Why SGR cargo train is yet to roar into life despite price reductions

Containers on board the Standard Guage Railway Freight Train hauling sails along the Mwamdudu fly-over at Miritini headed to the port of Mombasa for export. [Photo by Gideon Maundu/Standard]

For months it had been billed as a game changer in cargo transport - a development that would get trailers off the road, move cargo to Nairobi from Mombasa in record time and finally silence critics of the Standard Gauge Railway (SGR).

But a month since the Government launched the much-awaited SGR cargo service, policymakers are still scratching their heads on how to make it more attractive to importers.

The low uptake of the service is despite the State setting the price of transporting a 20-foot container from Mombasa to Nairobi at $500 (Sh50,000), a 37 per cent discount on what truck operators charge.

The Government had anticipated similar success witnessed from the passenger service launched in June last year but has been putting on a brave face as questions emerge on why cargo transporters are yet to warm up to its cheaper and faster method of transporting cargo.

“Trains have been bringing cargo. The first weeks are usually slow, but we anticipate this will hit five million tonnes very soon,” says Transport and Infrastructure Cabinet Secretary James Macharia.

Unlike the passenger service which was hurriedly launched before the elections in what was seen as an attempt by the Jubilee administration to gain political mileage, the cargo service was unveiled on a pilot basis for six months before President Uhuru Kenyatta flagged off the first train.

Kenya Railways had insisted that the pilot run was meant to identify and weed out any challenges before an all-out roll-out of the services.

It had initially planned to run four freight trains per day, each with 54 double-stack flat wagons, carrying 216 twenty-foot equivalent units (TEUs) per trip, with a load of 4,000 tonnes on each train.  The number of freight trains would then be increased to eight per day.

Each 25-tonne axle flat wagon has a capacity to carry a payload of 70 tonnes. The expectation was to shift over 40 per cent of road cargo traffic to rail since one freight train can haul up to 4,000 tonnes per trip or an equivalent of 216 trucks.

But since the maiden trip on January 1, insiders say Kenya Railway has been struggling to fill up one train per day and has on a number of occasions failed to send a train inland.

Last weekend, the Government for the second time, dangled more incentives, hoping to attract cargo transporters who have shown they still prefer trucking their goods, at least in the interim.

“Kenya Railways has introduced a promotional tariff for container traffic (transit, import and export cargo) for the Standard Gauge Railway Freight Service customers. The promotional tariff is valid for three months,” said Kenya Railways in a notice announcing the new incentive.

“This tariff applies for all containers being transported to and from Kilindini Port/Port Reitz Freight Station and the Nairobi Freight Terminal and the Inland Container Depot.”

Under the new tariffs, transporting a 40-foot container from Mombasa to Nairobi costs Sh30,000 while a 20-foot container costs Sh25,000. This is 50 per cent lower than the original cost of between Sh50,000 and Sh70,000 set in December by the president.

Transporting a 40-foot container from the opposite direction now costs Sh20,000 while a 20-foot container costs Sh15,000. Empty containers are being transported at a flat rate of Sh10,000 to both destinations.

Truckers charge between Sh60,000 and Sh80,000 to ferry the same container loaded with cargo from the Mombasa Port to Nairobi, depending on the weight and type of cargo.

Drawing this comparison, it means the SGR is cheaper by at least 62 per cent.

That is if you don’t consider the last mile costs since importers will have to pay for their containers to be moved from the inland container terminal located on Mombasa Road.

Different truckers who spoke to Weekend Business said it costs between Sh15,000 and Sh20,000 to move cargo from the terminal to Nairobi’s Industrial Area. This pushes the cost to around Sh50,000, which is still 30 per cent lower on SGR.

Freighters say reducing the price alone on the SGR is not enough.

“Even if they decide to offer free transport, they will not get cargo because for you to place your goods on top of a wagon it must make business sense,” says William Ojonyo, the chairman of the Kenya International Freight and Warehousing Association (KIFWA).

“It is more about efficiency and the Kenya Ports Authority (KPA) is still very slow. Remember when cargo stays for more than four days, it goes to storage which has to be paid for,” he says.

In order to go minimise losses, cargo owners negotiate with their clearing agents to get at least 30 additional storage days.

“Storage of one container runs into thousands of dollars if not on a negotiated price. If a  Sh65,000 worth container goes into storage for 20 days, you end up paying a fine of Sh200,000,” says Mr Ojonyo.

“Which is the better? To pay for cargo storage and get cheap freight or negotiate for storage and get expensive freight?” he poses.

The SGR was designed to transport 22 million tonnes of cargo annually, an equivalent of 40 per cent of Mombasa Port’s throughout. 

Although data for last year is yet to be released, in 2016 the total cargo throughput handled at the port stood at 27 million tonnes, according to the Kenya National Bureau of Statistics (KNBS).

“This was 2.4 per cent higher than the previous year.  During the sam TEUs,” said KNBS in its annual economic survey last year.

However, out of the 22 million tonnes of cargo that landed in Mombasa in 2016, the metre gauge railway, then operated by Rift Valley Railways (RVR), only handled 1.4 million tonnes, representing six percent. 

Biggest PPP failure

A decade earlier when RVR was given the rights to operate the railway networks in Kenya and Uganda, it promised to take up 80 per cent of the cargo landing at the Mombasa Port. It, however, did not invest in the century-old line. With its low speeds coupled with poor efficiency, the Government eventually pulled the plug on the concessionaire deal with the firm.

The collapse of RVR concession last year is still the biggest public-private partnership failure in the country.

SGR had been billed as its perfect antidote, with its speeds of over 100 kilometres per hour and new trains which can carry bigger and heavier cargo.

Manufacturers, however, say the SGR, despite its ability to carry heavier goods, does not have the capacity for bulk freight.

“The current set up of the SGR does not have the capacity for bulk freight like cement, grains, and fertilisers at the Nairobi Terminal, “ says the manufacturers’ lobby. Furthermore, the design of SGR does not provide direct access service to heavy consumers of bulk cargo as it was with the metre gauge railway,” says Kenya Association of Manufacturers (KAM).

“MGR facilitated ease of transportation to some bulk cargo manufacturers in cement and salt, picking the cargo directly from the industries. A bulk freight terminal in Nairobi area is required to allow users of such to benefit. If the Nairobi south hub could be expanded, it would provide bulk freight capacity,” says KAM.

Tedious process

Kenya Revenue Authority (KRA) spent the better part of last year upgrading its systems at the inland container port in Nairobi.

It is also in the process of expanding the cargo handling capacity at the ICD in order to increase capacity. The depot has a throughput of 180,000 TEUs per annum but is being expanded to increase this to 450,000 TEUs.

At some point, the government had mulled having 40 per cent of cargo arriving at the port of Mombasa transported to Nairobi on the SGR for clearance but changed tack after it emerged it could expose itself to litigation.

But there is more that needs to be done.  The customs clearance process is tedious as importers are forced to seek clearance from different state agencies.  Goods cannot be cleared prior to arrival at the port and Kenya is yet to adopt an electronic single window cargo clearance system that will act as an integrated information sharing system.

Then there is the issue of tariffs which manufacturers say is not clear.

“Handling and management of empty containers are not clear. The tariff speaks of rates only and is silent on issues of cancellation of container deposit and cancellation of bonds,” says the association of manufacturers.

The first tranche of the SGR loans, the Sh319 billion borrowed by the Kenyatta administration from the Chinese Exim Bank in August 2013, will mature in August 2023, having come with a 10-year grace period.