Rate Hike To Help Mombasa Remain Number One
BMI View: BMI believes that a planned rate increase at the Kenyan port of Mombasa could meet with resistance by shippers at the facility, a key entry point for East African trade. However, over the longer term we believe that the extra revenue generated by the hike, so long as it is invested efficiently in the port's future development, will enable shippers to offset the extra charges by the efficiency the improvements will offer to the congested port. Further, any improvements will ensure the Port of Mombasa continues to compete effectively with its key competitor, the Tanzanian port of Dar es Salaam.
The Kenya Ports Authority (KPA) has announced plans to increase its cargo-handling tariffs by 10%. BMI notes that last time a rates increase was introduced, in 2007, resistance from shippers using the port meant that the hike did not come into effect until 2008. This time, however, KPA managing director Gichiri Ndua told Reuters: 'We were careful to engage every interested party and accommodated their views as we set the new tariffs so we should not have a problem adjusting to the new rates.'
Ndua added that the KPA's annual revenue would be raised by 5% to US$303.65mn by the rate increase, and this would improve services at the port including stevedoring, shore handling and storage services. BMI notes that the extra revenue will also help fund the long-awaited second container terminal at the port; the construction of which is scheduled to be commissioned by end-November. The project is expected to include an investment of KES28bn (US$326mn) and is aimed at increasing the port's handling capacity and enhancing container operations. The port is also carrying out several projects in the areas of infrastructure improvement and equipment upgrading with the aim of handling current volumes and future growth. The new terminal is designed to have an annual handling capacity of 1.2mn twenty-foot equivalent units and is likely to create at least 1,000 direct and approximately 4,000 indirect job opportunities.
We note that these investments are much needed. The port operates above its nominal operating capacity, and this has led to repeated issues with congestion in recent years. Frequent strikes by discontented workers - the latest took place at the start of November as long-term staff on temporary contracts sought to gain permanent positions - further disrupt operations at the facility.
|Strong Growth To Continue|
|Port of Mombasa TEU Throughput|
Despite these inefficiencies and disruptions Mombasa has managed to achieve impressive growth. Box throughput at the facility grew by 10.7% in 2011, to 770,000 twenty-foot equivalent units (TEUs). In H112 year-on-year growth in container handling was a further 24%. The port benefits massively from being one of two key transit ports for East African Community (EAC) trade; Kenya plays a transit role for containers travelling to and from bloc-members Uganda, Rwanda, Burundi and parts of Tanzania, in addition to the DRC, Ethiopia and the world's newest nation, South Sudan.
However, this transit trade is not guaranteed, particularly for those volumes bound for Rwanda and Burundi and northern Tanzania - those regions which the Port of Dar es Salaam can compete. Although the Tanzanian port's throughput is considerably less than the Port of Mombasa - 475,000 TEUs in 2011 - Tanzania's score on the Liner Connectivity Index, which measures how connected a country is to international container shipping services, is not far behind Kenya's. In 2012 Tanzania scored 11.1 to Kenya's 11.8. The Port of Mombasa is constantly challenged by its regional competitor for container volumes, especially the lucrative EAC transit trade. Thankfully for Mombasa, the Port of Dar es Salaam suffers from much the same issues as the Kenyan port.
|Neck And Neck|
|Kenya & Tanzania's Liner Connectivity Index Scores|
Here also congestion is a problem as the port's growth in volumes has not been supported by sufficient investment in expansion. Bolloré Africa Logistics managing director for East Africa told a recent conference in Tanzania how expansion for Dar es Salaam is crucial if it is to continue to compete: 'The port needs to be expanded. If you ask me where the competition is, I would tell you that Beira [in Mozambique] and the Port of Mombasa are now capitalising on that.'
Furthermore, one point on which the Port of Dar es Salaam loses out to Mombasa is on costs incurred by shippers once on the inland transport corridors. According to a recent study by Transparency International, Tanzanian transport companies pay nearly US$13,000 each month on bribes to authorities to ensure efficient progress through checks and roadblocks, in contrast to the Kenyan average of US$6,715. According to the organisation, drivers budget for bribes when leaving Indian Ocean ports. With costs of bribes likely passed on to customers, Mombasa becomes a more attractive entry point for EAC transit trade.
We believe that the rate hike at Mombasa, while maybe painful to users of the port in the short term, will ultimately benefit customers as it will enable the KPA to continue to improve and invest in its facilities. This will help it remain the port of choice in the East African region. Over our medium-term forecast period, from 2013 to 2017, we project that growth in box throughput at the port will average 7.7% per annum, rising to 1.36mn TEUs in 2017. Given the continued growth expected in East African trade and economies (especially as the region's gas export industry develops), and the development of the second container terminal, risks to this outlook are to the upside.