shippers council report on eac trade

East Africa Logistics Performance Survey | 2014 1

An Annual Publication of the Shippers Council of Eastern Africa (SCEA)

East Africa Logistics Performance Survey | 20141


Foreword Acknowledgement Abbreviations Executive Summary 1.0 Introduction 1.1 Background 1.2 Objectives of this Survey 1.3 Methodology 2.0 Main Findings 2.1. Rates and Cost Indicators 2.1.1 Maritime Transport 2.1.2 Air Transport 2.1.3 Road Transport 2.1.4 Railway Transport 2.2 EfficiencyandTimeIndicators2.2.1 Time Taken to Import and Export 2.2.2 EfficiencyofTransportCorridors2.2.3 AirCargoEfficiency2.2.4 RailwayTransportEfficiency2.3 Indicators of Complexity of Trade Transactions 2.4 Overall Rating of Logistics Performance 2.5 Some Key Determinants of Logistics Performance 3.0 Current Initiatives to Improve Logistics Performance in East Africa 4.0 RecommendationstoImproveLogisticsEfficiencyFurther Readings Annex 1Annex 2

Table of Contents

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The East African Logistics Performance Survey 2014 indicates a marked improvement in the port and corridor logistics efficiencyresultingfromthefocusthattheleadershipoftheregionhasgiventoinfrastructureandtradefacilitation.With the swearing in of the new Jubilee Government in March 2013, a raft of directives was issued with a focus on

improvingefficiencyinthecorridor.ThishasbeensupportedbyEACinfrastructuresummitconferencesandlaunchofMajorinfrastructureinvestments.ThisincludestheStandardGaugeRail(SGR),KenyaNationalElectronicSingleWindowSystem(KNESWS),launchofBerth19,SingleCustomsTerritory(SCT)amongothers. ThefindingsofthelogisticsperformancesurveyforEastAfricafocusesonlogisticsdrawsonasetofdatacollectedoveraperiodoffourmonthsbeginningFebruarytoMay2014fromfreightforwardingandShipperscompaniesinEastAfrica.Thesurveytracksspecificquantitativeindicatorsoflogisticsperformanceintermsofcost,timeandcomplexityofexecutingtradetransactionswhichEACcountriescanusetotargetpolicyactionstoimprovelogisticsandmonitortheirprogress.Thefindingsshould spur public and private agencies that have direct or indirect power over logistics performance to focus attention on reducingsourcesofdelayssoastoimprovetheabilityoftheregiontoeffectivelycompeteintoday’sglobaleconomy.

It is important to note that regulatory regime that facilitate and encourage private-public partnerships, especially for large regionalinfrastructureprojectssuchasPorts,RoadsandRailroadsneedtobeimproved.Well-functioningspecializedlogisticinfrastructure is also needed to ease freight handling, streamline inspection processes, and provide value-added services in areasclosertoports,airports,andbordercrossings.Atthesametime,servicesdeliveredbythestate,includingcustomsandcross-bordercrossingsandsecurityprovisions,needtobeharmonizedandsubstantiallyimproved.Additionally,effortsneedtobeformalizedtoimplementinstitutionalorganizationstopromotehighqualitylogistics.

In this regard a lot of ground is being covered through the development and launch of the Port of Mombasa Corridor Charter andPerformancedashboardinMay2014,byH.E.thePresidentoftheRepublicofKenyaUhuruKenyatta.ThepurposeoftheCharteristoestablishapermanentframeworkforcollaborationthatbindstheportCommunitytogethertospecificactions,collectiveobligation,keyperformanceIndicatorsandtimelines.TheShipperscouncilwastaskedtocoordinatethecharterand provide monitoring and evaluation framework, analysis and dissemination of information on the performance of the corridor.The2015LPSwillthereforedrawalotofinformationfromthecharterreportanddashboard.Yourusualcooperationon the development of the LPS will be highly appreciated as it continues to be the key point of reference by Government, regional and international policy markers due its dynamic and in-depth analysis of data and recommendation

Gilbert Langat -CEO

Foreword



ThisreportispreparedbyateamofresearchersattheShippersCouncilofEasternAfrica(SCEA).Specialthanksgoesto the SCEA Economist, Humphrey Kisembe who led the research team by providing the overall technical support in thedesignandexecutionofthesurvey,aswellasanalyzingdatafromrespondentsandpreparingthesurveyreport.

The data collection exercise would not have been executed without the much valued input from the members of the research teamthatincludedGraceMukayisaofRwanda,ChristellaMunyanaofBurundi,AnneKibirigeofUganda,DanielMbilinyiofTanzaniaandShadrackNyagwaswaandBrianOndisiofKenya.ManythanksalsogotoGilbertLangat,theCEOofSCEAforhisoverallinsightsandadvisorycouncilthroughthecourseofundertakingthissurvey.

SCEAwouldliketorecognizeandappreciatethesupportprovidedbyTradeMarkEastAfrica(TMEA)throughitsfundingofthissurveyandmanyotherinitiativesgearedatimprovingthelogisticsenvironmentinEastAfrica.SCEAhighlyvaluesthispartnershipwhosecommongoalistopromotetradeandeconomicintegrationinEastAfrica.

Lastly, to the 80 plus business entities and freight forwarder companies from East Africa who participated in this survey, your inputishighlyappreciatedasthissurveywouldnothavebeenasuccesswithoutyourinput.

Acknowledgement



AEO AuthorizedEconomicOperatorCCTV Closed Circuit TelevisionCOMESA Common Market for Eastern and Southern AfricaDar port RAP Dar port Rail Action PlanDRC Democratic Republic of CongoEAC East African CommunityECTS Electronic Cargo Tracking SystemFEU FourtyFootContainerEquivalentUnitGDP Gross Domestic ProductGOT GovernmentofTanzaniaICD Internal Container DepotICMS Integrated Customs Management System ICT Information and Communications TechnologyIDB International Development BankJKIA Jomo Kenyatta International AirportKM/Tonne Kilometers per Tonne KPA Kenya Ports AuthorityKRA Kenya Revenue AuthorityKRC Kenya Railways CorporationLAC Latin and Caribbean LPI Logistics Performance IndexMIS Management Information SystemNCTTA NorthernCorridorTransitTransportationCoordinationAuthorityNTB NonTariffBarriersOECD OrganizationforEconomicCo-operationandDevelopmentOSBP One Stop Border PostPPP Public Private PartnershipSCEA Shippers Council of East AfricaSME SmallandMedium–sizedEnterprisesTAZARA TanzaniaZambiaRailwaysAuthorityTEU TwentyFootEquivalentContainerUnitTMEA TradeMark East AfricaTPA TanzanianPortsAuthorityTRC TanzaniaRailwaysCorporationUSAID UnitedStatesAgencyforInternationalDevelopmentUSD UnitedStatesDollarVAT Value Added Tax

Abbreviations



Logistics is becoming a critical element of the competitiveness and economic performance of countries within the contextofincreasingglobalization.MostAfricancountriesarecurrentlyfocusingonstrategiestoincreasetradeandenhanceeconomicintegration.Forsuchstrategiestosucceed,akeycomponentisacosteffectiveandefficientlogistics

frameworkthataddressesthefullspectrumofthevalueandproductionchain. Alogisticsframeworkincludeshardware,whichisthephysical infrastructureneededtomovegoodseffectively,andsoftware,whichistheassociatedservicesandprocessesneededtomoveandtradegoodseffectively.

Theimpactoflogisticscostsoncompetitiveness,productivity,trade,integration,foodprices,inequality,andpovertycannotbeunderstated. Inmanydevelopingcountries, logistics costs range from18 to35percentofproductvalue—andevenhigherforsmallandmedium-sizedenterprises(SMEs)atabout40percent—comparedtobenchmarksofaround8percentofproductvalueinOrganizationforEconomicCo-operationandDevelopment(OECD)countries.WhileinrecentyearsmostdevelopingcountriesandEastAfricainparticular,haverealizedtherelevanceoflogisticsandhavetakensomemeasurestoimprovethiselementoftheirmarkets,theregionstilllagsbehindindevelopinganeffectivelogisticsframework.

