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 EAST AFRICAN CONFERENCE LINES |
Interview with:
Mr Paul Thomson,
Resident Representative.
Nairobi, May 13th, 1999
Contact:
14th Floor, North Tower, Anniversary Towers, University Way - PO Box 7629 - Ronald Ngala PO, Nairobi - Kenya -
Tel: +254 (2) 216242
Fax: +254 (2) 230148
Email: eacl@iconnect.co.ke
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Can you tell us what is the role of East African Conference Lines in the context of maritime transport in Kenya?
It a group of shipping lines, operating a line of services between Europe and East Africa. The Conference Lines as a group dates back to 1904, when the first East African Conference was started. It has been as a group even between the wars. The German line started of as member of the conference before the first world war, serving the German colony of Tanganyika (today Tanzania) but then during the 1st and 2nd WW the German line membership was suspended for obvious reasons. There is still a number of German lines operating between Europe and East Africa to this day as there are British, French, Italian, etc.
The Conference secretariat is based in London. The Resident Representative is based here to look after the local interest in East Africa. My job here consists on policy development and harmonization; liaison with local representatives, governments in the region, parastatals, ports, railways, etc, in fact, to deal with everything and everybody we need in order to make better use of our facilities. We deal with the Ministry of Transport and the KPA (Kenya Ports Authority) itself. We put out our case and our complaints, whenever necessary, all round own marketing and commercial operations. Within the Conference group we have a collective operational team which discharges and loads all the ships. But commercial and marketing operations are left to individuals. Most lines feel that they would like to maintain their independence to operate.
Are there any trading restrictions?
The East African Lines trading restriction is that you cannot deal in areas that out of our boundaries. To complicate the issue a little bit, our trading route had to chase us through the Red Sea and through Suez. Within the Conference Group, there is an operating consortium, a separate group within the Conference called EX, East African Container Services, which calls at ports in the Red Sea. To call at Djibouti, Jeddah, Sudan and Port Said in Egypt etc. is basically a commercial decision. This is not part of the Conference Agreement. This is an intermediate way-port system on route, since there is a lot of cargo out there and this allows us to pick up some cargo when we have the opportunity to do so. We would be foolish to ignore this possibility.
One of the biggest emerging markets requiring Kenyan exports is in fact Egypt, which has an almost insatiable appetite for Kenyan tea. We have two sailings and marks into Port Said, which is almost exclusively Kenyan tea. Even though Europe is still the largest market for Kenyan tea, Egypt now is the largest export market for Kenyan tea after Europe and Pakistan.
What are considered the main destinations for Kenyan goods?
Our main ports of call, northbound from Mombasa are Port Suez and Port Said. The Mediterranean is essentially done by transshipment in Barcelona, which is our hub in that area, and then distributed around. Hamburg, Bremhaven, Philipstown and Antwerp are our other basic European ports and where the majority of the traffic originates from. Antwerp and Rotterdam are always competing furiously against each other, but we prefer to use Antwerp. From a maritime point of view it is easier to get in and out of Antwerp, overall it is a cheaper port, facilities there are excellent and its position, right in the heart of Europe, is very convenient.
You seem to deal mostly with Europe and everywhere in between, but there seem to be limitations to other areas of the world. Why is that?
The Conference is a group that is basically designed to facilitate trade between Europe and East Africa. There are no restrictions on the member lines within the Conference having further trading rights or interests in transatlantic trade, for example, or to trade with Central Europe, Russia, the Middle East, etc. Any member of the group can trade outside the group to the limit of its own abilities and commercial interest. But within the group there are general laid down trade shares and limitations on what they can each do within those trade areas.
The guidelines are set by the lines themselves. The Conference is not like the European Commission, for example, which dictates the members. We provide the facilities and the forum for the members to decide how to adMinister their own business, within the conference amongst themselves. Everything is done under the basis of agreement, rather than dictation. We also take into consideration, that there are a number of lines operating outside the conference system. That draws quite a stimulating amount of competition to us.
How have the natural disasters that ravaged Kenya a couple of years back affected the performance of trade?
In 1997, this country suffered a number of natural disasters, the most relevant one was El Niño rains. That had a tremendous impact, not only on transport and infrastructures, but also on agriculture, which is actually the mainstay of East African economy. We are still seeing the effects of that. The production of tea this year is going to be about 50,000 tons less than what it was last year. In 1998 there was a record crop because they was so much rain. In 1999, we are going back down to normal levels. It would be unrealistic to expect to maintain the same levels. All this to say that there is plenty of tea around, tea prices are reasonably stable, India (the World's largest producer) is exporting very little now, most of it being reserved for domestic use. The Assam area has suffered a drought, in fact, Assam tea is now in short supply. Where do tea consumers get their tea if it is not from India?: they get it from Africa. Africa is the largest exporter of tea in the world. So we are doing well in that sense.
What is your projection for trade for the year 2000?
I am quite optimistic for the year 2000, I think things are going to get better as far as exports are concerned. Take pineapples, for instance. At Del Monte, in Thika, they lost quite a lot of their crop due to the El Niño rains, it was all washed away. They could not do the replanting in the plantation because the weather was against them. Thus they got a huge shortfall of pineapple this year, about 40% down. Now weather conditions are more appropriate, so next year volumes will be going back to normal level. The same can be applied to tea.
