Archive | October 22, 2013

The cost of shipping things to Africa

road (2 of 1)-2I was in Durban, South Africa a couple of weeks ago. It turns out that Durban is the busiest port in all of Africa. There are 57 berths and more than 4000 ships load and unload cargo in Durban every single year. The port is open 24 hours a day, seven days a week. Though the largest port in Africa, it is only about half the size of the port of Los Angeles and not even a tenth as big as the largest port in the world, Shanghai.

The Durban port, however, is expensive. It is more expensive to park a ship at Durban than in any American port. Boats must sit in port an average of four days to clear and unload at a cost of nearly $200,000 per day. Owned by a single private company under few restrictions, Transnet is free to charge what it likes and offer service of any quality it likes. In Africa, there are few competitors.

Kenya’s port in Mombasa is even worse. On average, ships must wait nearly nine days in port. The Mombasa port is run by the state owned Kenya Port Authority.

After totaling up costs from extended time at port, onerous duties and fees on imported goods, numerous police “checkpoints” and “inspections,” a single container imported at Mombasa and shipped to Kampala, Uganda can cost nearly $4,000.

Exporting goods is no cheaper. While it takes only 10 days and costs only $1,000 to export a 20 foot container in OECD countries, it takes nearly 40 days and costs nearly $3,000 in the East African Community. If Kenya, for example, really wants to get serious about positioning itself as an export economy, it will have to tackle this major, major problem. Goods sitting in port waiting for “documents” lose value through export fees, storage and lost market opportunities.

Nearly 20% of goods shipped into Mombasa are retail goods. The costs of onerous shipping conditions are, or course, passed on to the consumer. Kenyan and Ugandan consumers pay more in shipping of imported goods as a percentage of the total price of an item than do Americans. Africa has the highest transport costs in the world.

Again, I don’t know why I went down this road, but I’m often thinking of reasons for Africa’s hobbled development. I began to consider the simple costs of goods. Transportation costs amount to more than 30% of the operating expenses of an African business. Minimizing these costs would mean that businesses could potentially reduce prices and increase sales volume. Others share my view:

The Mombasa-Nairobi segment takes on average 29.8 hours, most of this time spent at various regulatory delays, such as waiting at the two weight stations (+ 6 hours), delays to several police checkpoints (+2 hours; there can be 8 to 10 such checks for the 430 km journey) and other driver delays such as rest and personal errands (+ 11 hours). Under normal circumstances the latter would be unnecessary for such a short distance, but the various regulatory delays force the driver to rest a night during transit. A similar distance in North America would be serviced in less than 6 hours. Therefore, such a system hinders economic development because supply chains tend to be unreliable while consumers and manufacturers pay higher prices for goods and inputs. In such a setting, various public authorities are using freight transportation to generate income in a rent seeking (predatory) fashion.

It is not clear that Kenya is using money from ports or “checkpoints” to upgrade current services. I am fairly certain that the money is going into public sector employees’ pockets.

It’s easy to blame “corporate exploitation” for just about everything that’s wrong with Africa. However, there are basic structural problems which complicate doing business there. Just as it costs money to get things in to African countries from port, it costs money to get things out. Until Kenya, for example, upgrades their port facilities and relieves restrictions on trade, the cost of doing business in Africa will remain high. Contracts negotiated by international entities will continue to be unfavorable.

In short, the problem with Kenyan business is only partially with international business. The Kenyan government parasitically profits of the current inefficiencies. Until that problem is mitigated, the poor will continue to pay a premium for just about everything.


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