The escalating Red Sea conflict now threatens to hard-hit Kenyan exports to Europe and Middle East, shippers have warned, amid higher freight costs, which will also affect imports.
This is likely to wipe out gains made in bringing down the cost of living where inflation dropped to inflation dropped to 5.7 per cent year-on-year in March from 6.3 per cent in February, as Kenya remains a net importer.
The latest development is the capture of the MSC Aries, a container ship linked to Israel, which has heightened tension in the maritime industry.
The Portuguese-flagged container ship was seized by Iran on Saturday for "violating maritime laws", according to Iran's foreign ministry.
This has added to the tension that begun in November last year, when Yemen's Houthi rebels declared their support for Hamas in the war with Israel, with their action being attacks on ships in the Red Sea.
At least 40 vessels have to date suffered direct strikes, data by global maritime risk management firm-Ambrey indicates.
According to global container trading and leasing platform–Container xChange, there is an expected rise in war risk insurance premiums and freight rates.
“Regardless of immediate outcomes, we anticipate heightened uncertainty in shipping markets” said Christian Roeloffs, cofounder and CEO Container xChange.
The Shippers Council of Eastern Africa(SCEA) and Kenya Maritime Authority (KMA) have since warned of a major implication on the freight costs to and from Kenya, calling on traders to negotiate for contracts with shipping lines.
This, as vessels continue to rerouted to the Cape of Good Hope , meaning vessels have to go through the Atlantic Ocean to South Africa, before coming up to the East Africa region, save for those directly coming from Asia.
This has also seen the avoidance of the Suez Canal, a key trading route connecting the Port of Mombasa to Europe and Middle East.
According to market data, an additional 40 per cent longer route has caused heavy upward pressure in the operating costs, and is expected to persist as the shipping time extends anywhere between one to four weeks
“The Red Sea challenges are of concern and calls for appropriate planning by importers to incorporate the delay in transit time as vessels divert to the Cape of Good Hope. We also urge them to negotiate for total charges so that they are not caught by surprise when goods arrive at Mombas,” SCEA acting CEO Agayo Ogambi said.
While Kenya's imports are dominantly from China, the surge on maritime insurance and container costs cut across the market, hence the impact.
Kenya's exports likely to be most affected and become "uncompetitive” are mainly manufactured and semi-manufactured products, including refined petroleum products, metal scrap, beer, cigarettes, oils, perfumes, articles of plastic, consumer products and fabrics and exports of agricultural products like tea, coffee and avocados.
According to Ogambi, exporters in the country need to liaise with shipping lines to secure Reefer containers (refrigerated containers) for fresh produce exports, especially now that the country has entered a peak season for avocado exports.
There has been a shortage of refers in the last two months, but demand is slowly increasing, he noted.
He noted that increases in marine insurance, delays and overall freight costs are likely to impact traders.
“For the well-established companies that do contractual agreements, they may be able to cushion themselves. For the others, I think they will be up for any repercussion. The Red Sea conflict it is going to be massive, they are going to possibly affect our export markets, so it doesn’t portend well for the sector,” Ogambi told the Star.
KMA acting director, maritime trade and development, Joseph Kapeku, said Kenyan traders need to negotiate for “contracts of carriage”, to ensure good terms.
A contract of carriage is a contract between a carrier of cargo or passengers and the consignor, consignee or passenger, which gives the trader an upper hand in securing favourable terms.
Currently, most importers in Kenya use Cost Insurance and Freight (CIF) terms, which gives shipping lines full responsibilities of the entire order and delivery contract.
“With CIF, shipping lines will definitely negotiate based on their own interests. It is time Kenyan traders begin to be directly involved in these contracts, procure insurance locally, pay using the Kenyan shilling and enjoy rebates. This will help manage costs,” Kapeku said.
The two spoke in Nairobi yesterday during a Trade Facilitation and Maritime Investment Workshop organised by KMA, with a focus on eliminating Non-Tariff Barriers in the industry.
The UN’s trade and development body, UNCTAD, has also raised concerns over escalating disruptions to global trade.
It says that recent attacks on ships in the Red Sea, combined with geopolitical tensions affecting shipping in the Black Sea and the impacts of climate change on the Panama Canal, "have given rise to a complex crisis affecting key trade routes."
UNCTAD estimates that the trade volume going through the Suez Canal decreased by 42 per cent over the last two months.
