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PROCUREMENT & LOGISTICS November-December, 2016 Issue No.: 06/2016

Eastern Africa Premier Supply Chain Magazine KSHS. 400.00 TSHS. 8,000.00 USHS. 12,000.00 RFR. 4,000.00 USD. 5.00

Management

MARINIE INSURANCE underwriters rush to cash in on marine insurance dividend

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A Checklist for New Procurement Managers

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Procurement Transformation towards Sustainable World 360 Degree approach

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2016 National Procurement & Supply Chain Awards


Editor’s note PUBLISHER Proc & Logistix Consult Limited P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 (0)204404488/(0)2044002479 info@procurementandlogisticsonline.com www.procurementandlogisticsonline.com

Supply Chain is set to be the greatest driver of regional economies in the coming decades

EDITORIAL AND MARKETING OFFICE View Park Towers, 13th Floor wing A Suite 1

Procurement & Logistics Magazine @ LogisticsProc CHIEF EDITOR Okumu S. Biko PRODUCTION GRAPHIC DESIGN Nicholas Amanya AUDIENCE DEVELOPMENT MANAGER Emily Martin WRITER Sandra Dinga EDITORIAL OFFICES Proc & Logistix Consult P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/02044002479 info@procurementandlogisticsonline.com www.procurementandlogisticsonline.com ADVERTISING For information on advertising in future Issues of the magazine, please contact: OKUMU STEVE BIKO +254 721 986284 SANDRA DINGA +254 713 199012 E-MAIL: adverts@procurementandlogisticsonline.com SUBSCRIBER CUSTOMER SERVICE

Procurement & Logistics Management Magazine is a six times publication a year and circulated to professionals in the Supply Chain industry, members of relevant associations, government bodies and other personnel in the procurement, logistics and finance industries as well as suppliers in Eastern Africa. The editor welcomes articles and photographs for consideration. Material may not be reproduced without prior permission from the publisher. DISCLAIMER: The publisher does not accept responsibility for the accuracy or authenticity of advertisements or contributions contained in the journal. Views expressed by contributors are not necessarily those of the publisher. © All rights reserved. No part of this publication may be copied or reproduced without prior permission from the publisher.

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n the wake of countries discovering and investing in new industries like oil, gas, coal; Supply Chain is set to be the greatest driver of regional economies in the coming decades. Already there has been an increase in massive infrastructure projects in the East and Central African regions. These sectors require utilization of high worth equipment and raw materials most of which must be sourced from foreign countries. Kenyan government have notified all importers including international investors to ensure that they use local underwriters to insure imported goods. Mostly when importing any good, it’s always a requirement that you Pay CIF (cost – insurance and freight) mostly to the seller. With the enforcement of the Act, importers will have to prove the Insurance bit is from a local underwriter. It’s a whooping Kshs 20 billion market added to our economy in the insurance sector. In readiness for competition, regional government agencies have reworked various legislations to ease business relationships. Kenya Ports Authority have abolished transshipment security bonds in a bid to attract larger ships at Mombasa port- then goods can be off-loaded to smaller ships destined to other countries. Tanzania on the other hand have reduced residence fee for nationals of East Africa state nationals Rwanda has been ranked the 3rd easiest country on SubSaharan Africa to do business in due to simplified systems, with Uganda reducing its base lending rate to 14 points. It’s worth noting that rapid strengthening our economies can only be achieved by taking seriously existing laws to enable local companies benefit directly from opportune business in the local market. This is our last issue this year, we wish you merry Christmas and happy new year. Let’s look forward to a more productive 2017.

