UAP Insurance and Rwanda freight forwarders are now negotiating premiums, which is the final stage of scrapping cash deposits as a guarantee for containers.
Sources privy to the ongoing negotiations said UAP Insurance has proposed each member of the Rwanda Freight Forwarders Association pays Rwf2.3 million ($2,700) annually as collateral for containers, while UAP would guarantee transit containers.
The Rwanda Freight Forwarders Association has 150-member firms. Total collateral paid will be Rwf344.7 million ($403,560), which UAP Insurance will collect annually as premium.
Clearing agents are required to pay 0.5 per cent for the value of the container annually. They also pay pay an additional 1.5 per cent of the estimated value of the container annually as insurance against theft, damages and loss of the container.
The United Nations Economic and Social Council estimates that a standard 20-foot container can cost over $3,000 while a standard 40-foot can cost more than $4,000.
Analysts say the offer by UAP Insurance is good as it should reduce the cost of doing business and also positions the country’s clearing agents to handle big business in the region.
“Negotiations are a crucial stage but they are proceeding well. They touch on fees and premiums,” said a source at the Rwanda Private Sector Federation (PSF).
Guarantee for containers
Patrick Rugamba, the Underwriting and Reinsurance manager at UAP Insurance Rwanda and officials of the Private Sector Federation (PSF) are optimistic that the deal will be concluded soon.
The government has been pushing for scrapping of cash deposits as a guarantee for containers since 2014 when a delegation of the private sector federation travelled to Kenya to negotiate with the shipping lines.
While the container deposits are refundable upon the return of empty containers to the shipping lines, freight forwarders complain about delays in reimbursements. Clearing agents said it can sometimes take six months to get the refund.
According to freight forwarders, the cash deposits also create unfair competition against local clearing, freight and forwarding operators.
The Rwanda business community say they prefer Kenyan and Tanzania freight forwarders as they offer better pricing.
“Kenya freight forwarders charge $1,000 (Rwf853,814) per container, while many Rwandan clearing agents charge $3,000 (Rwf2.5 million) per container,” said Abdu Ndaru, CEO of TransAfrica Ltd, a Kigali-based transport and logistics company.
In April 2016, the heads of state of the 13th Northern Corridor Integration Projects directed ministers responsible for finance and trade to ensure that shipping lines and insurance companies finalised and signed an agreement on elimination of cash deposits for containers.
However, they gave a deadline of nine months for implementation.
Mr Ndaru is optimistic that the scrapping of container deposits will reduce transport costs for Kigali-bound cargo from the port of Mombasa in Kenya.
He said transporting a container from Mombasa costs $3,625, partly because of the existing non-tariff barriers (NTBs).
Some the shipping lines that have been contacted by UAP include Gulf Evergreen, Emirates, Oceanic Freight MSC and PIL.