Will SGR deliver on cost-cutting goal?

By all standards, the passenger business of the recently launched Standard Gauge Railway (SGR) has become an instant success.

If the enthusiasm with which Kenyans have embraced the train is anything to go by, then the country could start getting value for the billions of shillings sank into the project.

The focus now shifts to cargo transport scheduled to start later in the year.

SGR was meant to lower the cost of all aspects of transport but mainly cargo.

Analysts have pointed to the high cost of transport as one of the impediments to a thriving business climate.

The new SGR transport figures then raise question whether it will deliver on the dream of cheaper transport.

In fact, analysts are beginning to wonder if the SGR will be able to compete favourably with trucks that are levying lower charges looking at the released SGR figures.

A comparison between the new railway and road transport in ferrying cargo from Mombasa to Nairobi shows that SGR costs are more by Sh10,000.

Kenya Railways Corporation (KRC) said the SGR will charge Sh100,000 ($1,000) for a 40 foot container.

This compared to cargo being transported by road whose costs range between Sh70,000 ($700) and 90,000 ($900) depending on the logistics firm.

It is also worth noting that cargo on the train will be offloaded at the Inland Container Depot (ICD) at Embakasi, which will require an additional cost on the last mile connection at an average charge of Sh15,000 within Nairobi, pushing the total cost by the rail to Sh115,000.

Siginon Group chief executive Meshack Kipturgo said as things stand, trucks may not completely lose out to railway transport.

“We charge Sh70,000 for a 40-foot container from Mombasa to Nairobi and this includes the cost of delivering the cargo to the customer’s door. If the rate that SGR has proposed will not be changed, then it means we are in for more business,” said Mr Kipturgo.

Bollore Logistics charges Sh90,000 for a 40 foot container from Mombasa to Nairobi.

KRC has indicated that they are still doing the math on final costs, with managing director Atanas Maina saying they are working on the tariff book that will inform the final rates to be charged on cargo.

“We are working on a tariff book for all cargo and we will release it shortly,” Mr Maina said in a text message to the Smart Company.

If SGR cargo charges come down, truckers admit that they will have to change tack.

Mr Kipturgo said most companies would use the SGR in transporting their cargo to Nairobi then the truckers will offer last mile connection from the capital city.

“It will make a lot of sense for us as a business to use the train and move our trucks to Nairobi for the final connection if the SGR rates would be lower than what they have announced,” he said.

Kenynote Logistics managing director William Ojonyo said for them it’s not as much about the cost as efficiency in clearing the cargo from the ICD.

“The most important thing for us as  a logistics firm is the time that it will take for the cargo to reach the final destination,” said Mr Ojonyo adding that the clearance of the cargo  must be made more efficient to avoid unnecessary delays.

Run into problems

The cargo train will take eight hours from Mombasa to Nairobi, which is far much faster than the old metre gauge line that takes up to three days.

In a previous interview, Rift Valley Railways (RVR) chief executive Isaiah Okoth said SGR rates announced at the launch are “temporary and promotional” terming them unsustainable.

The advent of the standard gauge railway poses tough competition for RVR, which has run into problems with the Kenya Railways over under-performance and failure to pay fees agreed with the government under the 25-year concession agreement.

A 2013 survey conducted jointly by the Shippers Council of Eastern Africa and Trade Mark East Africa showed the RVR charged Sh67,500 for a 20-foot container of less than 14 metric tonnes (light), Sh79,000 for medium (14-22 metric tonnes) and Sh145,000 for heavy containers (more than 22 metric tonnes).

In an interview a fortnight ago, Transport Cabinet Secretary James Macharia said they are still in negotiations with Uganda on the next course of action on RVR after a three-month notice that they had been given expired.

“We have left all the options open on the fate of the RVR and we need to negotiate with Uganda on the way forward in regard to the future of RVR,” said Mr Macharia.

Delay in activation of an online platform for tax collection at the ICD in Nairobi has held back the launch of the freight cargo services on SGR’s Mombasa-Nairobi route.

The services are scheduled to start in December. It was expected that they would start at the same time with the passenger trains that was launched by President Uhuru Kenyatta on June 1.

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