Okumu S BIKO Chief Editor


CONTENTS MARINE INSURANCE 22 underwriters rush to cash in on marine insurance dividend Kenya Importers to buy local insurance policy under new law effective January 2017

BRIEFS 4. Tanzania President Magufuli visit Kenya to cement the good relations amidst frosty relationships 6. Scotland to offer oil and gas training in Tanzania, Mozambique 7. Kenya government abolishes vessel transshipment bonds at Mombasa port 7. The RwandAir begins Cotonou, Abidjan flights 8. Ethiopian Airlines transfers cargo operations to Nigeria’s Skyway Aviation Company 9. RwandAir plans to launch London route by 2018 10. Toyota Tsusho and Bolloré to form a Kenyan vehicle logistics company 22. Kenya’s Lapsset, Oil and Gas projects to take center stage at East Africa Oil and Gas summitt

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INSIGHT 34. Softer Demand, Stronger Supply 36. IFC financing initiative to spur institutional interest 36. Warehouse Management disconnect 38. Bid Security and Bid Securing Declaration: Similarities and Differences

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PROCUREMENT 42. Procurement Transformation towards Sustainable World 360 Degree approach 44. 7 Things to do to Quickly Become Proficient

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TECHNOLOGY 40. Technology in warehousing: How to improve performance approach

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OUTSOURCING

30. A Checklist for New Procurement Managers

PACKAGING

32. Packaging Design

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MANAGEMENT 54

52. Supply Chain Management Takes Center Stage 53. Is Your Business Prepared for the Worst? 54. 8 Ways to File Effective Freight Claims 56. REDUCING COSTS THROUGH CLAIMS

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BRIEFS

Tanzania President Magufuli visit Kenya to cement the good relations amidst frosty relationships the way forward on future bilateral relations, even as the leaders avoided speaking on hot button issues that have recently strained ties between the two neighbors. The joint ministerial team, spearheaded by Kenya’s Foreign Cabinet Secretary Amina Mohamed and her Tanzanian counterpart Bernard Membe, is expected to meet in Tanzania before year-end.DrMagufuli and his host Mr Kenyatta, however, did not share details of the upcoming talks.

New Road Launched

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anzania President John Magufuli’s visitKenya is a move seen as an attempt to reaffirm Tanzania’s place within the East African Community after years of frosty relationships ranging from EAC pact issues, failure to sign Europe’sEconomic Partnership Agreement (EPA)and diverted Uganda oil pipeline deals amongst others. The two presidents directed their foreign ministers to form a joint commission to chart

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The two leaders launched a Kshs 18.8 billion Southern bypassinterchange early November during his two-day visit to Kenya. This follows the launch of Arusha-Holili-Taveta road that was launched last year which is one of many projects geared towards promoting cooperation between Kenya and Tanzania. Tanzania government will also launch the construction of the Malindi-LungaLunga road on the Kenya side and Horohoro -Tanga-Bagamoyo-Dar es Salaam road on the Tanzanian side next year. Magufuli said after the launch that the 28.6 km Southern by-pass will help decongest the city as it an economic and social road that will improve the welfare of ordinary citizens.In his visit Magufuli reassured that Tanzania will continue working with Kenya to improve their people’s lives. Magufuli’s absence at the August 16 (TICAD) Tokyo International Conference on African Development in Nairobi was seen as evidence of sour relations. Tanzania Civil Aviation Authority last year reduced the number of Kenya Airways flights between Nairobi and Dar es Salaam from 42 to 14 per week after Kenya Civil Aviation Authority’s delayed Tanzania based airline, Fastjet, rights to fly into Nairobi. Kenya had banned Tanzanian tour vans from accessing the Jomo Kenyatta airport. In May, Tanzania authorities confiscated the passports of Kenyan officials who were mapping proposed routes with their Ugandan counterparts. Early this month, Tanzania distanced itself from the common visa launched between Kenya, Uganda and Rwanda. So it has not been all rosy despite the Government’s insistence that all was well. But Magufuli’s visit is an opportunity to strengthen the ties between the two countries. It is also an opportunity to address issues of regional trade. Kenya the largest African investor in Tanzania The Tanzanian leader acknowledged the crucial role Kenyan investors play in the Dar es Salaam economy, noting that 529 Kenyan firms operate in the country, employing 56,260 people and their collective investments valued at $1.7 billion.DrMagufuli welcomed Kenyans to invest in his country, citing numerous business opportunities. He added that trade volumes between the two countries have grown from Tsh652.9 billion ($300 million) in 2010 to Tsh2.004 trillion ($940 million) in 2016. The two countries also agreed to co-operate on security issues and expedite link roads such as the Bagamoyo-Malindi highway, which is one of the roads spearheaded by the East African Community (EAC) to boost cross-border trade.

