New rail threatens survival of businesses

By MACHARIA KAMAU

KENYA: The future does not look particularly bright for the long-distance transport industry as the standard gauge railway line chugs closer to reality.

The transporters, who have over the years made heavy investments in trucks to cash in on the inefficiencies in rail transport, will be forced to re-strategise or else lose business after 2017.

In three years’ time, the new line will start operations and take a substantial chunk of cargo from Mombasa off the roads.

To keep their heads above water, the Kenya Transport Association said its members are considering investing in train wagons to avert a crisis.

The standard gauge railway has not just made headlines the past week locally, but has hit regional and international news outlets as well.

Generating excitement

For Kenyans, the thought of taking just four hours to travel between Nairobi and Mombasa once the railway line is operational, instead of the 13 hours it takes on the current trains, has generated excitement.

But what promises to be even more exciting is the projection that the cost of transporting cargo could come down by more than 60 per cent. This would lower the cost of doing business and with it the possibility of a substantial drop in the retail prices of consumer goods.

The cargo train will drag with it some 1,620 wagons, each of which has capacity to carry at least two 20-foot containers.

This has the potential to wipe out between half and two-thirds of the trucks that move cargo from the Mombasa Port onto the roads.

According to data from the ministry of Transport and Infrastructure, more than 3,000 trucks leave the port every day to transport cargo to Nairobi and other cities across East Africa, and even parts of central Africa. This number, according to the ministry, is more than double what is needed.

While many have been jubilant about the new railway line, many businesses across different sectors that have thrived as a result of the dysfunctional railway are now spending sleepless nights knowing well that in a few years’ time, they could be out of business, which would also render the thousands in their employ jobless.

Aside from cargo transporters, there are bus and courier companies that have been cashing in on the inefficiencies in rail transport that now have to re-engineer their businesses to avoid going under after 2017.

Mr Wellington Kiverenge, KTA’s chief executive, said the transporters are looking at investing in the train service by investing in wagons.

The association will meet this month to concretise the idea, including agreeing on the amount they would invest in the wagons and how they will finance the project.

“We will present a proposal to the Transport and Infrastructure ministry after the meeting,” he said.

A proposal that might well get favourable audience from the ministry that said the plan was to have Kenya Railways Corporation buy the rolling stock and possibly invite private sector players to buy wagons.

Rolling stock comprises all the vehicles that move on a railway, including locomotives, railroad cars, coaches, and wagons.

Road transport

“We encourage road transport companies to purchase wagons and move their cargo onto the new rail. The government has only bought rolling stock to enable it repay its loans, but we expect the private sector to share the new line,” Transport Cabinet Secretary Michael Kamau said in an earlier interview.

Road transport has been one of the major contributors to the high cost of doing business in Kenya.

According to a past report by the East Africa Shippers Council, it costs Sh109,200 to move a 20-foot container weighing 28 tonnes from Mombasa to Nairobi — a distance of about 500 kilometres.

This is twice the amount it takes to move similar cargo from the Chinese city of Shanghai to Mombasa (Sh50,400), a distance of 9,500km.

Mr Kiverenge noted that while road transport is costly, non-tariff barriers in Kenya and other EAC countries are to blame for the larger proportion of transport costs.

Using the train and factoring in all scheduled stops, it could take seven hours to move cargo from Mombasa to Nairobi, but it currently takes two days on the road.

Enough business

Despite the plans to buy into railway transportation, road transporters are optimistic that the volume of cargo passing through the port would provide enough business for everyone, allowing road transport enterprises to continue to thrive.

“The railway will not have a significant effect as long as the government does not give a directive that requires a certain quota of cargo coming from the port to go to the railway. It will not in any way kill road transport,” he said.

“There are many examples of developed markets that have railway systems that are working, and these run in a complementary manner with road transport systems. Road transport remains a viable area to invest in both for the medium and long term … investors will not lose their investments because of the railway.”

Current container volumes at the port stand at 903,000 twenty foot equivalent units (TEUs), which has been projected to increase to over 960,000 units by 2015.

“At the moment, the railway handles 4 per cent of the entire cargo. So even if 30-40 per cent of the expanded cargo volumes go to the railway, there will still be 60 per cent that will move through the roads,” added Kiverenge.

He added that truckers that might lose out to the railway would still get a lifeline in moving cargo from the numerous stopovers that the train would make along the way.

There are 37 planned stations where the train will make stops to offload and load more cargo and passengers.

Kiverenge noted that transporters would offer a last mile solution — between the train stations and the doorstep of cargo owners.

But, holding a contrary opinion, transport and logistics experts think that the future for truckers is bleak.

Mr William Ojonyo, the managing director at Keynote Logistics, said transport firms have thrived on an inefficiency presented by the current railway, so the new line will sound a death knell for them.

“We have had a dysfunctional railway for years, and investors in the transport industry have benefitted from the weaknesses of the system, but they should all plan ahead now,” he said. “Cargo owners will in future prefer using the cheaper, faster and safer railway than road.”

He added that last mile solutions are already catered for as there are players that move cargo to the doorsteps and warehouses of cargo owners.

“Goods are already delivered by long-distance trucks to warehouses, and from there, they are re-distributed to retailers and other players in the regions around these warehouses.”

But with three years to go, it is clear that business developments in the long-distance transport industry are yet to fully take shape.

However, what is undeniable is that there will be a shift of goods from the roads to the new railway. And for most, this is good news as it will reduce the untimely damage of roads, minimise traffic snarl ups on highways and lower accident incidences.

emacharia@standardmedia.co.ke