Kenya Ports Authority (KPA) and shipping lines have clashed over when free days before return of empty containers should start counting, with industry players saying shipping lines are raking in millions in demurrage charges at the expense of importers.
Kenyan importers use two freight models, the through bill of lading (TBL) and the merchant haulage. TBL refers to a single bill of lading covering receipt of cargo at the point of origin for delivery to an ultimate consignee at the inland container depot, Nairobi. Empty containers are also received by shipping lines at the ICD.
In the merchant haulage containerised cargo, the responsibility of the shipping line ceases after discharge of containers at the port, where the consignee receives goods and is given a time frame in which to return the empty container.
Importers are supposed to return containers to designated yards in Mombasa within 14 days for domestic cargo and up to 45 days for transit goods, failure to which they start accruing storage charges or what is technically known as demurrage.
Demurrage charges start from $10 (Sh1,000) per 20-foot container per day after expiry of the free period, and rise daily. While the 40-foot container attracts demurrage of $20 (Sh2,000) per day, these charges can rise to more than $100 (Sh10,000) per container per day, depending on the number of days the importer stays with the container and the shipping line.
KPA is pushing for the use of the ICD as an extension of the port, where cargo on merchant haulage should start counting free days when it lands at the ICD.
But shipping lines want the free days period to start when containers are offloaded at the port.
With this scenario, the logistics of handling empty containers — especially for those not imported on TBL — presents challenges to transport back the empty containers to lines without demurrage charges.
Opposing the move on when the free days should start counting, the Kenya Ship Agents Association (KSAA) in a letter dated May 15 stated that the contract of carriage is clear and determines the relationship between shipping lines and their customers.
When containers on merchant haulage are transferred to the ICD, importers take long to locate them and return the empties, exposing them to demurrage charges considering that shipping lines count free days from the day cargo lands in Mombasa.
The controversy arose after KPA issued a notice on May 3 asking shipping lines to support the standard gauge railway freight service by counting for free days when cargo lands at the ICD in Nairobi.
“To make the SGR freight services more attractive to cargo owners, shipping lines are further directed to support non-TBL containers railed to the ICD by commencing the free storage period of containers upon landing at the ICD and not Mombasa port,” the notice said.
In his response, KSAA chief executive Juma Tellah said they would not guarantee the request. “We will, as requested, pass on the directive to our principles for consideration. However, we would like to point out that our principals will have challenges with implementing free time to start at ICD for merchant cargo,” Mr Tellah said in a letter dated May 8.
However, KPA General Manager of Operations and Harbour Master William Ruto said the SGR needed KSAA’s support.
“Our position therefore is to request that KSAA engages their principals as part of their contribution towards the support of SGR and the growth of both the TBL and merchant haulage,” Mr Ruto said.
The controversy now threatens to throw importers into a spin, with delayed delivery of empty containers set to increase storage charges resulting in serious cost implications for imports.
According to Shippers Council of Eastern Africa (SCEA) CEO Gilbert Lang’at, the council was negotiating the issue with shipping lines. “Shippers are paying huge amounts of money and we are in talks with shipping lines to see how we can all support the SGR. The Kenya Maritime Authority (KMA) should also come out strongly and defend shippers,” he said, adding that the council was compiling data on how much importers pay in demurrage charges.
But Mr Tellah maintained that the contracts on merchant haulage and TBL were clear, insisting that they were not negotiable since the mode of carriage is defined in the bill of lading.
“That is something that cannot be negotiated. There is the option of TBL and shippers who want this mode go for it.
“But those who want their cargo delivered at the port choose merchant haulage and the free day period starts from the time it lands at the port,” Mr Tellah said. He said that the free days granted by a shipping line are pegged on the contract in place and the demurrage calculation arises from the same contract. The controversy comes even as Treasury secretary Henry Rotich in his Budget statement imposed a 20 per cent withholding tax on demurrage charges in a move supported by SCEA.
But shipping lines have warned that the tax might lead to an increase in freight rates. Mr Tellah said the Kenya Revenue Authority (KRA) was ill advised to propose such a tax since the charge was not revenue but a penalty, adding that shipping lines might be forced to increase freight rates.
“Shipping lines allow importers a free period within which to return empty containers and if they don’t they pay a penalty. That is not income but a deterrent measure supposed to discourage importers from keeping the equipment for long,” he said.
Mr Tellah argued that demurrage charges also cushion shipping lines since there is a trade imbalance between imports and exports.
“When lines ship empty containers out of this region they don’t earn anything because there are few exports. At least 65 per cent of containers go out empty, meaning that shipping lines don’t make profit on them. These are the issues that should have been considered before imposing the tax,” he said.
He warned that if shipping goods to Mombasa port became expensive to shipping lines, they might reduce the number of calls at the Mombasa and shift to Dar-es-salaam port.