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BRIEFS

Scotland to offer oil and gas training in Tanzania, Mozambique

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cotland is set to deploy 10 oil and gas training personnel to Tanzania and Mozambique to offer their skills and expertise while capitalizing on the growth opportunities presented by the two countries. Lack of appropriate skills in the oil and gas sector continues to be a major challenge in the region with countries being forced to hire labour from abroad. Over 100,000 locals need training over the next 10 years to support the booming oil and gas, mining and construction activities in East Africa. With little or no government budget, the region has been reliant on initiatives such as Skills for Oil and Gas in Africa (SOGA) which was commissioned by the German Ministry for Economic Cooperation and Development (BMZ) in January 2015 to help equip local populations with the skills needed to secure employment. International sector head for oil and gas at Scottish Enterprise, David Rennie said Scotland is a world leader in training for the oil and gas sector and is well placed to support East Africa’s skills shortages. “Companies are already seeing success in this key market and this mission aims to facilitate, in this current climate, even more opportunities for our supply chain, particularly for those companies visiting for the first time.” Through the Scottish Development International (SDI) initiatives such as SOGA aim to build on the success of two previous visits to the region in 2014 and 2015. In his remarks, managing director of MDT International Ltd, Drew Leitch said their SDI mission to East Africa in February 2014 was a very positive and rewarding experience for the company. The mission helped reinforce some of the client relationships that we already had in place and establish new client contacts. In addition to participating in the mission, MDT has delivered training courses in Tanzania and Kenya and have delivered in-house courses for clients in Uganda, Tanzania and in Mozambique for the first time. The participating companies and colleges get an opportunity to gain first-hand experience, meet potential

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“Companies are already seeing success in this key market and this mission aims to facilitate, in this current climate, even more opportunities for our supply chain, particularly for those companies visiting for the first time.”

new customers and access to wide range of experts in all aspects of doing business in East Africa. Explosion Protection International Training Ltd (EPIT Group) is another company that has set up shop in East Africa. EPIT Group offers technical training and consultancy for the oil and gas sector. The company hopes the mission will help it establish new contacts and opportunities which will lead to it becoming an established provider of training in the region. General Manager of EPIT Group, Martin Constable, said: “Our products and services have grown extensively overseas, seeing us expand into regions such as The Caspian, The Middle East and the Far East. Our push now, with the support of Scottish Development International is to increase business in The Middle East and parts of Africa, and through a focused and structured approach we are optimistic about achieving success.”

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BRIEFS

Kenya government abolishes vessel transshipment bonds at Mombasa port

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ombasa port is set to attract more ships after Kenya Revenue Authority (KRA) scrapped security bond on transshipment containers per vessel and further allowed shipping lines to lodge their own entries. This move will spur growth of the country’s trans-shipment segment. The action by the taxman was immediately welcome by the stakeholders of the industry who have been pushing for the removal of the bonds. They said that this will attract shipping lines that have avoided using the port of Mombasa for transshipment. Transshipment is the shipment of goods or containers to an intermediate destination, then to yet another destination. It involves large vessels docking at the port and redistributing their cargo to smaller ships that serve regional ports. Kenya Ports Authority (KPA) spokesperson Bernard Osero said the move will play a key role in attracting new shippers. “The removal of the security bond and related paperwork is a major milestone.” He said. KRA initially collected bond at the rate of

