Debts derail dream of having vibrant shipping line

By Patrick Beja

Kenya has operated a national sea carrier for more than two decades without owning vessels, a report that diagnoses the Kenya National Shipping Line (KNSL) shows.

Although KNSL charters slots on other shipping lines, lack of vessels, debts, restricted routes and outright neglect by Government have undermined its chances for growth.

A detailed concept paper on how to make KNSL commercially viable has diagnosed the problems of the national sea carrier that has struggled to remain afloat despite its huge potential. The report prepared by industry regulator Kenya Maritime Authority (KMA) early this year indicates that KNSL had false starts, although it has remained in operation.

The report comes at a time when authorities are seeking to reposition the State corporation and make it competitive.

In the report, KMA roots for removal of restricted European route slapped by a partner shipping line and purchase of a ship for KNSL, which will also be used for training of seafarers.

Expansion of routes is critical at this time when Asia has become a major source of international trade.

However, lack of vessels, absence of Government financial backing and crippling debts deny KNSL a competitive advantage.

“This paper is a proposal on the restructuring needed to make KNSL increase its participation in international carriage of goods as a means of raising the country’s profile in sea trade. This is envisaged in Vision 2030 and recommended in Integrated National Transport Policy,” says KMA.

Most of the debts are old but continue to haunt the shipping line.

The initial debt for container leases alone in Europe amounted to US$3.5 million in the first three years of operation. KNSL’s human resource manager Gerald Kamau said the line was drawing a five-year strategic plan that would chart the way forward in revamping it.

The plan to be launched in the next one month is expected to include the proposal to buy a vessel and expand routes to carry more cargo.

Bulk cargo

“Our strategic plan will outline our new roadmap and goes in line with Vision 2030. The proposal to buy a vessel and serve more routes is likely to be in the plan,” Kamau said.

A shipping expert Stanley Chai says KNSL should either be left to die for the Government to start a new shipping line without a financial burden or immediately negotiate agreements with partners to free it from European routes as business has shifted to Asia where about 80 per cent of cargo is sourced.

He suggests that Government acquires a bulk cargo ship for KNSL, which could be used to carry its cargo in addition to grain, sugar, fertiliser and even titanium as well as use it for training of seafarers.

“The Government is the biggest spender and can help KNSL grow by directing its goods to the shipping line, which should work closely with its clearing agents,” Chai says. 

He argues that KNSL can help Kenyan importers negotiate cost of insurance, which is currently paid to foreign firms at over Sh70 billion.

“The insurance business should benefit the local industry where KNSL can negotiate rates on behalf of cargo owners. The Government should see sense in this and have a mind change,” Chai says.

He proposes that Government builds a yard where the shipping line can consolidate cargo for export.

“Ethiopia is a landlocked country but owns a fleet of ships. Its shipping line is the sole carrier of government cargo. Goods destined to that country land at the port of Djibouti,” he says.

Seafarers Union of Kenya chair Andrew Mwangura favours the purchase of an oil tanker by Government, saying it would be used to transport petroleum products for National Oil Corporation and oil once production in Turkana begins.

“KNSL will have a lot of business if Government acquires an oil tanker for the shipping line as we anticipate production of oil locally,” Mwangura says. Apart from initial capital injection, the company is neither supported by the Government nor its other shareholders financially.

Previously, the shareholders feared injecting fresh capital due to many creditors, majority of whom have since been paid through compromise arrangements and meagre operational resources, the report says.

“The company activities are fully financed by revenue from operations,” it says.

Sometime in 1996, Mediterranean Shipping Company (MSC) was offered shares where they injected Sh53.4 million. The shares have not been allotted to date and the fund is carried in the balance sheet as funds awaiting share allocation.

Good business

The report says the issue needs to be sorted out and clarified whether MSC is a shareholder or not.

Under the service provision with MSC, the report says KNSL operations are narrowed to only six ports in Northwest part of Europe although there has been good business in the Middle East and Far East.

The ports where the National Non-Vessel Owning Common Carrier is restricted to are Felixstowe in UK, Rotterdam in Netherlands, Hamburg in Germany, Antwerp in Begium, Le Havre in France and Valencia in Spain. In Africa, the Kenyan carrier operates in Dar es Salaam and Mombasa ports.

KNSL’s management efforts to have the board of directors agree to the opening of additional ports of call in other countries have been met with resistance, the report says.

“They often site logistical problems despite the fact that all ports called are managed through our own agency network. Consequently, the management is looking for an alternative service provider to offer service to the other ports.”

Currently, MSC has two sitting directors in the board with full voting powers.

To attract MSC to buy into the company, the report says the board resolved to write-off 50 per cent of their equity and devalue the share so as to reduce the balance loss.

Earlier this year, immediate former Transport minister Amos Kimunya announced plans to revamp the corporation and reposition it to the level of the national carrier Kenya Airways by enabling it own or have chartered vessels.

Mr Kimunya promised a new look shipping line that would be vibrant and competitive.

“KNSL is going to be a vibrant national carrier like KQ, with vessels,” Kimunya had explained.