Since the opening of Kenya Standard Gauge Railway (SGR) to freight services in January 2018, importers in Kenya have faced higher transport fees from using the government-run railway which connects the port city of Mombasa to the capital Nairobi. The processing of customs documentation for all imported cargo into Kenya by ship has been transferred to the capital, which is over 300 miles away from the port.
According to reports, costs have increased up to nearly 50 percent due to extra charges and longer customs clearance times at the Inland Container Depot (ICD) in Nairobi. Exacerbating this issue is a directive by the Kenya Ports Authority to haul cargo from the Port of Mombasa to Nairobi by rail.
Mandatory directive to haul cargo by rail
As part of China’s “One Belt, One Road” initiative, the newly built railway was meant to boost business activities in Kenya, but in reality, importers are faced with a mandatory directive enforced by the Kenya Ports Authority (KPA) to haul all bulk cargo by rail instead of truck. Under the contract between China’s Exim Bank, the Kenya Railways and the KPA, the latter has reportedly agreed to provide 1 million tons of cargo to the railway per year with a target to hit 6 million tons by 2024. Although the exact details of the contract are unclear, the KPA is allegedly contracted to transfer a minimum amount of cargo to the SGR annually to repay the loan.
Importers claimed that they have been forced to use the rail line since October 2018, though the KPA only confirmed the mandatory policy in August 2019. However, it was marginally altered in October after a series of street demonstrations by transport workers, activists, and local businessmen occurred in Mombasa from October to December 2019. The groups demanded that the government allows businesses to choose their preferred mode of cargo transport as around 200,000 people lost their jobs in the logistics industry.
Cargo transport policy mired in confusion
Despite the protests, little has changed and there seemed to be conflicting information pertaining to the cargo policy in Kenya. The China Road and Bridge Corporation, who built the railway, has denied establishing the policy. Authorities from the Kenyan department of transport also stated that the government was no longer making importers use rail.
However, according to the container freight and transport associations in Kenya, they are still being forced to use the Chinese-built SGR as the port security officials in Mombasa continue to divert shipments by preventing trucks from picking cargo up from the port. Intelligence received by Resilience360 from Kenya also indicates that using the SRG has significantly impacted revenue as importers have to use the more expensive rail option rather than road.
According to the Kenya Railways, imposing higher charges are necessary to cover the loan payments to the Exim Bank. For example, shipping a 40-foot container to Nairobi by rail costs KES 80,000 (USD 794; EUR 732), which is the same rate as by truck. However, rail freight requires importers to collect the goods by truck at the Nairobi depot which incurs an extra fee of around KES 25,000 (USD 248; EUR 228) and a depot fee of KES 15,000 (USD 149; EUR 137), which are all extra expenses for importers.
While the SRG has helped reduced cargo transport time from 24 hours to 8, Resilience360 sources indicate that cargo delivery time takes longer than using rail due to the aforementioned congestion at the Inland Container Depot (ICD) in Nairobi, which increases the risk of demurrage. Local sources say that currently the minimum clearance and delivery period for cargo is about 6 days, from the vessel’s arrival at Mombasa Port, to a maximum of 25 days due to delays via the SRG rail freight services. For dangerous goods, the clearance time can go up to a month. Previously, containers would be cleared in Mombasa and delivered by road within 4 to 7 days of arrival at the port. The extended delays have also caused demurrage fees as some transport carriers only allow 5 to 7 free days.
As the cargo directive in Kenya remains unclear, Resilience360 customers with shipments frequently using the transport route between Mombasa to Nairobi are advised to liaise with local logistics providers and anticipate extended transit times. When planning for cargo transport, account for the maximum estimated delivery times, total costs including hidden costs, and delays resulting from the Kenya Revenue Authority customs clearance processes.