Consumers stare at rise in cost of imports on high railway levy

 

THE STAR

Consumers in Kenya are staring at a sharp increase in the cost of goods shippers now warn, as MPs push to raise the Railway Development Levy (RDL) from 1.5 per cent to 2.5 per cent.

This is for all imported goods coming into the country and is part of amendments to the Finance Bill 2024.

RDL is a fee collected on imported goods in Kenya to fund the Standard Gauge Railway (SGR) and other railway developments.

The Shippers Council of Eastern Africa (SCEA) yesterday said while it appreciates the need for well maintained and adequate infrastructure development, they are concerned the 67 per cent jump will increase the costs of consumer prices, calling on the government to reconsider the proposal.

“The frequent increases in fees and charges by the various agencies, though enhancing revenues, may result in reduced expansions, job loss, and inability to create more jobs,” SCEA chief executive, Agayo Ogambi, said yesterday.

SCEA proposes a stay in the increment for sometimes and calls for an engagement to agree on a modest possible increase over a longer period.

“The frequent increases are of great concern and possibly require a review,” he said.

The proposal to increase RDL is a blow to traders who are already grappling with high international freight costs that have come with the Red Sea attacks that have disrupted the shipping industry.

Shipping lines serving the Port of Mombasa and Dar es Salaam have reported freight costs increase to the region , which have gone up by more than 20 per cent, as ships re-route to the Cape of Good Hope (South Africa), before coming up to the East.

They are also avoiding the Suez Canal which is a key route for voyages to Mombasa and the East African coastline, in the wake of continued attacks by Iran-backed Houthi rebels in Yemen, who are targeting ships travelling to Israel and other region.

According to the SCEA, the re-routing of vessels comes with increased transit time, which translates to higher freight charges by shipping lines, and insurance, which has also affected Kenyan exports.

For instance, there has been an increased transit time to Europe from an average 24 days to 40 days.

This has also led to delayed payments since payments are made on delivery of cargo.

The trend has further compromised product quality.

For instance, avocados start to ripen between the 30th – 35th day.

This means a 40-day voyage and additional days to clear cargo at the destination port will see the products hit the shelf when it is either overripe or rotten.

“This means Kenya is losing out to countries that can deliver within the shortest periods,” Ogambi said.

There has also been an introduction of a transport disruption fee of an extra $450 (Sh58, 063 ), which has pushed up freight costs on containers.

For instance, a 40-foot refer container (refrigerated) costs Sh1.3 million to ship, up from $10,000 (Sh1.2 million).

This adds up to container costs amid congestion at key ports mainly China, which is Kenya’s top import source.

Critical congestion at major Asian ports like Singapore is creating shortages of empty containers in some areas and pileups in others, ultimately driving up container prices in China, according Container Price Sentiment Index by Container xChange, a technology firm that offers global container trading and leasing platform.

“The delays are also causing vessel bunching, further leading to spillover congestion and schedule disruptions,” Christian Roeloffs, co-founder and CEO Container xChange said.

Ports in China have in recent times recorded the highest prices on leasing of containers, which hit a high of $1,750 in December while in Europe, the costs averaged $1,340.

In 2023, Kenya’s total merchandise trade amounted to Sh3.6 trillion, marking a 7.6 per cent growth from the previous year, the Economic Survey 2024 by the Kenya National Bureau of Statistics Shows, with China and the UAE being top import sources.

“The growth was partly driven by high international prices of principal import commodities, especially petroleum products, coupled with the depreciation of the Kenyan Shilling,” KNBS said.