Dispute over tariffs threatens to derail Kenya SGR cargo service plan

Wednesday November 29 2017

SGR cargo train.

Kenya Railways Corporation will charge $500 to transport a 20ft container from Mombasa to Nairobi on the SGR. PHOTO FILE | AFP 

By NJIRAINI MUCHIRA
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Cargo owners and transporters on the Northern Corridor feel short-changed by the Kenya government as it prepares to launch the standard gauge railway cargo service on December 1.

The target is to transport at least 40 per cent of the cargo arriving at the port of Mombasa to Nairobi.

They say the government-approved tariffs are not competitive compared with the charges offered by truckers.

The EastAfrican has established that the Ministry of Transport is unwilling to review the tariffs downwards, which may compromise the plan to drastically reduce the cost of doing business on the Corridor.

To guarantee that the SGR attracts business, importers allege that the government has arm-twisted them, directing the Kenya Revenue Authority to clear at least 40 per cent of cargo that was previously cleared in Mombasa at the Nairobi inland cargo depot (ICD). This directive targets cargo destined for Nairobi and its environs.

Consultations

Kenya Railways (KR) managing director Atanas Maina has said consultations are ongoing to resolve the standoff.

“The approved tariffs have a few issues, specifically on the costs of the last mile, but we are holding consultations with cargo owners and shippers,” he said.

According to the approved SGR freight tariff shared with various stakeholders, which The EastAfrican has seen, KR will charge $500 for a 20ft container, irrespective of the tonnage, from Mombasa to the Embakasi-based inland container depot.

Importers will however have to incur an additional last mile cost of between $100 and $250, depending on the tonnage, for transporting the cargo from the depot to their premises.

Considering that it costs between $750 and $1,000 to transport various tonnages of a 20ft container by truck, importers are expected to save between $100 and $250 by using the SGR. But cargo owners and shippers say the SGR does not offer any benefits for a 40ft container.

Kenya Railway will charge $700 for a 40ft container of upto 20 tonnes whose total cost will amount to $850 when you add the last mile costs. It costs $850 to transport the same cargo via road.
The SGR therefore becomes expensive when transporting a 40ft container with a tonnage of 21-27 tonnes at a cost of $750 which increases to $950 taking into account the last-mile costs. It costs $900 to transport the same cargo by truck.

For a 28-30 tonne 40ft container, SGR charges are set at $750, which increases to $1,000 with additional last mile costs. It cost $1,000 to transport the same cargo via road.

Exporters benefit

While importers will have to incur significant charges, exporters will benefit substantially, considering it will cost $250 for a 20ft container from Nairobi to Mombasa and $350 for a 40ft container of upto 20 tonnes. A 40ft container of 20 to 30 tonnes will cost $375.

While the Ministry of Transport has maintained the tariffs are competitive and are necessary to recover the massive investment pumped into the SGR project — $3.27 billion on phase I from Nairobi to Mombasa — importers and shippers reckon they will make it impossible for it to attract business.

They say that SGR should consider the case of the Rift Valley Railways which failed to make any significant cargo transportation mark not only due to inefficiencies but also because of exorbitant tariffs.

“The SGR rates are not exciting because the additional last mile costs make them more or less similar to trucks rates,” said Wanja Getambu-Kiragu, transport operations director at East African Online Transport Agency, adding that cargo owners and importers are concerned about cargo evacuation at the inland container depot.

While consultations are ongoing, The EastAfrican has established that importers are pushing the government to reduce the tariff to $350 for a 20ft container and $550 for a 40ft container.

Reduced cargo transportation time

The government, however, argues that importers will benefit from reduced cargo transportation time, considering it will take the SGR five hours from Mombasa to Nairobi while it takes trucks 12 hours on average to cover the same distance.

But this argument is being countered by the fact that it will take on average three hours for trucks to pick up the cargo from the ICD, due to clearance procedures involving various government agencies.

“The government must make the ICD efficient to save time, otherwise the SGR benefits will be minimal,” said Ms Getambu-Kiragu.

The Kenya Ports Authority is expanding the ICD to increase its capacity to a throughput of 450,000 twenty-foot equivalent units (teu) per annum from 180,000 teu currently. KPA is also building exit points to facilitate seamless operations.

The key advantages of the SGR include faster hauling of cargo at speeds of 80 - 100 km/h, a significant reduction in the number of trucks on the road, guaranteed safety and security of cargo, which KR maintains must be insured from the country of origin and also save importers from unnecessary costs like weighbridge charges and bribing police officers on the route.