There is disquiet at the Port of Mombasa and the quiet storm is shortly coming ashore. The Container Freight Stations (CFSs) are facing eminent closures due to direct ferrying of inbound cargo by the SGR into the modernised Nairobi Inland Container Depot (ICD).
Is the Kenya Ports Authority (KPA) and the Kenya Railways Corporation (KRC) — both government institutions — competing with the private sector?
The SGR-deal seems to contain cryptic clauses that are clearly latent to a majority of Kenyans. Being a public good that Kenyans are heavily indebted, its function to facilitate trade should be paramount.
Seeing that the freight being ferried by the SGR belong to private entities, the contractual terms and conditions in the bills of lading at the ports of origin need to be respected if not strictly adhered to.
While the government can introduce policy and change both legal and regulatory frameworks within the logistics industry, such amendments should be considerate of the already existing structures, processes and functions. Containerisation has revolutionised maritime shipping and port terminal operations and supported the substantial growth in international transoceanic trade over the last decades.
Aside from politics, indeed the Port of Mombasa (and its hinterland) has not reached its optimal potential as the regional port of choice within East and Central Africa. It only lacks viable and rigorous competition from Dar es Salaam etc. Effective regionalisation of the Port of Mombasa would make the owners of the CFSs go to sleep without worrying about the ongoing play by KPA and KRC. The major issue is that so far the statistics of our outbound (export) freight via the SGR are not loudly talked about. Equally, our balance-of-trade conversations are also in low tones.
While traditionally most of our ports (Kisumu included) have fairly clear and distinctive hinterlands, containerisation should initiate a trend towards large overlapping hinterland regions. The competitive landscapes need to evolve into large container transshipment facilities. The integration of such transshipment hubs will lead to a new paradigm in port evolution. Transshipment hubs tend to have greater depth in view of accommodating modern containership drafts, placing them at a technical advantage and inciting the setting of hub-feeder services and interlining/relay configurations between mainline vessels.
As intermediary locations, they can offer a compromise between economies of scale in vessels and terminals, and the need to maximise connectivity in maritime networks. With manufacturing as a key pillar in our strategic economic development plan, the CFSs should start morphing innovatively to fit their functions within such scope.
There is the Dry Port in Naivasha in the pipeline, an ICD in Taita Taveta is being looked into, the revamping of the ICD in Kisumu as well as its port is also on the drawing table, and maybe the Port of Lamu will one day be completed. Mombasa therefore needs to think out of the box and diversify its business activities.
But all is not lost for the survival of the economy of the coastal residents. The Special Economic Zones Act 2015 is still in place. The government should create a foreign trade instrument to promote Kenyan service exports. With this tool, service exporting companies, including consortium, may request authorisation from the Kenya Revenue Authority to import capital goods and spare parts (the latter only for transoceanic services) totally free of import tariffs and VAT, in exchange for providing exportable services (e.g. 1.5% the FOB value of the imports capital goods). The system should allow for the import of the capital goods corresponding to the tariff items listed by the Ministry of Finance. The structures that are CFSs could seize such an opportunity and become manufacturing and logistics fulfilment hubs for both local and regional firms.
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Note: The results are not exact but very close to the actual.
