Ideas & Debate

Business models that will be key to survival of SGR

A standard gauge railway cargo train. FILE PHOTO | NMG
A standard gauge railway cargo train. FILE PHOTO | NMG 

Since the commencement of cargo shipment on the new standard gauge railway (SGR), the Kenya Railways Corporation (KRC) has nothing much to boast about.

The sleeping giant exudes dizziness from a long slumber after it has been awakened that the transition from a monopoly to competitive business is an arduous task.

They have slashed their rates twice, yet there seems to be a struggle to optimally move freight to Nairobi to Mombasa since excess capacities have been reported.

The KRC management should focus on execution first and strategy second. Recent research shows that savvy leaders whose strategies succeed tend to focus on implementation imperatives from the onset. The freight, logistics and supply chain business is not exempt of the same.

The elation with which the SGR was greeted seems not to have lived (yet) to the expectations of both the populace and the KRC. Governments are not good in any business other than facilitate trading, in this case the SGR infrastructure.

In fact, paying for freight to KRC and then paying taxes to KRA amounts to a double entry or transaction insofar as a Blockchain scenario would entail.

This has been a latent cause for the disquiet among traders who would be flocking to the KRC offices with projections of their seasonal to yearly commitments on the freight capacity on the SGR.

In global logistics and supply chains, there must always be a focal point in all structures, processes and functions. All parties agree that time is money.

That is the premise of all transactions in any competitive supply chain or logistics landscape. Why would any trader give the KRC his more, to receive his less, in the end?

If in the wake of any odd day, the KRC announced a free-ride to Nairobi from Mombasa or vice versa, the result would probably remain as disastrous as ever.

Why? Traders have evolved from seeing their businesses in small transactions and are instead embracing the fact the whole is better than parts. End-to-end servicing and visibility is the ignition key that the KRC must seek.

Point-to-point services are no longer the vogue in the freight business. One-stop-shop is the strategy that major leading logistics service providers have found lucrative and their customers have affirmed the same through recurring contracts.

The Postal Corporation of Kenya had what they branded as EMS (a high-speed mail service). This service became a dead duck despite lower rates and lost business to private players like DHL and TNT. They had to rejuvenate themselves by creating an in-house clearing and forwarding arm to recapture what became an elusive market-share.

KRC needs to read from the same script and think about strengthening its functions and internal business processes. The structure alone is now a commodity, unless there is fulfilment, in logistics terms, to the traders. It is not all despondent though for the SGR and the KRC.

Fact is that the light at the end of the tunnel is an oncoming train headed for a disastrous collision unless the KRC leadership embraces future trends in the rail-freight business. Just like in the air freight business, KRC has to dialogue with integrators first and shippers second.

Talks with the latter has remained in the doldrums. In air cargo, airlines typically market their freight transportation services — airport-to-airport link — to freight forwarders.

Integrators, in contrast, market their logistics solutions directly to shippers, offering an integrated transportation chain with door-to-door service. Integrators, thus, act as both forwarders and carriers. They do this by entering into blocked-space-agreements with carriers and sell capacity based on market rates to shippers.

Likewise, shippers also commit themselves to taking up season capacities. This is always a win/win for both the seller and buyer of capacity.

KRC should research on such business models in order to survive. No moral suasion will coerce traders to take-up capacities on the SGR just to please anyone. They are in business and not some corporate social responsibility act.

The KRC can offer cargo space in two stages: allow freight forwarders to bid for cargo capacity – the cargo capacity committed during this bidding is called the allotted capacity.

Out of the remaining cargo space, KRC could allocate specific amounts to contracts. Second, the remaining capacity — the capacity available for free sale — could then be available for bookings within, say four weeks of SGR departure.

In such a strategy, marketing, product management and pricing are holistically taken care of, as well as margin steering and revenue management.

This will be more innovative by executing first before naming the strategy. Effortlessly, the SGR capacity will be optimally consumed by allowing each party along the transportation chain to focus on their core competencies rather than trying to do it all and get stuck.

An organisation’s biggest strategic challenge isn’t strategic thinking — it’s strategic acting. KRC should fathom that.