Sh100,000 per vessel — before it was revised to Sh1,000 per container following months of intense lobbying among shipping agents — is meant to ensure that such goods are not diverted into the local market duty-free. Clearing and Forwarding Agents charges a fee of not less than Sh 10,000 per container. While the KRA initially argued that it only collects the minimal sum to boost customs compliance, logistics sector maintains that together with the time-consuming paperwork, the bond has played a key role in driving large ships away from Kenya’s coast. “For a customer, any cost which ties to money is an expense. You also have to remember that we are talking in terms of large volumes. If I am handling about 1,000 containers, then a small fee can become a lot of money,” said MrOsero. Mr. JumaTellah, the Chief Executive Officer (CEO) of the Kenya Ships Agents Association (KSAA), which represents the interests of the shipping lines and agents in the country, in earlier interview said that the current annual growth of 10 % is not sufficient to fully utilize the extra capacity the port of Mombasa has created in recent years. Transshipment business is the best bet for the growth of both Mombasa and the proposed Lamu port in the emerging infrastructural development trends in the region since it does not require any hinterland investment. MrJuma said that although the port of Mombasa has created huge infrastructure capacity to do transshipment business in a wider scale than is currently handling, the performance is still very poor.

“Shipping lines using Mombasa as transshipment port do it for convenience and not for commercial considerations. Procedures applied in Mombasa port are costly and causes delays, hence increasing operational costs” Juma had earlier said. Unlike in the other global ports that have made remarkable progress on transshipment business, Kenya Revenue Authority (KRA) requires the shipping lines to lodge transshipment entries, a requirement that necessitates them to engage the services of a clearing agent at a fee and the process sometimes takes long causing delays and shut outs of cargo which attract port storage on account of the lines. SHIP DELAYS Delaying a ship is very costly and the daily average additional vessel operating costs incurred by shipping lines can range between U$ 20,000 – U$ 35,000 depending on vessel size, a demonstration of how crucial it is for the lines to save time in the shipping industry. According to MrJuma, the ongoing construction of the second port in Lamu, which has a deeper water front to accommodate larger vessels, can only peg its hope on transshipment business since this does not require any investment in the hinterland, more so since no hinterland infrastructure is yet to be initiated. Mombasa port main transshipment market has been Tanzania, Zanzibar and Tanga and East Africa Islands of Madagascar, Comores, and Mauritius. With attractive incentives Mombasa port can handled more transshipment cargo for other ports including Seychelles Northern Mozambique etc.

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BRIEFS

Ethiopian Airlines transfers cargo operations to Nigeria’s Skyway Aviation Company

Tazara officials to converge in Beijing as they seek ways to revive railway line

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thiopian Airlines has assigned Nigeria’s Skyway Aviation Handling Company Limited (SAHCOL) its cargo operations. In a statement, SAHCOL Corporate Communications General Manager, Basil Agboarumi announced the new move which is expected to boost the firm’s Ground Handling services while ensuring efficiency to its customers and the aviation industry in general. SAHCOL’s expertise and efficiency in ground handling operations earned it the lucrative deal which became effective last week. With the new arrangement, SAHCOL will handle all import shipments on Ethiopian Airline flights to and from Lagos, Abuja and Kano which are to be warehoused in the SAHCOL warehouses before clearance. Similarly, export cargo on the Ethiopian Airline flights from all its destinations in Nigeria, are now to originate from the SAHCOL warehouses in the various locations. The new move by Africa’s largest airline, Ethiopian is an indication of the trust the airline has in SAHCOL’s operations. The ground handler knows what its customer want most and what it does best to provide excellent service in line with International best practices. SAHCOL has recently made massive investments in state-of-the-art aviation ground handling equipment, construction of an ultra-modern cargo import and export warehouses, man-

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power trainings and excellent customer services. According to SAHCOL, the new endorsement by Ethiopian Airlines will further strengthen and boost its capabilities to continually deliver excellent and speedy Aviation Ground Handling services to its wide client base. Recently, AirfranceKLM transferred its cargo business to the ground handler. SAHCOL boasts several Aviation Ground Handling certifications among them ISAGO (IATA), RA3 (European Union) and SIFAX Group IATA Safety Audit for Ground Operations (ISAGO). The firm provides services in Passenger Handling, Ramp Handling, Cargo Handling/ Warehousing, Training Services, Aviation Security, Baggage reconciliation, Hospitality/Lounge services, and other related Ground Handling Services, in all the commercially operated airports across Nigeria.