Rates and Cost IndicatorsRates and cost indicators, which attempt to measure the total landed cost of importing/exporting a standard consignment byestimatingfreightchargesandagents’feesformaverycriticalcomponentofassessingthelogisticsperformanceofaregion.Wereportedinthe2012LogisticsPerformanceSurveyforEastAfricathatthesubstantialdropinfreightratesin2011wasattributedtotheoversupplyofvesselsandacceleratedcompetition.Inordertorestorefreightratestoprofitablelevels,shippinglinesintroducedageneralincreaseinfreightratesontheEastChina–EastAfricaroutethataveraged45.4%.Thisincreasecontinuedin2013,albeitatamuchslowerrateasshippinglinesimposedgeneralrateincreasesofbetweenUSD200andUSD400per20footand40footcontainerforDrycargo.MaritimefreightratesforimportsfromSouthAmericaaverageUSD2200foraTEUandthosefortheAsiaPacificregionaveragedUSD1200perTEU.

Comparedtolastyear,therehasbeennosignificantchangeinairfreightrates.FreightratestoNorthAmerica,SouthAmericaandAsiaPacificaveragedUSD4.3perkilogram,while those toEuropeandMiddleEastaveragedUSD1.75perkilogram.Besides these freight rates in the air transport sector, there exist a number of surcharges that have been imposed on shippers overthepastyear.Suchsurchargesincludethefuelsurchargeandtheinsurancesurchargeamongothers.

As for the road transport sector, evidence shows that freight rates to Kigali, Bujumbura and Goma are lower when one uses theportofDar–es–SalaamandtheCentralCorridorandnottheNorthernCorridorroutefromMombasa.Similarly,freightratestoNairobi,KampalaandJubaarelowerwhenoneimportsthroughtheportofMombasaandtheNorthernCorridorandnotthroughtheCentralCorridorroute.

RailfreighttariffsinEastAfricanlargelyremainhighincomparisontootherregionsoftheworld.TransportcostsperkilometerforastandardTEUareanaverageofUSD1.24usingtheTanzaniaRailwayCorporation(TRC)/TAZARAnetworkandUSD2.66usingtheKenyaRailwaysCorporation(KRC)network.RailwaytransportratesaverageUSD0.024(2.4UScents)perKM/Tonne

Executive Summary



on the TRC rail network while on the KRC networktheratesaverageUSD0.089(8.9UScents)perKM/Tonne.ItisthereforeclearthatTanzanianshipperspaythreetimeslessfreightchargesforrailwayservicesthantheirKenyancounterparts.

Efficiency and Time IndicatorsThe lead time to import into and export out of East Africa is dependent on a number of factors such as the time taken to preparedocuments,timetakentofulfillcustomsclearanceprocedures,timetakentofulfillportproceduresandtimetakentomovecargotoinlanddestinations.ForlandlockedcountriessuchasBurundi,thehighestcontributingfactortothetimetaken to import is the inland transport time.Among theEACPartnerStates, Tanzanian shippers spend themost time inpreparingtradedocumentation,followedbyKenyanandUgandanshippers.ForRwandanshippers,thehighestcontributingfactor to import lead times is ports as Rwandan cargo tends to spend more time in the two East African ports of Dar-es-SalaamandMombasa.

Export lead timeshavebeensignificantlyaffectedbyheightenedeffortsbyEACgovernmentsand inparticularKenya tocountertradeincontraband.Threatstotheelephantspeciesduetoincreasingtradeinillegalivoryhasmeantthatexportprocedures are revised and all exports are required to go through the scanner at theport. Bearing inmind that exportcontainersarephysicallyinspectedandsealedbyacustomsofficerbeforeloading,therequirementtoscanthemwithintheportseemsarepetitiveandtimeconsumingprocedurethathasclearlyaddedafewmoredaysontotheexportleadtimes.

Theaverageportdwell time is 10daysforDar-es-Salaamportand4daysforMombasaport.WhileMombasahasshownsignificantimprovementinthedwelltimefromanaverage5daysin2013to4daysin2014,Dar-es-Salaamporthasstagnatedatanaverage10daysaswasthecase2013.Neverthelessbothportsdonotmirrortheinternationalstandardsofamaximum3daysportdwelltimeforcargo.SomeofthefactorsresponsiblefortheportdwelltimesrecordedforthetwoEastAfricanports include the following:

a) Intermodalconnectivityfromseller’spointoforigintotheportofloadingb) Timetakentofulfillexportproceduresattheportofloadingc) Time taken to fulfill legal and regulatory requirements such as customs clearance, pre – shipment inspectionand

certificationandobtaininglicensesandpermitsd) Internationalfreighttimefromtheportofloadingtotheportofdischargee) Timetakentoclearcargoattheportofdischarge

AveragetrucksinEastAfricacanonlycoverbetween5000–7500kilometerspermonth,signifyingthefrictionthatexistsonthetransportcorridors,againstaninternationalbestpracticeof12,000KMs/Truck/Month.AnumberoffactorsplayacriticalroleintheefficiencylevelsofEastAfricantransportcorridors.Suchfactorsincludethetimespentatportsforcargopickupand delivery, the number of weighbridges that exist along the transport corridor and the average time spent by trucks at weighbridges,timespenttonavigatetrafficthroughmajorcitiesalongthetransportcorridor,timespentatpoliceand/orcustoms checkpoints and border crossing times.



Airfreightoperationsseemtobesignificantlyefficientwithfewincidencesofflightdelayoccurrences.MajorityofthecargocominginatJKIAisclearedbetween2–3daysasreportedby43%oftherespondents.19%oftherespondentsindicatethattheycleartheircargowithin1–2daysofarrivalwhileafurther16%indicatethattheycleartheircargowithin4–5daysofarrival.Themajorfactorsaffectingcargodwelltimeattheairportforbothimportsandexportsaresecurityrequirementsandcustomsprocedures.Unfortunately,withincreasingthreatsofterrorismintheworld,stringentsecurityrequirementsatairportcargoterminalsthatrequirethe100%screeningand/orscanningareeatingintotheleadtimesforimportingandexporting,therebycompromisingthetradecompetitivenessofcountries.

Rail freightoperationsstill remainbelowthe internationallyacceptablestandards.Thereexistsignificantvariations inthetransittimesreportedbyshippersandrailwayoperators.Accordingtoshippers,anumberoftransitdaysarelostduetodelaysin loading and unloading of cargo at rail yards, incidences of train interruptions caused by derailments and/or unscheduled events, issuesof trainpunctualityand locomotivesandwagonavailabilityamongotherdelays.Onthepartofoperators,most delays are caused by ports authorities at ports and ICDs and also by customs authorities who use up most of the time in verification.Suchdelaysaccountforanextra4–7daysintraintransittimes.

Overall Rating of Logistics PerformanceThe logisticsperformanceof individualEACPartnerStates is ratedusingeleven(11)key indicatorsand individualcountryscoresaggregatedacrossallrespondents,resultingintoasingleaveragescoreforeachindicator.Theresultsarepresentedintable2.4ofthisreport.Rwandaisrankedatposition1withascoreof3.52,followedbyUgandaatposition2withascoreof3.07.Tanzaniacomesinatposition3withanaveragescoreof2.89whileKenyaandBurundiarerankedatposition4and5withscoresof2.82and2.78respectively.

This report advances some recommendations that are critical to the improvement of the logistics performance of EAC Partner Statesandtheirrelatedabilitytopromoteinternationaltradeandspureconomicgrowth.Mostcritically,EACgovernmentswillneedtosufficientlyinvestintransportinfrastructureandprovideanenablingenvironmentforprivatesectortoprovidemore efficient transport and logistics services. Investment in regional physical infrastructure projects is also essential toreducingcostsofcrossbordertransportservices.ThisisparticularlytrueforlandlockedBurundi,Rwanda,UgandaandDRC.