Coffee, however, is more of a problem. Coffee is a very popular crop to grow around the world. Kenya has always specialized in the Arabiga type of coffee. It is always high grade, high quality. Due to an international shortage of Arabiga, Kenyan coffee got high prices. Now Vietnam has come into the market, growing some very good Arabica coffee. Brazil has now diversified into the Arabica coffee. So the New York price for Arabica coffee has deteriorated over the years. We are now seeing lesser shillings for our Arabica coffee. In some respects, the recent slide of the shilling has been good news for the small holders because they sold in dollars. But against that is the fact that the cost of imports of agricultural products has become more expensive. Overall, the prospects for coffee are not quite so good as they are for tea or pineapples, because of worldwide competition. | Most of Kenya's industrial products are the same ones that America or Europe produce for themselves, with the possible exception of garments, which are making a lot of in-roads into the American market (especially from the Export Processing Zones) and, to some extent, into the European market, as well. The rest of Kenya's industrial products are actually designed for the regional market: Uganda, Congo, Burundi, Sudan, etc.
How does E. A. Conference Lines serve the neighboring countries?
We actually pay regular visits to these countries. Tanzania is very keen to promote its natural port, Dar-es-Salaam. Uganda has to use Mombasa for their coffee, tea, cotton, etc. Of course they would be much happier if the land connections with Mombasa were better than they actually are. Before El Niño, things were moving along, but what the rains did in a most dramatic way, was to uncover all the shoddy work by ripping the roads out and washing them away. As a consequence of that the roads are in poor shape, particularly the one between Mombasa and Nairobi. The World Bank is involved in rebuilding sections of that road there, but it is taking a lot of time. In the meantime, business has to go on. Hence a lot of emphasis is being switched to the rail transport.
The railways continued to work throughout the El Niño phenomenon, they did not suffer apart from a few landslides here and there. What they found more difficulty with was to cope with increased volumes of cargo being offered to them. They have a shortage of railway staff, a shortage of locomotives, and their actual tracking systems within the railway administration is pretty rudimentary, to say the least. Consequently they do not make the best use of what they have got. You often have a situation where empty wagons are sitting up-country, whereas down in the port of Mombasa, as is the case at the moment, there is a backlog of over 900 containers waiting to move up-country. Why is that?, because there is this crazy idea that the wagons have to wait up-country until there is enough cargo to come down to the port. So, since there is a trade imbalance between imports and exports, there is a constant backlog of empty wagons up-country and a backlog of containers at the port. Privatization of the railway would certainly help to bring in a more professional outlook and management in the system. The system is very capable of working, but there is an awful amount of underused capacity in the system.
What effect do you think that COMESA will have to expand trade in the region?
I do not see it going to make a lot of impact on international operations. At this particular point in time, I see no grounds for optimism. Nevertheless the profitability in the activities of any shipping line is involved with the economic activity in the region. A recent study by the IMF actually forecasted that, on percentage, in the next 2-3 years, East Africa will be one of the fastest growing regions in the world, even though there has to be taken into consideration that we are taking a pretty low base. International trade is only expected to grow no more than 2% per annum in the next 2-3 years. Kenya was expected to grow around 3-5% and Uganda up to 7%. So definitely East Africa is a growth area. It is a reasonable assumption that all the economies in the region are growing. As long as there is trade, there will be growth in the region, and as long as there will be growth in trade there will be a role for shipping lines in the region. I see that in the long run, even though now we are going through a difficult period. Trade will expand and so will opportunities. In Africa, nothing ever happens quickly. Patience is the name of the game.
Infrastructure
Infrastructure here is acting as a break for the development of East Africa. Properly managed railways and a port that operated at reasonable levels of efficiency would make a difference. For instance, in 1998 the port of Mombasa experienced nothing less than complete crises. It was on the point of total collapse. At one stage, we had ships waiting 21 days outside. Our operation consists of 8 ships with 400 containers each. The way it works between Europe and East Africa is that every week there is supposed to be one call at Mombasa. Every week there is supposed to be one vessel. Imagine what happens when you have delays, the vessels start bunching up. The entire fleet was in Mombasa and there were no ships in Europe. It was an absolute mess.
Productivity is measured in terms of container moves onto a vessel and off to the pier. Our vessels were down to 80 moves per 24 hours. In Europe the normal rate of discharge of load averages about 400 moves. The fastest port in the world is Singapore, which averages 900 moves. This tells you how we are in terms of world rating. Within our group (the Conference) we account for just over 30% of the total through port of the port. We made the government a proposal: that they give us a dedicated berth, have it run by ourselves, in cooperation with the KPA (Kenya Ports Authority), and we would bring in additional equipment to supplement KPA's. The alternative solution would be the imposition of a congestion of vessel delay surcharge. So the government accepted. Our productivity now at the dedicated berth, is 220 moves /24 hrs. The problem is the state of repair of the ship-to-shore gantries which are constantly breaking down is costing us a fortune, but it is still costing us less than what it would cost us having a vessel anchored out.
A lot of pressure and lobbying was done to the Government, which has now committed the Port to buy the necessary spare parts and equipment. If we can get the gantries working, we could achieve up to 350 moves per 24 hours. If we can et up to that rate, most of our problems would be solved and you would have a reasonably efficient, fast moving port. Of course, we would have to get the railways also moving and sorted out.
The role of the international community, particularly the IMF and the WB is absolutely crucial in forcing the Government to address the necessary reforms. The government has the attitude that it is working, it us OK, this is Africa. Within the African context, this might good enough, but within the international context, it is not good enough. There has to be an upgrading of standards and the whole change of the work ethic mode is happening, but it is taking a lot of time. We are not competing against the Tanzania, we are competing against international standards. |
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© World INvestment NEws, 1999.
This is the electronic edition of the special country report on Kenya published in Forbes Global Magazine.
November 29th 1999 Issue.
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