takeholders from Tanzania, Zambia and China are set to converge in Beijing early October to deliberate on ways to revamp the Tanzania Zambia Railway Authority (Tazara) railway line in a turnaround initiative that aims to boost revenue and rank the railway among the top transport organizations in the region. This will be the second meeting after the one held in Dar es Salaam mid this year to discuss a report by the study conducted by a team of 140 experts from China to establish challenges facing the jointly-owned railway line that runs from Dar es Salaam to Kapiri Mposhi in Zambia. Tanzania’s Ministry of Works PS Dr Leonard Chamriho said the upcoming meeting to finalize the talk on improvement of Tazara will be held in the China’s capital city from 10 19 October. “The meeting will feature recommendations on Tazara made by the team of experts from China,” the PS said. The Tazara railway line was built as a turnkey project financed and supported by China to link the landlocked Zambia. On completion, Tazara, also called Uhuru Railway, was the single largest railway in Sub-Saharan Africa. DrChamriho pointed out the delegation in the trip will include officials from Tazara, Export Processing Zone Authority (EPZA), ministries of Works, Transport and Communications as well as Industries and Trade. The Deputy Minister for Foreign Affairs and East African Cooperation, Dr Susan Kolimba, hailed the efforts to rehabilitate the railway line. “The rehabilitation will complement efforts and agenda as well complement efforts and agenda of the government of Tanzania of building an industrial economy as incorporated in the National Five-Year Development Plan (2016- 2020),” she said. She hailed Tazara as a symbol of the friendship, cooperation and solidarity among the peoples and governments of three countries (Tanzania, Zambia and China). The Chinese government plans to put up six processing zones along the railway line, which will facilitate efforts to increase the volume of cargo transported by the Uhuru Railway.

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BRIEFS

RwandAir plans to launch London route by 2018

Qatar Airways is expected to introduce direct flights to Mombasa

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wandAir has announced plans to begin flights to Gatwick, London’s second-busiest airport by 2018 as it seeks to expand its footprint and flight coverage to the growing European and Asian markets. RwandAir CEO John Mirenge said they are in talks with the UK Civil Aviation Authority to start flights to Gatwick. MrMirenge said the move is part of the airline’s expansion plans that include opening of new routes to other parts of Europe and East Asia. During the launch of the airline’s first commercial flights to Abidjan, Ivory Coast on Friday last week, MrMirenge said they are ready to ply the KigaliGatwick route any time it gets the green light by the UK civil aviation body. However, RwandAir will first open routes to Harare in Zimbabwe; Mumbai, India; and Guangzhou in China before expanding to Western Europe. The carrier recently acquired its first A330-200 Airbus aircraft to boost its fleet and capacity to compete globally. It is waiting for another wide body A330-300 Airbus to further boost its fleet while providing exceptional service and be able to serve planned destinations in Europe and East Asia. Meanwhile, the local business community has welcomed the new com-

mercial flights to Ivory Coast, one of West Africa’s biggest economies. The Kigali- Abidjan route is expected to boost the economies of the two countries as it presents the local business community an opportunity to get new markets, and strengthen trade ties. “High transport costs and logistical challenges have, for a long time, been hindrance to trade between African economies. However, with RwandAir spreading its wings across the continent and beyond, we can now travel and trade more efficiently and at affordable rates,” said Mirenge adding that the Kigali-Abidjan route is part of the strategy to cover more destinations across the continent. “Flights to Abidjan are currently tagged to our already existing destinations, including Accra in Ghana, and will be served with three weekly flights; on Mondays, Wednesdays, and Saturdays. It will be operated by the B737-700NG and B737-800NG aircraft,” Mirenge noted. Last month the airline launched flights to Cotonou, Benin, another West Africa nation. The opening of the Abidjan route means the airline’s now flies to 19 destinations, including Nairobi, Entebbe, Mombasa, Bujumbura, Lusaka, Juba, Douala, Dar es Salaam, Kilimanjaro, Cotonou, Johannesburg, Dubai, Lagos, Libreville and Brazzaville.

