How container cash deposits are creating a problem for Kenyan traders

East Africa's logistics industry faces challenges such as regulatory hurdles and trade barriers.

One of the most significant non-tariff barriers is the requirement for container cash deposits at key ports such as Mombasa and Dar es Salaam.

Despite numerous efforts, a sustainable solution has remained elusive for long. Container deposit has traditionally been used as the only form of security protecting shipping lines against the risks of loss, damage or prolonged delays in returning containers.

Containers are not only critical assets to the shipping lines but also account for the transportation of the bulk of the goods, therefore their efficient turnaround and safety facilitates an efficient supply chain.

From the numerous studies done in the logistics industry in the East Africa region, container cash deposits pose a severe liquidity burden on businesses, especially Small and Medium Enterprises (SMEs).

Shipping lines can hold these deposits, ranging from $500 (about Sh65,000) for a 20-foot domestic container to over $1,000 (about Sh130,000) for a 40-foot container, and over twice that for transit containers.

Tied up for extended periods, the deposits critically strain the cash flow of players in the supply chain.

The Shippers Council of East Africa (SCEA) recently signed a MoU with Viaservice Limited, a subsidiary of the Swiss-based Viatrans SA, that could see the headache of container cash deposits go away.

The solution, which was recently deployed in Kenya after successful implementation in Tanzania in 2020, provides SMEs across the region with a business-friendly alternative to container cash deposits.

This partnership is expected to free up crucial working capital, catalysing business growth and enhancing container turnaround hence improved efficiency of the logistics sector.

The Shippers' Council of Eastern Africa (SCEA) estimates that around $1.5 billion (Sh195 billion) is tied up in container deposits across East Africa, with $7 billion (Sh910 billion) across the continent, emphasising the need for a solution.

Veronica Mhenga, the regional CFO at Viaservice, highlighted how the Viaservice Container Solution (VCS) has been a game changer for shippers, freight forwarders and shipping lines across East Africa, particularly along the Northern and Central Corridors in reducing operational costs and enhancing efficiency of the logistics ecosystem.

Agayo Ogambi, the CEO at SCEA commended the shipping lines for supporting Viaservice's innovative model, which not only frees up working capital but also simplifies the import-export processes.

For instance, in 2023, Viaservice container solution freed over $9 million (Sh1.1 billion) from container cash deposit, easing financial constraints on freight forwarders and shippers (cargo owners).

"Any delays in container clearance lead to an increase in operational costs that are ultimately passed on to consumers hence the adoption of the container solution has resulted in reduced cost of doing business therefore lowered consumer prices," said Agayo.

According to Agayo, the collaboration between SCEA and Viaservice has seen members of the Shippers Council enjoy discounted rates while using the container solution.

Container cash deposit undermines efforts by the East Africa Community (EAC), which aims to promote free movement of goods across the region.

As EAC partner states work to eliminate non-tariff barriers, sustainable solutions like the Viaservice Container Solution will be critical to fostering a competitive and efficient business environment.

The success of the Viaservice solution in a space where other solutions have failed is credited to collaboration and partnership with players across the logistics sector, ensuring alignment and responsiveness of the container solution to the logistics business environment.

Agato argues that as the stakeholders in the logistics and supply chain industry continue to seek sustainable solutions to the challenges facing the sector, it is important to leverage technology and adopt innovative solutions.

He says this will not only ensure improved logistics efficiency but also stimulate economic growth.