Importantly, regulations that facilitate and encourage private-public partnerships, especially for large regional infrastructure projectssuchasportsandrailroads,needtobeimproved.Well-functioningspecializedlogisticinfrastructureisalsoneededtoease freight handling, streamline inspection processes, and provide value-added services in areas closer to ports, airports, and bordercrossings.EquallyimportantistheestablishmentofclearguidelinestosupportlogisticsmanagementdevelopmentforSMEs, logisticoperators,and intermediaries.Atthesametime,servicesdeliveredbythestate, includingcustomsandcross-bordercrossingsandsecurityprovisions,needtobesubstantiallyimproved.Additionally,effortsneedtobeformalizedtoimplementinstitutionalorganizationstopromotehighqualitylogistics.



1.1 BackgroundOver the past two decades, global trade negotiations betweencountrieshaveresultedinsignificantreductionintariffratesand,tosomeextent,reducednon-tariffbarriersto trade. Increasingly, however, trade transaction costssuch as those resulting from poor transport infrastructure and rigid import/export regulations and procedures have proved to be more costly for deal with2.Asaresult,developing countries are shifting their trade policy agenda to take into account trade costs and the relevance of freight logistics and transport infrastructure to the trade facilitationagenda.

The incorporation of specific measures to improve thetransport and trade facilitation environment has become a key policy initiative geared to enhance the trade competitiveness of countries. Focus is now on servicesprovided by trade facilitation agencies of the state and the flow of freight both internally and externally.Clearly, developing countries have much to gain, given their high costsof undertaking trade transactions. It hasbeen proven that trade facilitation measures focusing on customs procedures and regulatory regimes often result in improved controls, reduced administrative costs, and increased cooperation between the public and private sectors.

Improving trade logistics through deepened trade facilitation measures has become of increasing importance toEAC’sregionalintegrationagenda.Giventhesubstantialdecline in tariffs and other traditional barriers to trade,logistics performance and the institutional capacity to provide it seem fundamental to expanding productivity gains and benefiting from existing trade agreementssuchas theEACCommonMarketProtocolandCOMESA.Reforming the current institutional climate to promote much needed transformations in terms of increased human capital, private-sector development, logistic services, infrastructurequality, and increased investmentin transport infrastructure may be a costly and sometimes lengthy process. The challenges of prioritizing andefficiently addressing themany problems intrinsic to thecurrent logisticsperformanceofEACcountriesaremany.Nonetheless, the future benefits of these processesare more likely to exceed their costs in most aspects of economicandpoliticalactivity.

Attempts to measure the efficiency of logistics services

1.0 INTRODUCTION of a country have been made through the World Bank LogisticsPerformanceIndex(LPI),whichranksthelogisticsperformanceofcountriesbasedonasetof indicators. Inthe2014LPIreport,Germany,NetherlandsandBelgiumareranked as the countries with the best logistics performance at positions 1, 2 and 3 respectively. South Africa, Egyptand Malawi are the highest ranked African countries at positions34,62and73.Kenya is thehighest rankedEACcountryatposition74,whileRwanda,BurundiandTanzaniafollowatpositions80,107and138respectively.Ugandaisnot ranked in the 2014 survey3.

Youmayrecallthatthereisanincreasinglyrenewedfocusontradefacilitationmeasuresontheregion’stradeagendathat is backed – up by increased investment in trade and transport infrastructure and reforms such as increased coordination and harmonization of customs and borderprocedures. All this efforts geared at promoting tradeand increasing regional and/or economic integration, tend to not only enhance logistics efficiencybut also improveefficiency of revenue authorities to improve revenuecollection, while promoting private sector participation in productiveactivities.

Despite all these reform efforts, some limitations stillexist that explain the weak logistics performance in EAC countries? First, the region is underserved by a weak institutional capacity that limits its ability to cope with the demands of accessible and reliable transport infrastructure and the services provided by the state are inadequateto serve a rapidly growing trade facilitation agenda. Inparticular, scarce human resources, weak ICT infrastructure and regulation, and monitoring and evaluation systems adversely affect the reform agenda needed to expandinstitutionalarrangements.Consequently,thecoordinationcapacity of EAC countries is weak and impedes the necessary developmentofthelogisticsagenda.Inresponsetotheselimitations, a rethinking of the current agenda to transform trade logistics in the EAC region and promote international tradeandspureconomicgrowthrequiresactionsatboththenationalandregionallevel.

This report presents the findings of the logisticsperformancesurveyforEastAfrica.Itfocusesonlogisticsfriction and draws on a set of data collected over a period of four months beginning February to May 2014 from freight forwarding companies in East Africa. The survey tracksspecific quantitative indicators of logistics performance

2 Djankovetal(2006)foundthatonaverageeachadditionaldayofdelayinshippingreducedtradebyatleast1%.3 ConnectingtoCompete2014,TradeLogisticsintheGlobalEconomy.TheLogisticsPerformanceIndexanditsIndicators.TheWorldBank2014



in terms of cost, time and complexity of executing trade transactions. Thefindings should spur public andprivateagencies that have direct or indirect power over logistics performance to focus attention on reducing sources of friction so as to improve the ability of the region to effectivelycompeteintoday’sglobaleconomy.Moreover,since the logistics performance indicators are directly related to operational performance, EAC countries can use these indicators to target actions to improve logistics and monitortheirprogress.

1.2 Objectives of this SurveyThe overall objective of this survey is to ascertain the overall logistics performance of EAC Partner States and rank them based on eleven (11) logistics performance indicatorslocalizedtoEastAfrica.Itishopedthatthefindingsofthissurvey will enable the Shippers Council of Eastern Africa (SCEA)anditsmemberstoeffectivelyengageinadvocacywork that will result in the development of policies to improve logistics efficiency, reduce the cost of freighttransport services and enhance the competitiveness of international traders in East Africa. To achieve thisobjective, the survey seeks to ascertain the main factors thatinfluencetheefficiencyandcostAoflogisticsservicesinEastAfrica.ToachievethisAoverallobjective,thesurveyis designed address a number of specific objectives asfollows (See a detailed TOR in Annex I):

a. Quantifythemaritimetransportcostsand timelines for imports and exports at the two East African ports of Dar – es – Salaam and Mombasab. Quantifytheairfreighttransportcostsand timelines for imports and exports at Jomo KenyattaInternationalAirport(JKIA)c. Ascertaintheoverallratingoflogistics performance in East Africa along the following key indicators:d. Efficiencyofthegoodsclearanceprocesse. QualityoftransportandICTinfrastructuref. Competenceandqualityoflogisticsservicesg. Abilitytotrackandtraceshipmenth. Timelydeliveryofshipmentsi. Incidencesofvandalismandtamperingof shipmentj. Complexityofclearanceproceduresk. RankEACPartnerStatesintermsoftheirlogistics performancel. Highlightthecurrentinitiativesgearedat improving logistics performance in East Africa and the implications they will have on trade and developmentintheregion.

1.3 MethodologyThe methodology applied in this survey involved a twin combination of data gathering from existing information sources such as reports and the administration of a standard survey questionnaire targeting freight forwarders in theEast African Community (EAC) region. There have beennumerous studies conducted on logistics performance and tradefacilitationandhowtheyaffectthecompetitivenessofacountry.Thesestudies,whichwemadereferenceto,include those conducted by the Shippers Council of Eastern Africa (SCEA), the World Bank, the Northern CorridorTransit Transport Coordination Authority (NCTTCA),TradeMark East Africa (TMEA), the AfricanDevelopmentBank, the East African Community (EAC) and theUnitedStates Agency for International Development (USAID)amongotherinstitutions.

A standard questionnaire administered during the fieldresearch was aimed at gathering the perception and views of freight forwarders on the logistics performance of the East African region. The questionnaire, which targetedresponses from freight forwarding companies operating inthefiveEACpartnerStatesofBurundi,Kenya,Rwanda,Tanzania and Uganda, focused on obtaining informationon the following key elements:

a. Generalcompanyinformationofrespondentsb. Sub–sectorspecificdataonlogisticscosts, timelinesandefficiencylevelsofcargoclearance using maritime, airfreight, road and railway transport modesc. Theoverallratingofrespondentsonthe performance of the logistics chain in their country of operations

Asampleofthisquestionnaireandafulllistofstakeholdersinterviewed are attached in the annex section of this report.To supplement information from interviews andexisting reports, the research team also managed to attendastakeholder’sconsultativeforumbetweenfreightforwarders and government trade facilitation agencies at the Jomo Kenyatta International Airport (JKIA) cargocentreonThursday19thJune2014.



