Kenya, EAC import costs rise on continued Red Sea attacks

Commodity prices increase as freight costs rise by 20%.

In Summary

• For instance, there has been an increased transit time to Europe from an average 24 days to 40 days.

• This has also led to delayed payments since payments are made on delivery of cargo.  

Containers being offloaded from a ship at the Port of Mombasa /FILE
Containers being offloaded from a ship at the Port of Mombasa /FILE

Kenya and East Africa are now staring at a sharp increase in commodity prices as the Red Sea attacks on ships escalate, with major shipping lines avoiding the route after two vessels were sunk.

Shipping lines serving the Port of Mombasa and Dar es Salaam now say freight costs to the region have increased by up to 20 per cent, as ships re-route to the Cape of Good Hope (South Africa), before coming up to the East.

They are also avoiding the Suez Canal which is a key route for voyages to Mombasa and the East African coastline, in the wake of continued attacks by Iran-backed Houthi rebels in Yemen, who are targeting ships travelling to Israel and other region.

According to the Shippers Council of Eastern Africa (SCEA), the re-routing of vessels comes with increased transit time, which translates to higher freight charges by shipping lines, and insurance, which has also affected Kenyan exports.

For instance, there has been an increased transit time to Europe from an average 24 days to 40 days.

This has also led to delayed payments since payments are made on delivery of cargo.  

The trend has further compromised product quality. For instance, avocadoes start to ripen between the 30th - 35th day.

This means a 40-day voyage and additional days to clear cargo at the destination port will see the products hit the shelf when it is either overripe or rotten.

“This means Kenya is losing out to countries that can deliver within the shortest periods,” SCEA acting chief executive Agayo Ogambi said.

There has also been an introduction of a transport disruption fee of an extra $450 (Sh57, 825), which has pushed up freight costs on containers.

For instance, a 40-foot refer container (refrigerated) costs Sh1.3 million to ship, up from $10,000 (Sh1.28 million).

“The impact is huge. Unfortunately no solution in the horizon,” Ogambi said.

This adds up to container costs amid congestion at key ports mainly China, which is Kenya’s top import source.

Critical congestion at major Asian ports like Singapore is creating shortages of empty containers in some areas and pileups in others, ultimately driving up container prices in China, according Container Price Sentiment Index by Container xChange, a technology firm that offers global container trading and leasing platform.

“The delays are also causing vessel bunching, further leading to spillover congestion and schedule disruptions,” said Christian Roeloffs, co-founder and CEO Container xChange.

Ports in China have in recent times recorded the highest prices on leasing of containers, which hit a high of $1,750 (Sh224, 875) in December while in Europe, the costs averaged $1340 (Sh172,190).

This however has increased with the continued disruption.

According to Maersk, the world’s second-biggest container carrier after the Mediterranean Shipping Company (MSC), the complexity of the situation in Red Sea has intensified over the last few months.

“The risk zone has expanded and attacks are reaching further offshore. This has forced our vessels to lengthen their journey further, resulting in additional time and costs to get your cargo to its destination for the time being,” it said in a communiqué.

The knock-on effects of the situation have included bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages.

“We estimate an industry-wide capacity loss of 15-20 per cent on the Far East to North Europe and Mediterranean market during Q2,” the firm said.

In 2023, Kenya’s total merchandise trade amounted to Sh3.6 trillion, marking a 7.6 per cent growth from the previous year, the Economic Survey 2024 by the Kenya National Bureau of Statistics Shows, with China and the UAE being top import sources.

“The growth was partly driven by high international prices of principal import commodities, especially petroleum products, coupled with the depreciation of the Kenyan Shilling against currencies of key trading partners,” KNBS said.

During the review period, export earnings grew by 15.4 per cent to Sh1 trillion. The net effect was the narrowing of the trade balance from a deficit of Sh1.617 trillion to Sh1.604 trillion.

With Kenya being a net importer, the rise in freight costs translates to higher commodity prices as importers and manufacturers pass the extra costs of finished goods and raw materials to consumers.

World Bank has since warned that the levelling off of global commodity prices could hurt prospects for lower inflation.

Prices are levelling off after a steep descent that played a decisive role in whittling down overall inflation last year, into this year, which could make it harder for central banks to cut interest rates quickly, according to the World Bank’s latest Commodity Markets Outlook.

This adds to the conflict in the Middle East which could halt inflationary decline as international trade remains disrupted, with freight costs on the shipping industry rising.

This means Kenya, which heavily relies on imports, remain exposed as its import bill continues to rise.

China, UAE, India and Saudi Arabia account for half of Kenya's imports last year.

World Bank's forecast means Kenya could see inflation start rising after back-to-back declines this year.

Kenya’s inflation fell to a two-year low in April, at five per cent, official data shows, driven mainly by improved supply of key food items, particularly cereals and edible oils, and falling prices of other food commodities and utilities such as electricity and fuel.

It however rose to 5.1 per cent in May.

According to the Central Bank of Kenya, a key risk to inflation is international oil prices, which have trended upwards since January 2024 largely driven by disruptions to shipping through the Red Sea, and production cuts by OPEC+ and other allied oil producers.

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