A month ago, Cabinet approved proposed revival of the Kenya National Shipping Line (KNSL), throwing a lifeline on the parastatal that is nearing total collapse.
As a key strategy in the recovery of KNSL, Cabinet proposed among other things, giving the company the sole mandate to handle Government cargo, estimated to be worth over Sh500 million annually.
The government further signed a memorandum of understanding with global shipping line Mediterranean Shipping Company (MSC), as partner in the venture that is expected to see KNSL get to its feet and help Kenya exploit her potential in the Blue Economy, a key plank in Jubilee administration’s economic plan.
At least Sh250 million will need to be pumped into KNSL to make it fully operational with a target to create over 6,000 jobs five years after its revival as it seeks a slice of Sh300 billion worth of business in the shipping industry.
Insiders who spoke to Shipping & Logistics revealed that the nitty-gritties of the MoU are being worked on, in a process that is expected to take a couple of months. Officials at the Shipping and Maritime Affairs department and those of MSC were however tight-lipped and declined to disclose what was on the cards for the two parties, citing confidentiality of the deal.
But as the ink dries on the paper on which the MoU was signed, shipping experts have warned that it will take more than just dedication of the Sh500 million government business to revive KNSL with the shipping business getting competitive by the day as new lines pitch camp at the Mombasa port.
Just last month, German multinational Hapag-Lloyd started operating at the Mombasa port with direct connections to the United Arabs Emirates (UAE) and India, joining dozens other lines operating at the biggest port in East Africa, whose capacity has been increased to 1.65 million Teus. By 2021 when construction of phase three of the second container terminal is expected to be complete, the port will have a capacity of nearly 3 million teus.
Players in the shipping sector are pointing at a possible clash of interest among the lines that have been operating at the port, especially those handling government cargo currently.
For instance, Maersk Shipping Line which controls at least 40 per cent of cargo passing through Mombasa port and PIL, also a global player, were suitors angling to take over KNSL before MSC won the deal.
According to Alfayo Otuke, a director at the Global Maritime, a consultancy firm that specialises in tracking of containers among other functions, the government might find itself in an awkward position trying to terminate contracts with other shipping lines and giving business to KNSL, and by extension MSC, which is their competitor.
“I am seeing a situation where these companies are likely to go to court over these contracts and if they win, a lot of money will be lost in compensation of breach of contracts,” he said in a telephone interview.
“If the private shipping lines lose business they might shed jobs. Are these people going to be employed by KNSL on similar terms? MSC is no doubt a world leader in container shipping and will bring in expertise in field. However, there are other types of cargo the government needs to partner with other shipping lines to deliver,” he added.
KNSL was formed in 1989 under the Merchant Shipping Act and is the only National Carrier of the Kenya Government. At the time, the shareholders included the Kenya Government through Kenya Ports Authority (KPA) with majority shares.
Later on in 1997 the company's shareholding was re-organised to bring in Mediterranean Shipping Company (MSC) as a strategic partner through Heywood Shipping Co. Limited and injected over Sh50 million in the firm.
A Blue Economy committee that was created in 2016 to help the country identify challenges in the performance of maritime sector is believed to have been behind the recent deal that saw MSC gain control of the line.
Two months ago, the committee incorporated experts from the International Maritime Organization (IMO) and World Maritime University to help the country lay a foundation on which the maritime sector will serve as the next economic frontier.
Shippers Council of Eastern Africa (SCEA) executive officer Gilbert Lang’at said KNSL’s revival was in the right direction, adding that systems should be put in place to ensure that is does not collapse again. He observed that despite the competition witnessed among shipping lines before MSC won, the bottom line was competitiveness.
“It will require a lot of planning involving KNSL and MSC working with other stakeholders. Pushing government cargo to the shipping line will not guarantee business because if services are not satisfactory, importers doing business with the government will be inconvenienced. Hiking rates with the view of maximizing on profits should also not be part of their strategy,” he said.
He said to start with, the line could handle bulk cargo such as clinker and oil products, that are not as complicated as containerized goods.
“Oil and gas that is in high demand within the region is a sure way to get an entry. But containers require that an operator buys their own equipment which is a very expensive venture,” he said, adding that the government would also need to invest resources in the shipping line, including buying of containers and vessels.
The Kenya International Freight Forwarders Association (Kifwa) chairman William Ojonyo said KNSL will need strong backing from not only the government but also the private sector.
“This is the high time importers showed solidarity with the line and give it full support. Without the private sector realising that we will only build our economies by giving support to local companies, we will not exploit the full potential in the blue economy. At the same time, we hope we are not going to experience the same frustrations we are witnessing with other government agencies in the clearance of cargo,” he said.
In an earlier interview, KNSL acting managing director Joseph Juma noted that one of the ways of reviving KNSL would be to allocate a percentage of cargo to be shipped thorough the line, and encourage partnerships with major international shipping lines. This is in addition to government cargo that should as a matter of law be shipped by KNSL.