Kenya and the region is staring at a sharp increase in freight costs as container prices more than triple in the last 30 days, signalling a rise in commodity prices.
This adds up to freight adjustments already made by shipping lines to recover costs of re-routing vessels to avoid attacks by the Iran-backed Houthi rebels in the Red Sea.
The attacks on vessels which began in mid-December, in response to Israel's bombardment of Gaza, has seen shipping lines avoid the Red Sea and Suez Canal, a key route for ships to Mombasa and the East African coastline.
Major global companies among them leading container shipping lines Mediterranean Shipping Company (MSC) and Maersk, are among those hard hit.
Staying clear of the Red Sea means avoiding the 193km-long Suez Canal connecting the Mediterranean to the Red Sea, and which provides the shortest sea link between Asia and Europe, and a shorter route to East Africa compared to going round West Africa (Atlantic), to South Africa, before coming to the East.
“Diverting vessels around the Cape of Good Hope to mitigate the ongoing risks of sailing through the region is a necessary step in the interest of safety, but it has ultimately brought about increased costs for carriers,” Maersk said in a statement.
The shipping line has since increased charges “in order to recover these costs”; even as CEO Vincent Clerc said on Wednesday the disruption in the Red Sea could “probably last at least a few months.”
“So for us this will mean longer transit times and probably disruptions of the supply chain for a few months at least, hopefully shorter, but it could also be longer because it’s so unpredictable how this situation is actually developing,” said Clerc, speaking to the Reuters Global Markets Forum in Davos.
In the container market, costs have increased by up to 260 per cent as the container index hit an all-time high.
For instance, average rates on China-Europe quoted this week is about $5,400 (Sh866,700) per 40-foot container, up from $1,500 (Sh240, 750) the week before, Container Price Sentiment Index by Container xChange, a technology firm that offers container trading and leasing platform, indicates.
The container price sentiment index reached an all-time high as container price anticipation peaks, the online container logistics platform for container trading and container leasing, notes in its latest update.
"The index value peaked at 71 in January from an average of 27 in December, mirroring the significant impact Red Sea attacks have had on prices so far,” it said.
Ports in China, which is Kenya’s biggest single import source, have had the highest week-on-week increases in container leasing prices, which in December went up from an average $1,200 (Sh192,600 ) to above $1,500.
Kenya imported goods worth Sh452.6 billion from China in 2022, the Economic Survey 2023 indicates, with the Asian country remaining a major source into 2023 and this year.
Key imports include electrical, electronic equipment, machinery, nuclear reactors, plastic, footwear, ceramics and railway equipment.
“Retailers must get used to keeping higher inventories as supply chain disruptions become a norm,” said Christian Roeloffs, cofounder and CEO, Container xChange.
The Red Sea attacks have also caused a significant uptick in fuel, insurance costs and capacity soak up for the transportation and logistics sector.
“Shipping companies are demanding more containers now as they avoid red sea. Therefore, Shipping companies and leasing companies have placed more than 750,000 TEU ISO container orders out of China in the last two months,” Roeloffs noted.
According to the Shippers Council of Eastern Africa (SCEA), the disruption could have a major impact as vessels re-route through West African maritime route, while others call at Djibouti to avoid going through Suez.
“The impact will be longer vessel times and effect for transhipment ports in Asia and Middle East, that service majorly Eastern Africa ports,” SCEA told the Star.
With Kenya remaining a net importer, households are also staring at costly goods on the back of a weak shilling to the US dollar, as it hit a record-low of Sh160 to a unit of the dollar this week.
The shilling has been on a free-fall against major international currencies since mid-last year, even as the Central Bank of Kenya cites overvaluation of the local currency.
“I think for several years now, we have had an overvalued exchange rate. We have tried to maintain a fairly strong exchange rate artificially, [but] at the cost of losing international reserves,'' CBK governor Kamau Thugge told the Parliament in October.
Both traders and manufacturers have traditionally passed additional costs to consumers, pushing up the cost of living.
A weak shilling also means costly electricity as power producers factor in forex adjustments, with consumers paying the price in their final bills.