SIM REPORT: COVID-19 continues to hamper logistics in Kenya, raising business costs
Kenya’s cumulative number of COVID-19 infections is low compared to the global average and slightly above other emerging markets in Sub-Saharan Africa. The pandemic’s damage to Kenya’s trade and macroeconomic outlook, however, has been significant. The African Development Bank forecasts that the economy will recover to 5.1 per cent growth in 2021 and 5.9 per cent in 2022. However, that remains contingent upon a reopening of the economy. The adverse impact on jobs and livelihoods is likely to be protracted, particularly amid new restrictions and as the national vaccination programme is planned to run until June 2023 at least.
More than 1.7 million jobs were lost in 2020, and unemployment tripled compared to pre-pandemic levels. The services sector was among the worst affected in relative terms by the contraction, with hospitality and tourism contracting by more than 83 per cent in the second quarter. Transport and storage contracted by 11.3 per cent year on year. Although the sector recovered markedly in the third and second quarters of 2020, a series of issues have emerged due to the pandemic that are likely to hamper economic recovery and undermine the ease of doing business in the coming year.
On 21 February, French shipping line group CMA CGM raised emergency port congestion surcharges for goods trade to Kenya due to slow processing times at Mombasa port – the largest commercial port and a key gateway for trade landlocked countries in East Africa, such as Uganda, South Sudan, and Rwanda. It is connected to 80 commercial ports worldwide and serves at least 40 shipping lines. CMA CGM increased prices to USD150 per twenty-foot equivalent unit (or TEU) and USD300 per forty-foot equivalent unit (FEU) due to the delays caused by the slow throughput at the port. By mid-March, the company was forced to withdraw the surcharges following widespread complaints by authorities, importers, and manufacturers in the country.
In mid-March, local media reported that 12,000 second-hand vehicles remained stuck at Mombasa. This was due to rules introduced in 2019 to boost the domestic automobile sector, prohibiting the importation of cars older than eight years. The cars stuck at the port were produced in 2013. But due to delays caused by travel restrictions and quarantine rules worldwide, the units could not be cleared before the end of 2020. Most of the 12,000 vehicles, representing about one month of second-hand car imports, reportedly arrived from Japan which accounts for 80 per cent of the Kenyan market for such goods. While it is likely the cars will be cleared over the coming months, importers are now required to provide proof that the delivery delays were due to COVID-19, increasing the administrative burden and further delaying their clearance.
Logistical hurdles have also been reported for rail freight this year. Many of the goods arriving at Mombasa’s container terminal are transported along a standard gauge railway (SGR) to inland container terminals (ICDs) in Naivasha, Nairobi, and Kisumu. Demand has increased markedly over the past few years, with railway freight increasing by 28 per cent in February year on year. The government has also sought to make it mandatory to transport goods between Mombasa and Nairobi’s and Naivasha’ ICDs, to finance the Chinese-built railway and pay back loans.
In a bid to speed up the throughput at Mombasa, authorities reduced cargo fares on the SGR in February and began using double-stacked container trains from January, increasing capacity from 108 TEUs to 152 TEUs per journey. Nevertheless, new issues began emerging in March. On one hand, about 550 cargo wagons were damaged by cranes at Mombasa in November last year, reducing overall capacity by half. Only 76 wagons have been repaired since. On the other hand, port officials have said that double-stacked containers cannot be scanned, which further hampers operations.
Combined, the issues highlight the complexity of logistics and the challenges faced by transport operators moving goods in Kenya as well as its neighbouring countries. The problems are further highlighted when demand and economic activity surges in response to eased restrictions. Nevertheless, the logistical disruption signals likely emerging issues over the coming months, particularly if restrictions remain in place.
Companies that are reliant on global supply chains in and out of Kenya should factor such impediments into operational planning, and carefully map out potential risk hotspots throughout the supply chain.