Plans to reduce shipping costs sail into stormy waters

Plans to create rules to protect shippers using the East African ports from inflated charges levied by cargo interveners are on track despite fears that selfish interest could derail the process.

The fears emerged after the work plan that stipulated that unwarranted costs levied by the shipping lines be scrapped within the next  three months was rejected, forcing the region’s maritime regulators to go back to the drawing board to map out the next course of action.

Business Daily has however established that, whereas publicly shipping industry stakeholders appear to remain committed to the call to reduce freight costs through dialogue, secretly, many fear that selfish interest by the four principal players in the industry – ship owners, shippers, ship agents and transporters – may disrupt the process.

A regional meeting of maritime commercial service stakeholders in Mombasa called to adopt a work plan on the elimination of unwarranted levies ended prematurely after the ship owners and ships agents stuck to their guns saying they would not bow to pressure to reduce charges without a corresponding step from land-based transport logistics service providers.

Since the enactment of the new Merchant Shipping Act 2009 early this year, shipping lines have been in the spotlight for increasing the cost of transport.  

A provision in the new law bars them from investing in other parts of the transport logistics value chain since their anchor position could easily result in unfair competition that would hurt the industry.

Since then, shipping lines have enacted a well-orchestrated plan to block the move on the premise that the structured dialogue mechanism allows them room to interrogate charges levied by other players.

“The discussion has been narrowed down to ship owners against land based transport logistic supply chain service providers. The move could backfire because some of the charges have history, like government taxes,” said Mr John Msafari, administration director at the Alpha Group.

He added that if the current situation was not remedied, the local economy would suffer as liners were likely to withdraw from the region due to high overhead costs.  

Sandwiched by the two warring parties in the whole debate are the Intergovernmental Standing Committee on Shipping (ISCOS) and Kenya Maritime Authority (KMA) which are accused of not coming up with a proper mechanism to interrogate all charges levied by each transport logistic service providers before proposing the reduction of those charged by carriers.

High operating costs

ISCOS is a permanent secretariat mandated by east African governments to negotiations with shipping lines over maritime transport costs in the region.

KMA director general, however, expressed optimism that the plan would sail through despite the concerns.

“We shall call another meeting soon and all the charges levied by other cargo interveners in the transport logistic chain will also be interrogated,” said Ms Nancy Karigithu, KMA director general.

 “(Our intention is not) to control the industry but to establish key performance indicators that can apportion the cost where it falls,” said Karigithu.

If last week’s meeting had ended conclusively, shipping stakeholders would have adopted a work plan that would have seen eight charges levied on importers by shipping lines and shipping agents scrapped. Four charges were also to be reduced.

Kenya Ships Agents Association (KSAA) Executive office Fredrick Wahutu said the plan to force shipping lines to reduce charges without a corresponding move by destination service providers would scare away some liners from the regional ports.

“In the last one year, two shipping lines have pulled out of the region because of high operating costs. There are two others that last year reported a loss of US$1b and US$500m respectively and are contemplating closing shop,” said Wahutu.

He cited the recently introduced Value Added Tax (VAT) on marine and stevedoring charges– which came into effect on 12th of this month – as some of the factors that would lead to an increase in freight costs.

The charges slated for elimination include a $60 to 65 delay order fee and terminal handling charges that stand at $90 for a 20ft container and $135 for a 40ft container.

Others are the Lift on or lift of charges, container handling charges (US$25), the 10 per cent administration fee (US$40 minimum), the US$ 50 equipment management fee, handing over fee which currently stands at US$ 25 per document and the Container Freight Service charges.

Those for reduction are; manifest correction charged at US$30, bill of lading amendment charge which ranges between US$ 30-50 and container demurrage charges.

The elimination of such costs is expected to bring down the cost of trade, a move that would also be reflected in the commodity prices that has continued to skyrocket to the detrimental of the region’s economy.

Mr. Msafari, however, said that all costs along the transport logistic supply chain should be looked into as a whole instead of concentrating on those charged by the shipping lines alone.

Experts say that though the international ocean freight is currently at fairly competitive prices elsewhere, the overall transportation costs in the region stills averages at 20-40 percent of Cost Freight and Insurance (CIF) as compared to 4 per cent in the other parts of the world.

“Land based transport service costs should also be looked at alongside ocean freight costs,” said Msafari.

Port tariff which are not harmonized with other charges are also to blame for the high cost of doing business along the Northern corridor, he added.

The work plan, which was dismissed – had proposed the reduction of the shipping cost in the next 90 days.

The plan was drawn by ISCOS in conjunction with KMA and Surface and Marine Transport Regulatory Authority (SUMATRA) of Tanzania.

KMA says hat the three regulatory agencies are developing consensus which once agreed upon will be incorporated as rules and regulations by the respective governments.