2.1. Rates and Cost IndicatorsRates and cost indicators attempt to measure the total landed cost of importing/exporting a standard consignment byestimating freight chargesandagents fees. Thecostsof freight transport services are extremely critical to the sourcingdecisionsof international traders.The followingsection presents the survey findings on rates and costindicators for the four transport modes of maritime, air, roadandrailway.

2.1.1 Maritime TransportMaritime Freight Rates Maritime freight rates are generally determined by the demand and the supply of maritime transport services.Political, environmental andeconomic factorsmayaffectthe supply and demand of maritime transport services.Cargo volumes and demand for maritime transport services areusuallythefirsttobehitbysuchfactors.Factorssuchas a slowdown in international trade, sanctions, natural disasters and weather events, regulatory measures and changes in fuel prices also have an impact on the world economyandglobaldemandforseabornetransport.

As for the supply of maritime transport services, there is

2.0 Main Findingsgenerally a tendency of overcapacity in the market, given that there are no inherent restrictions on the number of vessels that can be built and that it takes a long time from the moment a vessel order is placed to the time it is deliveredforservice.

We reported in the 2012 Logistics Performance Survey for East Africa that the substantial drop in freight rates in 2011 was attributed to the oversupply of vessels and accelerated competition4.Inordertorestorefreightratestoprofitablelevels, shipping lines introduced a general increase in freight rates on the East China – East Africa route that averaged45.4%.This increasecontinued in2013,albeitata much slower rate as shipping lines imposed general rate increasesofbetweenUSD200andUSD400per20 footand40footcontainerforDrycargo.

Based on discussions with shipping line agents, the survey computed the typical average cost (freight charges andcustoms brokerage fees) for exporting and importing astandard 20 foot and 40 foot container from four major regions of the world to the East African regions through thetwoEACportsofDar–es–SalaamandMombasa.Theresultsarepresentedinfigure2.1and2.2below.

4 In2012,therewasageneralincreaseinfreightratesasshippinglinessoughttorestorethefreightratestotheprofitablelevelsthatexistedbefore2009and2010.Thismarkeda35.2%increaseinfreightratesfromtheFarEasttoEastAfricafora20ftcontaineranda55.6%increasefora40ftcontainer

Figure 2.1. Typical Average Cost of Exporting a Standard Consignment from East Africa. Source: Survey



Figure 2.2. Typical Average Cost of importing a Standard Consignment from East Africa. Source: Survey

MaritimefreightratesforexportsfromEastAfricatoNorthAmericaaverageUSD2800foraTEUandUSD5000foranFEU,makingitthemostexpensivedestination.

ThemostpopularcountryofdestinationinNorthAmericafor exports from East Africa is the USA which ranks atpositionsfourforKenya,fifteenforUganda,eighteenforTanzania, eight forRwandaandNine forBurundi. Pleaseseeannex5 fora listof top twentydestinations forEACexports.

Maritime freight rates to Europe stand atUSD 2,000 fora twenty foot container and USD 4,000 for a forty footcontainer while those to the Middle East average USD1,500fora20footcontainerandUSD3,000fora40footcontainer,whileratestoAsiaaverageUSD600,makingitthedestinationwiththelowestfreightrates.DatawasnotavailableforfreightratestoSouthAmerica.

Freight rates for imports from South America average USD2200foraTEUandUSD4500foranFEU,making itthemostexpensivedestination.Europe,withanaveragefreightrateofUSD2000perTEUandUSD4000perFEUfollows closely, while Asia Pacific regionwhich averagesUSD1200perTEUandUSD2000perFEUandthewhichaveragesUSD1000foraTEUand2000foranFEUcloseouranalysisoffreightmaritimerates.

Freight rates for imports from South America average USD2200foraTEUandUSD4500foranFEU,making it

themostexpensivedestination.Europe,withanaveragefreightrateofUSD2000perTEUandUSD4000perFEUfollows closely, while Asia Pacific regionwhich averagesUSD1200perTEUandUSD2000perFEUandthewhichaveragesUSD1000foraTEUand2000foranFEUcloseouranalysisoffreightmaritimerates.

Port ChargesTwo main measures of port charges are used in this survey to compare the costs incurred by shippers as they import

and export through the two East African Ports of Mombasa and Dar-es-Salaam. These measures are shore handlingcharges, which are levied by service providers for handling cargo at the quayside, andwharfage charges,which areraised on all cargo including empty containers passing over thequays,wharves, jetties,buoysandother installationswithintheharborlimitsexceptfortransshipmentcargo.

ThemoststrikingdifferentialinportchargesbetweentheportsofDar-es-SalaamandMombasaisthefixedwharfagecharges of USD 70 for a 20 foot container and USD 105for a 40 foot container at Mombasa, while Dar-es-Salaam levies its wharfage charges as a percentage of the value ofthecargo–usually1.6%fordomesticcargo,1.25%transitimports and 1% for domestic and transit exports. Clearlythis is a disadvantage for shippers who import through Dar-es-Salaam port as high value cargo will attract higher portcharges.



Maritime Transport

Air Transport



Table 2.1. Dar-es-Salaam and Mombasa Port Charges. Source: KPA and TPA Tariff Books

Asforshorehandlingcharges,thetwoportslevydifferentcharges.While a 20 foot domestic import container willattractashorehandlingchargeofUSD90inDar-es-Salaam,thesamewillattractaUSD105chargeinMombasa. Thetrend is similar with 40 foot domestic containers which attractashorehandlingchargeofUSD135atDar-es-Salaamcompared to USD 160 atMombasa. Domestic importersusing the Mombasa port therefore pay more to the Port AuthoritiesthantheirTanzaniancounterparts.

Further, Mombasa port charges are generally lower than Dar-es-Salaam fordomesticand transitexports. ShipperswillpayUSD40andUSD65for20footand40footexporttransit containers respectively at Mombasa compared to USD80andUSD120forthesamecategoryofcontainersatDar-es-alaam.Table2.1isadetailedcomparisonofportchargesforDar-es-SalaamandMombasaports.

2.1.2 Air TransportOne of the most important lobby issues for shippers in the air freight industry in East Africa remains the need for fair and transparent air freight charges.While air freightcharges have remained steady over the past year, a number of surcharges have been introduced by careers, resulting in a negative impact to the cost of doing business for shippers intheEACregion.FreightforwardersfromtheJKIACargoTerminal who responded to the survey questionnairelisted a number of surcharges that have been imposed on

Table 2.2. Average air freight rates for exports and imports to and from selected destinations

shippersoverthepastyear.Themostcommonsurchargesintroduced by careers included the fuel surcharge, the insurance surcharge and the screening/security surcharges over andabove thenormal freight charges. The averageair freight rates for imports and exports to selected destinationsarepresentedintable2.2below.

Common Airfreight Surchargesa. Fuel Surcharge on International Routes (all countries

apartfromKenya)• USD 0.70 per kg - applicable to General Cargo,

Human Remains, Dangerous goods, all Live animals- includinglivetropicalfish,crabsandlobsters)

• USD 0.60 per kg - Perishable Cargo (freshvegetables,fruits,flowersandfish)

b. Fuelsurchargeondomesticcargo• USD0.47perkg-Thisincludesperishable,general

cargo, Human remains, and dangerous goods, all live animals including live tropical fish, crabs andlobster

c. OtherSurchargesapplyingtoallcountries/routes• Insurancesurcharge-USD0.05perkg• ScreeningFee -USD0.02perkg+16%VAT• HandlingFee -USD0.05perkg+16%VAT• AirwayBillFee -USD10.0pershipment• Documentation -USD20.0pership’t+16%VAT• CustomsFee -USD10.0pership’t+16%VAT

All surcharges are only applicable to cargo originating from Kenya.



