The logistics industry in the East Africa region faces many challenges, including regulatory, legislation, commercial compliance, and lack of sustainable trade facilitation solutions. To secure the safe and timely return of sea freight containers released for delivery of import goods or stuffing of exports, shipping lines require clearing agents and shippers to put up container deposits as a security for the empty containers.
In the East African region, container deposits have been cited as a major contributor to delays after unloading cargo from the ships, leading to the region’s transport corridors being ranked poorly in terms of cost of doing business.
The other alternatives to the container deposit have been the use of the traditional insurance approach or bank guarantee, where a shipper would pay a premium to obtain specific coverage for liability for demurrage, damage, and total loss. But this has failed to gain traction, and today, no insurance caters to the logistics industry’s needs.
Considering demurrage is not a risk per se, it is anticipated that the insurance solutions failed as a result of the inability to break the contractual and liability chains and the unmanaged commercial exposure involved. These limited options available in the market have forced shipping lines over the years to rely on cash deposits as their only security for the safe return of empty containers.
Container deposits come with their downsides. All parties involved have recognized the container deposit’s multiple administrative, operational, and financial challenges as a major trade barrier in Africa, significantly impacting Small and Medium Enterprises (SMEs). Notably, these extra costs are passed on to consumers, thus increasing the cost of living.
One of the critical challenges facing the logistics industry that the VCS seeks to address is cash flow issues. While container deposits vary between $500 and $2,000 (per Twenty Foot Equivalent Units (TEUs) the deposit amount is determined by geographical location, market demand, type, and size of the containers. These deposits impose a huge financial burden on clearing agents and shippers by idling resources, resulting in cash flow problems that translate to the high cost of doing business in the region. The deposits tie up huge amounts of cash for MSMEs, especially when dealing with large shipments of containers.
Due to cash flow constraints, MSMEs are not able to compete fairly with large companies that may have the resources to pay for the high deposits to shipping lines and get deposit waivers.
Viatrans SA, a Swiss-based Group, has developed a disruptive and innovative Viaservice Container solution (VCS), a sustainable solution to container deposit, and deployed the solution (VCS) in Kenya (Mombasa Port) and Tanzania (Dar es Salaam Port). It entails the issuance of the Solution (VCS) by Viaservice through its online platform 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 waives the container cash deposit and Clearing agents/Shippers only pay for other port charges to get the delivery order for their cargo. To access the VCS, clearing agents and shippers pay a non-refundable service fee to Viatrans SA.
This is a huge reprieve to the logistics industry stakeholders in the East Africa region who do not need to pay container deposits for their containers and can use VCS to cater to their containers hence freeing more cash held in container deposits to invest in other areas of their business and unlocking their growth potential.
According to Mr. Morgan Lépinoy Managing Director and global head of trade facilitation at Viatrans SA, through its subsidiaries in Tanzania and Kenya, Viaservice Tanzania Limited and Viaservice Kenya Limited, the solution (VCS) has freed over $10 million in working capital in the East African logistics industry. The Solution (VCS) covers all types of containers both domestic and transit to Zambia, Malawi, the Democratic Republic of Congo (DRC), Rwanda, Burundi, Kenya, Tanzania, South Sudan, and Uganda. In addition, the solution (VCS) has reduced the turnaround time of containers by an average of 2 -3 days, with great potential for avoiding demurrage charges and other related port charges.
The solution (VCS) was launched in Tanzania in 2020 to cater to the commercial interests of the shipping lines and their customers, availing them of the flexibility of using a business-friendly alternative to container cash deposits. Kenya is learning vital lessons from Tanzania, building on the successes of VCS, and exploring opportunities available to develop more solutions to the other challenges facing the East African logistics industry.
With the VCS, MSMEs can now compete on equal footing with larger logistics companies for the same cargo that they were constrained by the large deposits.
VCS has had a great head start in Kenya’s market since the shipping lines partnering with Viaservice in Tanzania are also Mombasa port users. These include Mediterranean Shipping Company (MSC) (Ocean freight), Messina, WEC lines and CMA-CGM who now know the value of VCS. Viaservice Container Solution (VCS) has enabled shipping lines to reduce 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.
According to Viaservice sources, under the deposit era, some clearing agents dealt with only 1-2 shipments per month, involving 20-100 containers per year. But with the VCS solution, these same clients are now handling severalfold the volume of cargo monthly. This transformation has led to a level, of liberated, and more competitive logistics Viaservice Container Solution (VCS) is working closely with the East African logistics stakeholders to adopt & utilize VCS as a solution to container deposit by industry regulators and stakeholders including the Shippers Council of Eastern Africa (SCEA), the Intergovernmental Standing Committee on Shipping (ISCOS), The Northern Corridor transit and transport coordination authority (NCTTCA), The Kenya Ships Agent Association (KSAA), The Kenya Maritime Authority (KMA), The Kenya Ports Authority (KPA) and the Tanzania Ports Authority (TPA) and revenue body to improve the efficiency of the northern corridor, reduce the cost of doing business through the corridor, fostering commercial compliance and supporting MSME growth hence the impact of the overall economic growth of the east African regional governments.
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
