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JF-Expert Member
- May 11, 2013
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The Kenyan Principal Secretary for Shipping and Maritime Affairs spokeaboutwhy cargo shippers are now required to buy insurance for their imported goods locally
What instigated the directive that all cargo shipped through the port of Mombasa must be insured locally starting January?
An analysis of trade statistics revealed that poor international trading habits and practices by Kenyan shippers were leading to the loss of millions of dollars in marine insurance premiums paid abroad in contravention to local laws and to the great disadvantage of Kenya’s economy.
The Cabinet Secretary to the Treasury Henry Rotich secured the implementation of the legislation in the Budget Speech of 2016/2017.
The figure we are dealing with today, on an annual basis, is $200 million.
Kenya expects to retain it within the economy.
Our people usually undertake international business on a “free on board basis, thus ceding a lot of their negotiating positions to their foreign trading partners.
Overseas sellers/ buyers often use incoterms (details of the time and place of delivery, payment when the risk of loss shifts from the seller to the buyer, and who pays the costs of freight and insurance) of their choice but our traders’ failure to engage them on alternative choices leads to lost opportunities for them to buy not just insurance but also freight locally.
Has this worked elsewhere?
Many countries in the world have legal provisions restricting marine cargo insurance to local insurance companies.
African countries such as Tanzania, Uganda, Zambia and Rwanda are currently studying Kenya’s model and are expected to follow suit.
How has business been so far?
Locally purchased marine cargo insurance is cheaper than foreign insurance.
This results in lower costs. It therefore makes sense to insure locally.
The hidden costs of pursuing a claim in the Far East, or Europe, for instance, are all avoided.
Second, if one does not purchase marine cargo insurance and prefers to take risks (self-insure), they do not save costs because Section 122 of the East African Community Customs Management Act, Fourth Schedule, stipulates that duties must be calculated on the sum of cost, insurance and freight of the goods being imported. Where an importer has “self-insured,” Customs departments in East Africa apply an uplift on the cost of goods by 1.5 per cent.
This is usually more than twice the cost of local insurance, meaning that the importer who chooses to “self-insure” will pay more, unless of course, the importer under-declares or mis-declares the value of the goods, in which case the revenue suthorities are forced to over regulate and impose sanctions so as to protect revenue.
How does this affect the cost of cargo imports?
It reduces the cost by lowering the marine insurance component since foreign marine insurance is port-to-port while local insurance is foreign port-local destination — Mombasa or inland — which incorporates goods-in-transit insurance.
In the past, the latter component would be procured separately.
Kenya to save $200m spent on marine insurance
What instigated the directive that all cargo shipped through the port of Mombasa must be insured locally starting January?
An analysis of trade statistics revealed that poor international trading habits and practices by Kenyan shippers were leading to the loss of millions of dollars in marine insurance premiums paid abroad in contravention to local laws and to the great disadvantage of Kenya’s economy.
The Cabinet Secretary to the Treasury Henry Rotich secured the implementation of the legislation in the Budget Speech of 2016/2017.
The figure we are dealing with today, on an annual basis, is $200 million.
Kenya expects to retain it within the economy.
Our people usually undertake international business on a “free on board basis, thus ceding a lot of their negotiating positions to their foreign trading partners.
Overseas sellers/ buyers often use incoterms (details of the time and place of delivery, payment when the risk of loss shifts from the seller to the buyer, and who pays the costs of freight and insurance) of their choice but our traders’ failure to engage them on alternative choices leads to lost opportunities for them to buy not just insurance but also freight locally.
Has this worked elsewhere?
Many countries in the world have legal provisions restricting marine cargo insurance to local insurance companies.
African countries such as Tanzania, Uganda, Zambia and Rwanda are currently studying Kenya’s model and are expected to follow suit.
How has business been so far?
Locally purchased marine cargo insurance is cheaper than foreign insurance.
This results in lower costs. It therefore makes sense to insure locally.
The hidden costs of pursuing a claim in the Far East, or Europe, for instance, are all avoided.
Second, if one does not purchase marine cargo insurance and prefers to take risks (self-insure), they do not save costs because Section 122 of the East African Community Customs Management Act, Fourth Schedule, stipulates that duties must be calculated on the sum of cost, insurance and freight of the goods being imported. Where an importer has “self-insured,” Customs departments in East Africa apply an uplift on the cost of goods by 1.5 per cent.
This is usually more than twice the cost of local insurance, meaning that the importer who chooses to “self-insure” will pay more, unless of course, the importer under-declares or mis-declares the value of the goods, in which case the revenue suthorities are forced to over regulate and impose sanctions so as to protect revenue.
How does this affect the cost of cargo imports?
It reduces the cost by lowering the marine insurance component since foreign marine insurance is port-to-port while local insurance is foreign port-local destination — Mombasa or inland — which incorporates goods-in-transit insurance.
In the past, the latter component would be procured separately.
Kenya to save $200m spent on marine insurance
