The Kenya Shippers Councils is deeply concerned about the recent increase in fuel prices which are negatively impacting on the cost of transport in the E.A. region.
Local transport service providers across all modes have introduced fuel surcharges, a move seen as a cue taken from international shipping lines and airlines. These surcharges have come in different forms with tags such as fuel adjustment, fuel Surcharge, and bunker adjustment factor.
The Rift Valley Railways (RVR), the sole provider of rail services issued a notice to its customers dated 3rd March, 2011, effecting a surcharge and a withdrawal of all concessionary rates that had been agreed with its customers. The fuel surcharge is expected to be applied on their standard tariff rates as follows:
• 0% when the price is below Kshs. 85 per litre
• 5% when the price is between Kshs. 85-kshs. 90
• 5% when the price is between Kshs. 90-kshs. 95
• 5% when the price is between Kshs. 95-kshs. 100
The net effect of the tariff adjustment is a 15% increase as the current diesel prices are retailing at over Kshs. 95. The immediate withdrawal of concessionary rates will also raise the cost of landed goods since there were already goods booked, negotiated and prepaid at the point of origin on Through bills of lading (TBL) using the old tariff.
In addition, the Kenya Transport Association published the new transport rates to be applied by its members. They attributed the increase to the fuel increase that has been factored at 40% in the last 14 months. The hike represents a 70-100 percent increase in the overall applicable rate. This is despite the fact that fuel currently constitutes about 42% of the transport costs. Best practice requires a 25%-30% ratio.
While the Kenya Shippers Council appreciates the challenges faced by transporters, it is also notable that shippers make projections on their operations based on negotiated rates with their service providers. It is the Council’s opinion that for business to continue being competitive, the cost of transport MUST be managed within reasonable levels. The runaway cost of fuel not only impacts on the cost of transport but also the cost of production.
The energy regulator must come up with clear modalities and subsidies that will cushion business from the effects of these high costs. Government must address inefficiencies in the oil supply chain systems and procurement to avoid unnecessary increases that have no reflection on the prevailing market prices. The tax element on diesel oil should also be reduced.
Meanwhile, KSC is consulting on whether the actions of RVR and KTA go against the Monopolies Act and amount to price fixing. We will provide members with an evaluation of the effect of the surcharges on the cost of doing business in the region.
Gilbert Langat
Chief Executive
