Kenya Railways races to lock SGR haulage deals as exclusivity ends
The past two weeks have been a busy period for the Kenya Railways Corporation (KRC) managing director Phillip Mainga.
With the ended exclusivity of cargo haulage on the Standard Gauge Railway (SGR) to and from the Mombasa port, it is no longer business as usual for KRC with its management now thrust into a race for survival.
Keen on keeping the SGR operations afloat, KRC is in a frenzy to woo companies to haul cargo on the SGR even after President William Ruto vacated an August 2018 order that made it compulsory to ferry goods via the line.
Mr Mainga has in the past two weeks met the managers of several giant logistics companies including PIL, WEC Lines (K) Ltd, Mediterranean Shipping Company (MSC), Acceler Global Logistics Company, and Muranga Freight Forwarders.
“The two organisations agreed to continue working together to eliminate hurdles and use both SGR and MGR for cargo movement from Mombasa to Nairobi and Nairobi to Mombasa, to enhance the safe, secure and convenient movement of bulk haulage,” KRC said in a Twitter release following a meeting between Mr Mainga and the management of Acceler Global Logistics Company on October 5.
Smart Business was unable to get Mr Mainga’s comments on the KRC’s push to retain deals for cargo haulage.
The order compelling importers to use the SGR was meant to guarantee the viability of the rail investment.
Without the flow of cargo, the government and the Chinese operator will find it extremely difficult to repay the loan and keep the railway operational especially since the line has been lossmaking despite the cargo business assurance.
SGR, which was retired President Uhuru Kenyatta’s pet project, is responsible for a huge jump in Kenya’s debt that will now have to be met by taxpayers alone.
The government on-lent loans to State corporations have increased 124 percent to Sh882 billion mainly due to KRC for the implementation of the standard gauge rail.
According to a World Bank review of Kenyan corporations, the KRC has received Sh539.2 billion but has a net worth of a mere Sh634 million.
It was making a loss of Sh24.1 billion annually even with the State order for compulsory use of the line by local importers.
Cargo and passenger revenues from the SGR rose 7.8 percent to Sh7.1 billion in the six months to June, extending recovery from the global Covid-19 disruptions, according to the latest data from the Kenya National Bureau of Statistics.
The passenger train raked in Sh1.24 billion in the six months that ended June, a 49.6 percent jump from Sh829 million posted in a similar period last year.
The cargo service, which mainly subsidises the passenger line, marginally grew to Sh6.17 billion in the six months from Sh6.04 billion in a similar period last year.
Despite the growth, SGR revenues have been insufficient in running the railway line, with Transport ministry data showing that taxpayers spend an average of Sh1 billion per month to subsidise the operations of the Mombasa-Nairobi railway alone.
“KRC’s poor performance was largely driven by rising expenses (71 percent) between the financial year 2018/19 and 2019/20, outpacing revenues which, despite the pandemic, increased by 38 percent. KRC’s losses of Sh24.1 billion are responsible for 57 percent of total commercial State Corporation losses in financial year2019/20,” World Bank said.
With the State assurance of cargo flows, the rail, however, did very little to listen to customer complaints or fix their concerns over the lack of last-mile connectivity and logistical hold-up that delayed cargo clearance.
Cargo transporters had been protesting the directive by former President Uhuru Kenyatta to ferry their goods to Nairobi or Naivasha via the SGR for onward clearance, saying it had raised the cost of doing business, with the costs passed on to consumers.
Kenya Transport Association chairman Newton Wang’oo said SGR should compete with roads on an equal opportunity basis, which will ultimately lower the cost of transport and improve services.
Investors at Container Freight Station complained that investments worth more than Sh60 billion risk going down the drain if the government’s directive to transfer all imported cargo to Inland Container Depot (ICD) through the SGR continues.
Kenya Transporters Association also argued that the SGR move will make more than 15,000 people, who were working as drivers, and 15,000 turn-boys jobless.
“One train transports about 107 containers…this means 107 trucks are automatically off the road and at the same time in just one day, 107 drivers are out of the job without income,” said KTA chief operations officer Mercy Ireri then.
KTDA Holdings, which resisted the push to ferry tea via the rail, said using SGR would cost twice as much due to the logistical nightmares.
It would cost them Sh1.8 billion to transport 322 million tonnes of tea to Mombasa on the SGR compared to Sh940 million by road.
The rate of transporting the cargo per kilometre would rise from Sh4.2 to Sh8.2 on the cost of moving empty containers by road from the ICD in Nairobi to respective factories and back after loading.
Other costs included wharfage, handling, and freight charges, offloading and reloading at ICDN and the last mile to the warehouse, security cargo insurance cover and delivery timeframes, logistical reliability of food-grade containers, and the lengthy paperwork.
“KTDA and KRC team agreed that on the attainment of SGR rate to the envisaged matching of current road rate of Sh4.23 from the current railage rate of Sh8.27, initial trial runs will be expedited from Nairobi and being successful will be rolled out progressively to other stations,” partly reads a joint June 2021 declaration signed by KRC chairman James Siele and Simon Gikanga, the general manager of freight services at KTDA’s Chai Trading Company.
But to attain this efficiency, the cash-strapped loss-making railway would require immense investment to meet company needs.
KTDA for instance was asking for dedicated pick-up points outside ICDN where land value has risen, making it hard to secure space.
KTDA demanded a special rate of Sh4.2 per ton per kilometre which would mean the railway carries the extra costs.
They also wanted KRC to come up with modalities of door-to-door delivery that would include a multimodal system of transport from factories to warehouses.