2.1.3 Road TransportThe survey compared road freight charges for imports coming through the two East African ports of Dar – es – Salaam and Mombasa to several destinations in the EAC region.Giventhatroadfreightchargesoftenvarybycargotype and destination, the survey limited itself to computing the average cost of transporting a standard 40 foot container cargo using theNorthern and Central Corridortransport routes. The results are provided in figure 2.3below.

Figure 2.3. Road freight rates comparisons from Dar-es-Salaam and Mombasa ports to various destinations in Eastern Africa.

The Northern Corridor transit route connects the port

of Mombasa to Nairobi, Kampala Kigali, Bujumbura and

Eastern DRC. Similarly, the Central Corridor transit route

connects the port of Dar-es-Salaam to Bujumbura, Kigali,

KampalaandEasternDRC.Itisclearfromtheresultsofthe

survey that freight rates to Kigali, Bujumbura and Goma

are lower when one uses the port of Dar-es-alaam and the

CentralCorridor.

Similarly, freight rates to Nairobi, Kampala and Juba are

lower when one imports through the port of Mombasa and

theNorthernCorridor.Theseresultsaresupportedbythe

NCTTCATransportObservatoryReportforApril2014.

2.1.4 Railway TransportIndicative rates for transporting a standard 30 tonne twenty footequivalentcontainerunitusingtheTanzaniaZambiaRailways Authority (TAZARA) and the Kenya RailwaysCorporation(KRC)arepresentedintable2.3below.

Transport costs per kilometer for a standard TEU arean average of USD 1.24 using the Tanzania RailwayCorporation (TRC)/TAZARA network and USD 2.66 usingthe Kenya Railways Corporation (KRC) network. RailwaytransportratesaverageUSD0.024(2.4UScents)perKM/

Tonne on the TRC rail network while on the KRC network theratesaverageUSD0.089(8.9UScents)perKM/Tonne.ItisthereforeclearthatTanzanianshipperspaythreetimesless freight charges for railway services than their Kenyan counterparts.

Nevertheless the most important point to note is thatrail freight tariffs in East African largely remain high incomparison to other regions of theworld. This scenariois supported by the failing concession agreements and the inabilitybyoperators to invest to improveefficiency.Railway systems in North America have increased theiraveragetariffsince2005primarilyduetoincreasingsystemcongestion and higher fuel costs. Even so, after theseincreases,theUSAandCanadianrailwaysstillhavetariffsbelow3U.S.centsperton/km.



Road Transport

Railway Transport



Table 2.3. Indicative rates for transporting container using the Tanzania and Kenya rail system

2.2 Efficiency and Time Indicators2.2.1 Time Taken to Import and ExportPart of this survey involved the review of existing literature on logistics performance. A detailed summary of theprocedural requirements for exporting and importinga standard 20 foot container out of and into East Africa is presented in figure 2.2 below. The data captures thenumberofdocumentsrequiredtofulfillastandardimport/export transaction as well as the time taken to complete suchtransactions.At46days,Burundihasthelongestleadtimetoexport,followedbyUgandaat33days,Tanzaniaat31days,andRwandaat30daysandKenyaat26days.

Interviews with freight forwarders indicate that the lead time to import into and export out of East Africa is dependent on a number of factors such as time taken to preparedocuments,timetakentofulfillcustomsclearanceprocedures,timetakentofulfillportproceduresandtimetaken tomove cargo using inland transportmodes. The

Figure 2.4. Lead times for importing and exporting into East Africa. Source: Doing Business 2014 Survey

firstthreefactors,whichalsocontributetoportdwelltimeforcargo,arediscussedindetailinthenextsection.

The highest contributing factor to the time taken to import into Burundi is the inland transport time, as attested by 17% of Burundian respondents. This may be the case asBurundiisalandlockedcountry.Timetakenfordocumentspreparation is the highest contributor to the import lead timeinKenya,TanzaniaandUgandaasattestedby11%,15%and 10%of the respondents respectively. InRwanda, thehighest contributing factor to import lead times is ports as attested by 10% of respondents, a reason to significantlyconsiderbyKenyanandTanzanianportsauthoritieswhomtheirportsaregatewaystocargodestinedtoRwanda.

With respect to exports, Inland transport time is the greatestcontributortoexportleadtimesinRwanda.Thismay be the case as Rwanda is a landlocked country. InBurundi, Kenya and Tanzania, documents preparation is



the greatest contributor to export lead times as attested by14%,12%and8%respectively.Thethreecombinedtimefactors of documents preparation, customs clearance and inland transport are simultaneously responsible for export leadtimesinUgandaasattestedby27%oftherespondents.

Port Dwell TimePort dwell time is a sub – section of the import lead time and isaverycommonindicatorformeasuringtheefficiencyofmaritimeports.Itreferstotheaveragenumberofhours/days for cargo to leave the port terminal from the time it isoffloaded from thevessel.Discussionswith shippersand port operators for the two East African ports of Dar-es- Salaam and Mombasa revealed an average port dwell timeof10daysforDar-es-Salaamand4daysforMombasa.WhileMombasahasshownsignificantimprovementinthedwelltimefromanaverage5daysin2013to4daysin2014,Dar-es-Salaam port has stagnated at an average 10 days as wasthecase2013.Neverthelessbothportsdonotmirrorthe international standards of a maximum 3 days port dwell time for cargo. Investigations reveal the followingfactors as responsible for the port dwell times recorded for thetwoEastAfricanports.

Explaining Time Taken to Import and ExportImport lead times are largely determined by the following factors:a. Intermodalconnectivityfromseller’spointoforiginto

the port of loading

Figure 2.5. Factors responsible for the lead times to import and export in East Africa

b. Time taken to fulfill exportproceduresat theportofloading

c. Timetakentofulfilllegalandregulatoryrequirementssuch as customs clearance, pre – shipment inspection andcertificationandobtaininglicensesandpermits

d. International freight time fromtheportof loading tothe port of discharge

e. TimetakentoclearcargoattheportofdischargeExport l ead times have been significantly affected byheightenedeffortsbyEACgovernmentsand inparticularKenya to counter trade in contraband. Threats to theelephant species due to increasing trade in illegal ivory has meant that export procedures are revised and all exports arerequiredtogothroughthescannerattheport.Bearingin mind that export containers are physically inspected and sealedbyacustomsofficerbeforeloading,therequirementto scan them within the port seems a repetitive and time consuming procedure that has clearly added a few more days onto the export lead times. Moreover, discussionswith freight forwarders reveal that these lead times can significantlyincreaseintheeventofascannerbreakdown,whichhappensonaverageonceaweek.

2.2.2 Efficiency of Transport CorridorsThe survey used two major indicators to measure the efficiencyofroadfreighttransportservicesinEastAfrica.The indicators used were truck turnaround time, which is a measure of the average time it takes for a truck to leave the port, deliver cargo to selected destinations in East Africa



and return to the port and average mileage per truck per month,alsoknownaskilometerspertruckpermonth.Thesurvey results for truck turnaround times from the ports of Dar-es-Salaam(Usingthecentralcorridortransportroute)and Mombasa (Using the Northern Corridor transportroute)ispresentedinfigure2.6below.

Another measure of corridor efficiency if the averagemileage/KMs covered by a truck per month. For thetwo transport corridors in East Africa, interviews with transporters reveal that majority of truck, as represented by41%ofrespondents,canonlymanageanaverage2000–5000KMspermonth.Another34%ofrespondentsindicatetheirtruckscoverandaverage5000–7500KMspermonth.Figure 2.7 gives a representation of the road transportefficiency using KMs per truck per month. Internationalbest practices in countries with supporting infrastructure and standardized road sector process record an average12,000KMspertruckpermonth.Itisthereforeclearthatthe East African region is lagging behind in road freight efficiency.

