lines. For about 45-60 days, your operating cash is fully held up there,” Nuguse said.
The container deposit, he said, has blocked small firms from seeking more business, afraid that they will end up not delivering due to the challenge of cash flow. Although shipping lines had a right to secure their containers, the amount in question has greatly hindered the sector’s growth. VCS entails the issuance of a guarantee by Viaservice in favor of a shipping line or agent on behalf of registered customs agents, freight forwarders, and shippers against which the shipping line or agent will waive the container cash deposit.
Mr. Daniel Kiange, the Secretary-General, Maritime Organization for Eastern Southern and Northern Africa (MOESNA) also said the container deposit has been a major non-tariff barrier with a solution to it not forthcoming. For a very long time, the MOESNA region has been importing mainly through the Mombasa port and the port of Dar es Salaam.
“If you go by statistics, in Mombasa, we are talking of 1.5 million containers per year and Dar es Salaam 900,000 to 1 million containers. The container deposit that is deposited for local cargo is between 500 and 1000 US dollars per container, depending on where your cargo is destined as ascertained by the shipping line’s risk assessment. For transit cargo, we are talking about 2000-5000 dollars,” Kiange said, adding that if you take the calculation and find out that 50-60 percent of these containers have deposit paid, we are talking about a colossal amount of money held by shipping lines as guarantees of usage of their containers.
“The situation is not good because that money is not in circulation, and the majority of the people who pay container guarantees are small businesspeople because their risk is also bigger. The big people might have a negotiated contract with the shipping lines and get a waiver for containers,” he added.
MOESNA has been working with the shipping lines on the way to operate but since the agency does not have a mandatory regulatory mandate, it is only an industry advisory, advocacy, and lobbying agency, its role on the the container deposit solution efforts hasnot been successful.
“We have tried to talk to insurance companies to introduce bonds or guarantees for these containers, but so far, we have not been very successful in terms of bringing them on board. The idea of premium is working out well in Europe and America. The leasing of the containers is another alternative that is not available in Kenya. We have to talk to companies coming up in the region, such as Viaservice, which is bringing an alternative container guarantee,” Kiange said.
Instead of paying US dollars 500 dollars, for example, to a shipping line, VCS can work with a non-refundable payment of as low as US dollars 50, according to Kiange.
Kenya Ships Agents Association Designate Chief Executive Officer Elijah Mbaru contends that the risk of returning empty containers is enormous for liners and charters as well as container leasing companies, hence why they ask for container deposits as collateral. There are also a lot of trade imbalances in the region at a ratio of 80 to 20 percent for imports and exports, respectively, raising the risk profile further.
“The containers are supposed to be moving with the ships since this is how they make money. A container at the port is safe, but that is not where it is supposed to be. If a container is locked at the port due to delay, that container would have made another round,” Mbaru said.
“It is not in the interest of the shipping lines to collect a container deposit. If you look at the cost of a container, it is enormous. Unreturned containers are money paid out elsewhere in terms of shipment that would have otherwise been transported by the same container. The container deposit is not money kept by shipping lines. It is like collateral the way you can take a loan. A container is a very expensive subject, and I think you can see in the market that shipping lines have lost containers. We see in Kenya today we have containers unreturned by customs agents for 20 years.
Supporting the Viaservice move, Mbaru said it is a good thing in the industry because it will go a step further to enhance seamless operations, and one would realize that for some customs agents, the container may have stuck at the port because this person has not paid a shipping line the amount of money required, and thus the container could be stuck at the bottom of the stacking yard and it cannot be moved.
The long-term benefit is that if the customs agents embrace these initiatives coming up in the market, in the long term, the gain could be quick movement of equipment and the shipping lines could be exposed to less risk of unreturned containers because third parties could have committed to pay if clearing agents do not return them.
Kenya is learning vital lessons from Tanzania, where the solution was launched in 2020 to cater to the commercial interests of the shipping lines while allowing their customers the flexibility of using a business-friendly alternative to a container cash deposit. The introduction of VCS in Tanzania has successfully improved the cargo clearance process through Dar es Salaam port. Customers no longer need to worry about raising cash deposits.
On the other hand, VCS has enabled shipping lines to experience reduced operational and financial risks. This has also allowed improved turnaround of containers, enabling shipping lines to optimize their resources and focus on other value-added services. VCS has reduced regional risk, making it more attractive to shipping lines.
According to John Mathenge, Regional (East Africa) Managing Director, Viaservice Limited, the company is in Tanzania serving 65 percent of clearing and forwarding agencies, an equivalent of more than 600 companies. In Kenya, four shipping lines have been onboard and another three are lined up to join the solution in the coming months.
This article was published by the editorial team at FEAFFA. For any enquiries, contact us via Email: editorial@feaffa.com/ freightlogistics@feaffa.com / onionga@feaffa.com Tel: +254733780240
