By KABONA ESIARA

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East African Community member states have to open the domestic cargo transport business to competition for costs to come down and allow growth of the logistics industry.

Ring fencing the domestic cargo transport business to locals only, according to a new study, has led to underutilisation of freight capacity and compromised the competitiveness of the industry.

This requires the region to amend or repeal Article 28 of Northern Corridor Transit and Transport Agreement, which restricts foreign registered trucks to transport goods on foreign markets.

Uganda, Kenya and Rwanda consented to the 2007 agreement, as they sought to protect the local operators from competition.

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“Unless specific permission has been obtained from the contracting party concerned, means of transport registered in one contracting party is prohibited from carrying passengers and goods in domestic transport within the territory of another contracting party,” according to the agreement.

However, the study commissioned by Rwanda Private Sector Federation (PSF) and sponsored by Trademark East Africa says the restriction costs Rwanda transporters about Rwf22.7 billion ($27 million) annually.

The same restrictions apply to the central corridor, which means Tanzania and Kenya with bigger transit fleet could be losing about $100 million each annually.

The study suggested that removing restrictions on cabotage regulation will lead to an increase in operations and may reduce the cost of transport if the savings are transferred to truck and or cargo owners.

Liberalisation would create a more competitive domestic haulage sector as well as reduce the overall cost of transport for Rwanda’s imports and exports. Transporting cargo from Kigali to Mombasa costs on average $3,625.

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“There is a benefit in easing the restrictions on cabotage. About 11 per cent to 31 per cent dilution of transport costs would be achieved if cabotage is allowed,” the study points out.

“The total savings as a result of easing of cabotage would be between $10 million-$27 million annually,” according to the study.

But Kassim Omar, chairman Uganda Freight Forwarders/East Africa Business Council, says opening up domestic cargo business space to regional competition would edge out Uganda, Rwanda and Burundi.

“Remember Kenya has almost 70 per cent of trucks registered in the EAC region, Tanzania has 28 per cent while Uganda Rwanda and Burundi share the remaining 5 per cent,” said Omar.

“The genesis of the policy is to protect local transporters. Trucks that are registered under transit purposes are allowed to deliver cargo under security bond. The gist of the policy was to endure that transit trucks are bonded, which means can only be moved in licenced truck, bonded tracks,” he said.

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He fears that when transit trucks begin local shuttles, it will affect the principle for which they were licensed. East African Community partner states have to promote the local content of the transporter within that country, he insists.

“I support that law, though in essence it also somehow contributes to high costs of transportation, because each truck must go back empty, the policy does not restrict transit trucks from carrying cargo to partner states, and in order to promote exports should limit themselves to transit cargo,” said Omar.