Explaining Efficiency of Transport CorridorsA number of factors play a critical role in the efficiencylevels of East African transport corridors. Such factorsinclude the time spent at ports for cargo pickup and delivery, the number of weighbridges that exist along the transport corridor and the average time spent by trucks at weighbridges,timespenttonavigatetrafficthroughmajorcities along the transport corridor, time spent at police and/orcustomscheckpointsandbordercrossingtimes.

Figure 2.6. Truck turnaround time from Mombasa and Dar-es-Salaam to various destinations in East Africa

InthecaseoftheNorthernCorridortransportroute,trucksare still spending lengthy time periods at weighbridges despite recent investments in new and improved weighbridge technology. At Mariakani and Athi Riverweighbridges for instance, the survey revealed that trucks spentanaverage0.95hoursand1.77hoursrespectively.

There has been no significant improvement in bordercrossing time as witnessed at Malaba border post which recorded an average 2.6 hours border crossing time foroutboundcargo–sameasinthe2013survey.Thissignifieslittle or no improvement in the efficiency of borderoperationsdespitethedevelopmentandoperationalizationofOneStopBorderPostsinanumberofEACborders.Traffic intensity within Northern and Central Corridorcities such as Mombasa, Nairobi, Eldoret, Kampala andDar – es – Salaam is also a significant determinant ofcorridor efficiency. The lack of adequate infrastructurehas resulted in traffic congestionwithin these cities andtrucksincurringhugedelays(loosingupto6hoursdrivingtime) as they navigate these cities. The survey did notinvestigate much on police and customs checkpoints along the transport corridor as these are issues that are currently being addressed by the EAC under theNTBsmonitoringprogramme.

2.2.3 Air Cargo EfficiencyEfficiencyandtimeindicatorsforairfreighttransportweremeasuredusing threekey indicatorsnamelyflightdelaysoccurrence, cargo dwell time for exports and cargo dwell



Figure 2.7. Average kilometers per truck per month for both the Northern and Central Corridor transport routes

timeforimports.Theresultsarepresentedinfigure2.8and2.9below.

The survey reveals few incidences of flight delayoccurrences as 73% of respondents indicate that theyhave never experienced incidences of flight delays overthepasttwelve(12)months.Afurther19%ofrespondentsindicatethattheyrarelyexperiencedflightdelaysoverthepast year, while some 8% indicate that they sometimesexperienced this over the past year. This scenario givesa good account of the efficiency of flight operations bycarriers in the air freight sector.Moreover, respondentspointoutthatthereisnoroomforflightdelaysespeciallyin the handling of perishable produce as this could result in massivelossesfortheindustry.

Majority of the cargo coming in at JKIA is cleared between 2–3daysasreportedby43%oftherespondents.19%oftherespondents indicate that they clear their cargo within 1 – 2 daysofarrivalwhileafurther16%indicatethattheycleartheircargowithin4–5daysofarrival.Themajorfactorsaffectingcargodwelltimeattheairportforbothimportsand exports are security requirements and customsprocedures. Unfortunately, with increasing threats ofterrorismintheworld,stringentsecurityrequirementsatairport cargo terminals that require the 100% screeningand/or scanning are eating into the lead times for importing and exporting, thereby compromising the trade competitivenessofcountries.

Moreover, the role of customs authorities has changed in the post 9/11 period. Until the late 1990s, the primaryfocus of customs was on collection of customs duties.This changed in 2010 when the focus shifted more and moretosecurity.TheAEOprogramme,introducedin2008whichrequiredshippersandlogisticsserviceproviderstointroduce internal security checks in their business process, was intended to lessen the securityburden for shippers.However, the concept is based on mutual trust between customs and business and customs is under no obligation to provide expedited trade facilitation for compliant shippers.

2.2.4 Railway Transport EfficiencyThe survey obtained average transit times for key origin to destination movements based on opinions of railway operators and railway freight customers. There existssignificant variations in the transit times reported byshippers and railway operators. According to shippers,a number of transit days are lost due to delays in loading and unloading of cargo at rail yards, incidences of train interruptions caused by derailments and/or unscheduled events, issues of train punctuality and locomotives and wagon availability among other delays. On the part ofoperators, most delays are caused by ports authorities at ports and ICDs and also by customs authorities who use up mostofthetimeinverification.Suchdelaysaccountforanextra4–7daysintraintransittimes.



Figure 2.8. Flight Delay Occurrences

Figure 2.9. Dwell time for imports at JKIA Cargo Village

To eliminate this bias and blame game by shippers and railway operators, the survey computed actual train transit timeswhenthecargohasbeenloadedontothetrain.Theresultsarepresentedintable2.3below.

2.3 Indicators of Complexity of Trade TransactionsThe survey measured the complexity of undertaking trade

transactions by ascertaining the number of documents that importersandexportersneedtofill inordertocompleteastandardtradetransaction.ReferencewasmadetotheWorld Bank Ease of Doing Business Survey 2014 and the resultsarepresentedinfigure2.10below.

Among the EAC Partner States, Tanzania leads in thenumberofdocumentsrequiredtoimport,witheleven(11)



while Kenyan and Rwandan exporters must complete a set ofnine(9)documentstoconcludeastandardinternationaltrade transaction. At nine (9) documents, Burundi rankshighest in the number of documents required to exportwhileRwandaandTanzaniaranktheleast.

Table 2.4. Indicative train transit times from Mombasa to selected destinations in East Africa

NeverthelessEACcountriesdonotcomparetointernationalbest practices where traders can use a single platform to lodgealltheirtradedocumentation.

2.4 Overall Rating of Logistics PerformanceThis section deals with providing information on the logistics performance of individual EAC Partner States usingeleven(11)key indicators.Respondentswereaskedto rank the performance of their countries on the eleven (11)indicatorsbasedonthefollowingscale:• Efficiencyofthegoodsclearanceprocess–ratedfrom

verylow(Scaleof1)toveryhigh(Scaleof5)• Quality of transport and ICT infrastructure – rated

fromverypoor(Scaleof1)toverygood(Scaleof5)• Competence andquality of logistics services – rated

fromverypoor(Scaleof1)toverygood(Scaleof5)• Level of preparedness of shippers to undertake

international trade transactions – rated from very low

Figure 2.10. Number of documents required to import and export into East Africa. Source: Doing Business Survey 2014

• Percentage of shipment that is physically inspected – ratedas100(Scaleof1)to0to25%(Scaleof5)

• Manner with which trade related disputes are handled –ratedasverybad(Scaleof1)toverywell(Scaleof5)

• Fairness and transparency in conducting customs valuations–ratedasneverfair(Scaleof1)toalwaysfair(Scaleof5)

• Communicating timely & relevant information when trade regulations change – rated as never well communicated (Scale of 1) to always wellcommunicated(Scaleof5)

• Incidences of corruption and rent seeking – rated as always(Scaleof1)tonever(Scaleof5)

The individual country scores for the above key indicators were aggregated across all respondents, resulting into asingleaveragescore foreach indicator.The resultsarepresentedintable2.4below.

(Scaleof1)toveryhigh(Scaleof5)• Timelydeliveryofshipments–ratedfromnever(Scale

of1)toalways(Scaleof5)• Security of cargo while in transit – rated as never

secure(Scaleof1)toalwayssecure(Scaleof5)



2.5 Some Key Determinants of Logistics PerformanceA number of factors and agencies are responsible for the overall rating of the efficiency of logistics performanceas rated by respondents from the EAC Partner States.Suchfactorsincludetheefficiencyofthegoodsclearanceprocesses,qualityandavailabilityoflogisticsinfrastructure,quality of logistics services, level of preparedness ofshipperstoengageininternationaltradetransactions.

Efficiency of the goods clearance processUgandarankshighestintheefficiencyofgoodsclearanceprocesswitha scoreof3.13outofapossible scoreof5.In this category, 76.7% of respondents indicate averageefficiency,13.3%indicatehighefficiencyandafurther3.3%indicate very high efficiency. Rwanda and Kenya comesecond in theefficiencyof theirgoodsclearanceprocesswith a score tied at 3. In this category, 90% ofRwandanrespondents rate the efficiency of the goods clearancecomparedto84.7%oftheirKenyancounterpartswhosaythesameabouttheirgoodsclearanceprocess.

