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Shipping & Logistics

Freight forwarders feel the pinch as demurrage charges shoot up

 A cargo train arrives at the Inland Container Depot,
A cargo train arrives at the Inland Container Depot, Nairobi. FILE PHOTO | NMG 

The increase in demurrage charges at the Port of Mombasa by about $5 to $10 has led to the loss of business for forwarders who have reported that their customers are choosing alternative import routes or not importing at all to avoid incurring extra expenses.

In August this year, the government implemented a 20 per cent withholding tax on demurrage charges paid to foreign shipping lines. This has, in turn, resulted in the shipping lines increasing their demurrage to enable meet their profits and maintain their margins.

“Before the tax, we were paying at most $20 a day demurrage charges depending on the size of the container after the free days but now shipping lines are charging up to $30 a day of demurrage charges,” said John Orwa, service delivery manager at Multiple Solutions Limited.

“The shipping lines have transferred the cost incurred due to the withholding tax to the importer.”

The initial plan by the government on adding costs on the demurrage was to impose them on the shipping line but now they have also increased demurrage charges payable by the forwarder on behalf of the client. This means the client also incurs the extra cost.

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Because of increased costs, some importers are choosing to transport their cargo through the Dar es Salaam Port into other areas in East Africa, rather than using the Mombasa Port, the regional hub. This is leading to loss of business to the forwarders, who now want the charges reduced to keep them in business.

“With the growing cross-border relations, there is the fear that more importers may choose to use alternative routes in order to avoid paying the high demurrage charges. If you are a Kenyan importer, you may not have much choice but to use the Mombasa Port,” said Mr Orwa.

“Foreign importers can choose to use Dar es Salaam especially if they are transporting goods to Uganda, instead of going through Mombasa.”

The Dar es Salaam port offers competition to the Mombasa Port due to its close proximity.

According to a report released in April this year by global research firm PricewaterhouseCoopers (PwC) on the African ports, Dar es Salaam is the closest rival for Mombasa because of its better operational performance.

From a transport and logistics viewpoint, the main railway ports in East Africa are Mombasa, Djibouti and Dar es Salaam.

Djibouti poses much less of a threat to Mombasa due to the latter’s larger hinterland and operational efficiencies.

Mombasa port has also established warehouses and better hinterland connections. This places it strategically as a major gateway to East Africa. Thanks to its large throughput, it naturally performs the role of a regional hub.

The Mombasa port has been fighting to keep this status and has been making significant investments in upgrading the road and rail network to accommodate throughput of 2.5 million TEUs by 2020.

However, Dar es Salaam has not been sitting on its laurels, and last year it announced that it had received $12 million grant from the World Bank and $345 million credit for its Dar es Salaam Maritime Gateway Project.

This is meant to improve the effectiveness and efficiency of the port for the benefit of the public as well as private stakeholders. The project is expected to be complete in 2024.

Once complete, the Dar project will decrease trade and intermediary costs for businesses thus making it the port of choice for imports, strengthening the competitiveness of the country.

“The demurrage costs in the Dar es Salaam port are lower compared to the Mombasa port. Since the charges were implemented last month, I have lost customers as they are seeking alternative routes in order to avoid paying extra charges while other have stopped importing altogether,” said Brian Ochuodho, Service Delivery Manager KenFreight, Mombasa Kenya.

- African Laughter

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