Mixed re­ac­tion over plan to re­vive ail­ing ship­ping agency

Business Daily (Kenya) - - SHIPPING & LOGISTICS - Gi­tonga Marete gmarete@ke.na­tion­media.com

Amonth 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 tightlipped 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.

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