Afurther10%ofRwandanrespondentsand7.7%ofKenyanrespondents indicate that the efficiency of the goodsclearanceprocess ishigh.BurundiandTanzaniafollowatpositions4and5intheefficiencyoftheirgoodsclearanceprocesseswith individual country scoresof 2.91 and 2.53respectively.

Table 2.5. Scores and rankings of individual EAC Partner States based on their logistics performance

The major factors affecting the efficiency of the goodsclearance process include system availability and reliability, manner with which customs inspections are conducted and the manner with which valuation disputes are handled. Despite recent efforts to upgrade ICT systemsfor trade, there still exist glitches as these systems often experienceanaveragedowntimeof seven (7)hours inaweek.ExceptinthecaseofRwandawhosescoreis3.80,customs inspections still take up considerable time as more and more cargo is subjected to physical inspections and verifications. In the case of resolving disputes invaluations, Kenyan respondents rank their country as the worst performing with a score of 2.00 while Rwandanrespondents rank their country the best in the EAC with a scoreof4.00.

Quality and Availability of Logistics InfrastructureDespite recent improvements in transport and trade infrastructure, there still remain critical constraints in the availability. Satisfaction with the quality and availabilityoflogisticsinfrastructurevarieswithintheEACcountries.Rwandan respondents are the most satisfied with theircountry’sinfrastructurewithascoreof3.30.Thisisfollowedclosely by Ugandan and Kenyan respondents who ranktheir countrieswith a score of 2.9 and 2.85 respectively.BurundiandTanzanianrespondentsaretheleastsatisfiedwith their countries trade and logistics infrastructure with atiedscoreof2.73.



Quality of Logistics Services Thequalityof logisticsservicesplaysacritical role in thelogistics performance of a country. Unfortunately forthissurvey,asignificantproportionof respondentswerefreightforwardersandthisbecamedifficulttohandletheelement of bias as most of them had a propensity to give the highest score. Nevertheless Uganda is the highestrankedEACcountry inqualityof logistics serviceswithascore of 3.20. Rwanda and Tanzania follow closely withrespondents giving a rank of 3.00 and 2.93 respectively.Kenya respondents rank their country the lowest with a scoreof2.54.

The major issues highlighted by respondents to support their ranking related to the quality of services providedby transporters, clearing agents and government trade facilitation agencies. Customs authorities scored verypoorlyinthequalityofservicestheyprovidedwhilefreightforwarders, transporters and clearing agents scored highly signifyingtheefficiencywithwhichprivatesectorentitiesconducttheiroperations.

Level of Preparedness of Shippers to Engage in International Trade TransactionsForalongtimethelogisticsefficiencyofcountrieshasbeenassessed based on the performance of supply side service providers such as freight forwarders and the services provided by government agencies. One critical factorthat has often missed in these assessments is the demand side evaluation in the form of the level of preparedness of shippers to effectively fulfill their import and export

obligationssuchasmakingpromptpaymentsandfulfillingtheir regulatory requirements. In this survey, Burundishippers are the least prepared to engage in international trade transactions as attested by respondents from this country.Withascoreof2.00comparedtotherestoftheEACpartnerswhosescoresareabove3.00,itisclearthatthere is much work to be done in preparing shippers from Burunditoeffectivelyengageininternationaltrade.

As for the other four partner states, the level of preparedness of shippers to undertake international trade transactions is directly related to the nature of cargo being imported and/or exported. A critical component of thiscategory is the importation of relief and humanitarian cargo, where importers have often had the misconception that such cargo is subject to preferential treatment during theclearanceprocess.



Single Window systemKenya recently launched the National Electronic SingleWindowSystemalsoknownasKenyaTradeNetSystem.The system provides a single entry point for parties involved in trade and transport to lodge documents electronically for processing and approval and make payments electronically for fees, levies, duties and taxes duetothegovernmentongoodsimportedorexported.Itis anticipated that the Single Window System will not only eliminate delays and lower costs associated with clearance of goods at ports and borders but also ensure effectivecollectionofgovernmentrevenue.

Electronic cargo tracking systemIn Kenya, the requirement by all truckers to install theElectronicCargoTrackingSystem(ECTS)was initiallymetwithopposition.However,theECTS,whichseekstoreplacethe security bond while monitoring cargo in transit and providing real time information on location, security and condition of cargo and assets, has slowly been embraced bytruckers. TheECTS iscurrentlybeing implementedbycustoms authorities in many parts of the world to mitigate againstarangeofriskssuchassignificanttaxloss,cargotheft,andimprovingregulatorycompliance.

KPA ICT System ModernizationKenyaPortsAuthority(KPA)hascompletedtheinstallationofanupgradedICTsystemthatnowlinkstotheNationalElectronicSingleWindowSystem.Thesystemisexpectedto boost security at the port, enhance pick and delivery by reducing truck turnaround time within the port and enhance vessel turnaround time by making quaysideoperationsmoreefficient.

KRA customs management system modernizationRecent challenges that have embodied the Simba customs managementsystemsuchasfrequentbreakdownandpoorconnectivity are currently being addressed through the developmentofanewcustomsmanagementsystem.Thecomprehensive integrated Customs Management System (ICMS) is expected to enhance automation of customsand revenue collection procedures while facilitating internationaltradeacrossKenyanborders.

Construction of the Mombasa – Malaba Standard Gauge RailwayTheGovernments of Kenya,Uganda, Rwanda and SouthSudan have committed to develop a high capacity cost effective standard gauge railway network connecting

3.0 Current Initiatives to Improve Logistics Performance in East Africa

theircountriesfromtheportofMombasa.Theproposedstandard gauge railway will connect Mombasa to Malaba (withabranchlinetoKisumu)onwardtoKampala,Kigali(withbranchlinetoKasese)andJuba(withabranchlinetoPakwach).TheRailway linewillhaveauniformdesignspecificationwhichwillpermitseamlessoperationacrossthe borders and in turn reduce transport costs for the region. The first phaseof the railwayprojectwhich runsfromMombasatoNairobiisexpectedtobecompletedon1stJuly2017andtheKampalalineby2022.

Mombasa Port ExpansionIn the last two years, KPA has completed the dredging of the channel to enable larger vessels to call at the port of Mombasa.Anewberth19hasbeenopeneduptoincreasetheport’sannualcontainerhandlingcapacity250,000TEUs.The first phase of the second container terminal with acapacityof1.2MTEUsisexpectedtobecompletebyMarch2016. Expansion of exit gates at the port and additionaltruck lanes is expected to improve truck turnaround time withintheportfromthecurrentfourhoursto30minutes.

One – stop border postLocal and regional traders will no longer spend lengthy clearancetimesatEastAfricanborders.Thisisbecausetheconstruction of One Stop Border Posts (OSBPs) and thepassing of the related East African Community One Stop Border Post (OSBP) bill are complete. Under the OSBP,services will be harmonized with incoming traffic jointlyclearedbyofficers fromboth countries fromone sideoftheborderandvice-versaforoutgoingtraffic.Themoveisalsoexpectedtoeasethemovementofpeople.

Dar-es-Salaam Port ExpansionTanzania Ports Authority (TPA) has embarked on theimplementation of a number of human resource and infrastructural development projects to improve the efficiency of port operations. Through its 2008 – 2028Master Plan, TPA has identified a number of areas thatneed development and improvement to transform Tanzanianportsintoworldclassports.Specifically,TPAismobilizingresourcesforthemodernizationofberthsandaccesschannelsaswellasdredging.Inordertocopewithincreasing volumes of trade, TPA has purposed to invest in human resource training and modernization of ICTinfrastructure.TPAalsoplans toconstruct twocontainerberthsno. 13and 14, aone stopcentreandabulk liquidcustody transfer tank. Other infrastructure initiativesincludetheconstructionofafertilizerterminal,aRo–Ro



berth, a truck folding area outside the port and connecting theEX–NASACOyardtotheTAZARArailwayline.

