SGR cargo pricing pushes troubled Rift Valley Railways into a corner

The Standard Gauge Railway (SGR) is set to squeeze the second operator on the Mombasa- Nairobi line Rift Valley Railways into a corner after the newly launched service announced significantly lower freight charges.

The SGR train service launched by President Uhuru Kenyatta announced it will charge shippers about Sh7 (7 US cents) per tonne per kilometre compared to the Rift Valley Railways (RVR’s) current rate of Sh24.

The initial average cost of shipping a standard 20-foot container from Mombasa to Nairobi by SGR train has been set at $500 (Sh50,000), which is significantly lower than RVR’s cost.

The RVR would not publicly state its rates but a 2013 survey conducted jointly by the Shippers Council of Eastern Africa and Trade Mark East Africa showed the RVR charged Sh67,500 for a 20-foot container of less than 14 metric tonnes (light), Sh79,000 for medium (14-22 metric tonnes) and Sh145,000 for heavy containers (more than 22 metric tonnes).

The RVR has a 25-year concession to ferry goods between Mombasa and Kampala.

The RVR however put a brave face, promising to take on the SGR.

“Our rates have come down over the years and we are ready to compete with SGR in a free market,” said RVR chief executive Isaiah Okoth.

“But the SGR rates are still ambiguous. You cannot have a uniform rate for 20 foot containers yet it is the weight that determines how much fuel the trains consume during the journey.”

Mr Okoth believes the SGR rates announced at the launch are “temporary and promotional,” terming them unsustainable.

The rock-bottom cargo haulage prices pose tough competition for RVR, which has run into problems with the Kenya Railways over under-performance and failure to pay the fees agreed with the government under the 25-year concession agreement.

“Without details on how SGR intends to charge different container categories, shippers might initially regard our service as expensive because RVR focuses only on heavy containers and fuel accounts for 25 per cent of our cost.”

When it finally starts to haul cargo in December, the SGR will be assigned 40 per cent of the Mombasa Port cargo, leaving the RVR to fight it out with trucks for the remaining containers. 

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It costs an average of Sh100,000 to move a container of goods by truck between Mombasa and Nairobi. “We have had a pricing challenge in the past one year when fuel prices were dropping because truckers were able to significantly lower their tariffs as fuel accounts for 75 per cent of their costs,” said Mr Okoth.

Speed, passenger comfort and lower charges emerged as the quick wins as Kenya changed its 122 year-old British-built pathway of the Lunatic Express to embrace the SGR.

The shift is set to trigger a change in the national transport matrix after President Kenyatta ordered the construction of a matatu stage at the SGR Mombasa Terminus “so that ordinary Kenyans can access the services of the train.”

The President also directed the Transport ministry to construct the road leading to the Miritini station.