Mombasa Port Community CharterIndustry stakeholders from both the public and private sectors have come together with a common initiative to develop and implement the Mombasa Port Community Charter. The purpose of the charter is to eliminateconstraints to trade facilitation by establishing a permanent framework of collaboration that binds the Port Community memberstospecificactions,collectiveobligations,targetsandtimelines.Thecharteralsoprovidesfortheexecutionof a self-monitoring mechanism to ensure implementation of collective community obligations by senior managers of theparticipatingPortCommunityentities.

Regulatory ReformKenya is in the process of overhauling laws governing its portsandmaritimeservices,asitseekstoboostefficiencyandenddelaysthatarehurtingregionaltrade.Themove,initiated by the Kenya Ports Authority (KPA) aims atimproving the existing KPA Act, drafting of new harbour regulations and laws relating to electronic documentation, Customs regimeandshipping.The review isexpected toresultinsignificantchangesinthemanagement,operation,control and regulation of ports in the country whose lengthy bureaucratic processes have partly been blamed fortheirinefficiencies.

Laws governing railway business are also being reviewed to allow increased private sector investment participation in the railway sector. The Kenya Railways CorporationAct is being reviewed to match the new business regime that accommodates partnership as a mode of enhancing efficiencyinrailwayoperations.Asthestatemovestore-energize railway transport through the development ofthe standard gauge railway network, it has realized thatthe many challenges faced by the railway sector could be sortedoutthroughpartnershipswiththeprivatesector.

EAC Single Customs Territory After successfully completing the piloting stage using the importation and exportation of petroleum products, the EACsinglecustomsterritorywasofficiallylaunchedbythefiveEACPartnerStateson1stJuly2014.Withthis launch,East Africans cross border traders will enjoy a smooth tradeflow.UnderthisarrangementtheEACPartnerStatedwill adopt a destination model of clearance of goods where assessment and collection of revenue is to be done at the firstpointofentry.TheSCTallowsfreecirculationofgoodsin the single market with variations to accommodate goods exported from one partner state to another. Customsadministrations at destination states will retain control overassessmentof taxes.Expertssay thiswill crystallizethe gains of integration through minimal internal border controls and a more efficient institutional mechanism inclearinggoods.



Infrastructure for TradeFor EAC countries to effectively promote internationaltrade and spur economic growth, their governments will need to sufficiently invest in transport infrastructureandprovide an enabling environment for private sector to provide more efficient transport and logistics services.Despite recent increases in investment in infrastructure, the region’s infrastructure network in general andtransport infrastructure in particular have suffered fromyearsofneglectandunderinvestment.Therailway,whichhas suffered the highest neglect over the years, shouldturn out to be the best solution to improving logistics performance, if well developed, as its average freight rate per kilometer tonne is much lower than for road – especially for the TAZARA line. Investment in regionalphysical infrastructure projects is therefore essential to reducing costsof crossborder transport services. This isparticularlytrueforlandlockedBurundi,Rwanda,UgandaandDRC.

Access to Investment Capital for SMEsRestrictions of investment capital have also contributed to the underdevelopment of small- and medium-sizeenterprises (SMEs) as providers of logistics services.Truckers and logistics operators, have had limited expansion and remain relatively weak performers in the logistics chain, with little or no room to improve and modernizetheindustry.This inparticular isthecasewithECTS, where truckers would love to invest in the device but the restrictive pricing of the product has locked out a number of them. Another limitation on the logisticsperformance of SMEs is their inability to exploit economies of scale and substantial institutional roadblocks to reduce theiroperationalcostsandtransferthebenefitstoshippersintermsoflowertransportationcosts.

A Rethink of the Current Trade Logistics Policy AgendaIn response to the limitations and weak performance of EAC countries as a whole, a rethinking of the current agendatotransformtradelogisticsrequiresactionsatboththe national and regional levels. Specifically, it requiresproject and program coordination in the areas of transport infrastructure and related transport services, specializedlogistics infrastructure, trade policies, and in sectors where agendas converge. Improvements in trade logisticsmustfocus on the provision of basic infrastructure, particularly in the road network, in order to expand coverage and maintain quality standards. Importantly, regulations thatfacilitate and encourage private-public partnerships, especially for large regional infrastructure projects such as portsandrailroads,needtobeimproved.Well-functioningspecialized logistic infrastructure is also needed to easefreight handling, streamline inspection processes, and

4.0 Recommendations to Improve Logistics Efficiency

provide value-added services in areas closer to ports, airports, and border crossings. Equally important is theestablishment of clear guidelines to support logistics management development for SMEs, logistic operators, andintermediaries.

Harmonization of Regional Laws Must be accompanied with Enforcement and ImplementationTo further reap the benefits of economic corporation,the agenda for integration must not only facilitate the coordination and harmonization of laws and standardsacross borders but also ensure appropriate enforcement andimplementation.ThemannerwithwhichEACpartnerstates are enforcing these laws has become one of the greatestdeterminantsoftransportcosts.Thisisparticularlythe case with the EAC Vehicle Axle Load Control Act which partner states have applied different standards inimplementation, with little or no concern on the long term impactofsuchdecisionsontheregionsinfrastructure.

A Harmonized Approach to Infrastructure DevelopmentWhile it is important that projects of greater potential impact must be given priority, development of regional infrastructure projects should be harmonized,with cleardevelopment criteria that equitably distribute the costsand benefits of integration among partner states. Inorder for this strategy to achieve its full objective, it must be accompanied by a significant allocation of resources.Hence, the regionmustdevelopfinancialmechanisms tocollectively mobilize affordable financial resources forthese projects, such as a common fund or earmarked resourcesforinfrastructureintegration.Inthisrespect,theexperienceoftheEU-27isofparticularimportance,whereacohesive policy for transport infrastructure was developed to allow countries to catch up to regional standards and fundswereearmarkedforintegrationprojects.

Service Delivery of State Agencies Involved in Trade FacilitationServices delivered by the state agencies involved in the goods clearance process need to be substantially improved. The amount of time spent by shippers to gettheir cargo inspected and cleared is way below international standards.Whileshippersappreciatetheneedforsecurityoperations and revenue collection duties of the state, they areaworriedlotatthesignificantamountoftimelost inexecuting clearanceprocedures. This is aworrying trendparticularly in the wake of increased investment in logistics infrastructuretosupporttrade.Measuresthereforeneedtobeformallyputinplacetopromotehighqualitylogisticsservices by state actors. If this is not done, there is thehugeriskofbeingdeniedthebenefitsthatareanticipatedwiththespeedyinvestmentininfrastructure.



AnalyticalComparativeTransportCostStudyalongtheNorthernCorridorRegion.PreparedforNCTTCAbyCPCSTranscomLimited

ConnectingtoCompete2014.TradeLogisticsintheGlobalEconomy.TheLogisticsPerformanceIndexandItsIndicators.AWorld Bank Publication

DoingBusiness2014.UnderstandingRegulationsforSmallandMedium–SizeEnterprises.InternationalFinanceCorporation and the World Bank Group

EastAfricaLogisticsPerformanceSurvey2012.Cost,TimeandComplexityoftheEastAfricanLogisticsChain.ShippersCouncil of Eastern Africa

KenyaPortsAuthorityTariffBook

ObservatoryofEconomicComplexity;OECProfileofExports,ImportsandTradingPartnersofCountrieshttp://atlas.media.mit.edu/

SimeonDjankov,CarolineFreundandCongS.Pham(2006).TradingonTime

TanzaniaPortsAuthorityTariffBook

TradeLogisticsandRegionalIntegrationinLatinAmericaandtheCaribbean.No.200ofAugust2010.APublicationoftheAsian Development Bank Institute

TransportObservatoryReport.NorthernCorridorTransitTransportCoordinatingAuthority(NCTTCA).April2014

Further Readings



Annexes Annex 1: List of Persons and Institutions that Were Interviewed



Annex 1: List of Persons and Institutions that Were Interviewed



Annexes Annex 2: Top Twenty Destinations for EAC Exports

shippers council report on eac trade

Documents

annual publication

air transport

road transport

maritime transport

railway transport

privatepublic partnerships

private agencies

indicators of complexity