n 2017, a move that will raise competition for national carrier Kenya Airways that is currently struggling with heavy debt. Tourism Secretary NajibBalala said the government would grant the Stateowned airline a licence to fly directly to Mombasa, opening up the coastal region to more tourists from the Middle East. “We have held discuussions with the Doha-based carrier and are working on the implementation process. Hopefully by January they will start flying directly into Mombasa,” he said. MrBalala noted that the only way for the tourism sector to fully recover and attract more tourists was through opening up the skies. “We are not going to stop airlines from coming to Kenya. If we want to achieve the three million mark arrivals we need to open up our skies, there is no shortcut. Accessibility to the destination is paramount,” he said. If implemented, Qatar Airways direct flights to the coastal region will give troubled Kenya Airways a run for its money. The airline is struggling to stay afloat amid heavy debt and employee strike threats. For a long time the national carrier has expressed fears that granting licences to more airlines would eat into its international business. Qatar Airways, which has been seeking the licence for more than three years, currently has direct flights to Addis Ababa, Djibouti, Kigali, Entebbe, Kilimanjaro, Zanzibar, Dar es Salaam as well as daily flights to Nairobi. The State-owned airline will now join international carriers such as Ethiopian Airlines, Turkish Airlines and RwandAir which fly directly into Mombasa. “The agreements were signed a few years back; it is now that we are following through with the implementation,” said MrBalala. The Qatar Airways announcement comes three months after the government granted State-owned low cost carrier FlyDubai the rights to begin daily flights between Dubai and Mombasa.

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BRIEFS

Toyota Tsusho and Bolloré to form a Kenyan vehicle logistics company

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oyota Tsusho Corporation (headquarters: Nagoya City; president & CEO: Jun Karube; hereinafter referred to as ‘Toyota Tsusho’) has entered an agreement to establish a vehicle logistics company, Bolloré NYK Auto Logistics Limited in Kenya. The joint partnership will be between Bolloré Transport & Logistics Kenya Limited andNYK LINE (‘NYK’) a Toyota Company subsidiary. Toyota Tsusho also signed a comprehensive Letter of Intent in March 2016 with Bolloré S.A., a core company of the French conglomerate Bolloré Group, to work towards a collaboration in Africa and other regions. Discussions are continuing to collaborate on a range of businesses built on the solid business foundations of these two companies, including infrastructure and logistics businesses, to strengthen the business foundations of both companies in Africa. This strategic three-way partnership will merge the knowledge and know-how built up by Bolloré and Toyota Tsusho in a range of businesses developments, together with the considerable experience and technologies in vehicle logistics acquired by NYK around the world. The resulting company Bolloré NYK Auto Logistics Limited will provide a wide range of customers with high quality services through the gateway port of East Africa, an area experiencing remarkable growth. Among attendees at the ceremony held in Kenya at the end of August to celebrate the decision were Bolloré’s managing director Eric Melet, NYK’s senior managing corporate officer Koichi Chikaraishi, and Toyota Tsusho’s senior managing director Takashi Hattori. All three also

attended the MOU (TICADVI) Ceremony*2 as part of the Sixth Conference on African Development, which was held at the same time. With Kenya’s continuing economic growth, the vehicle import market is expected to expand and the country’s role as a gateway port to the counties of East Africa is expected to grow. Bolloré NYK Auto Logistics Limited is planning to launch a number of services before the end of the year, including vehicle storage, customs clearance, inland transport and PDI*3, from Kenya’s Mombasa Port. Bollore Transport & Logistics Kenya Limited is a comprehensive logistics company in Kenya and a subsidiary of Bolloré Transport & Logistics, a company headquartered in France. The Sixth Conference on African Development (TICAD VI) was sponsored by the Japanese government and held in Kenya over two days from August 27, 2016. This ceremony was held to commemorate the signing of a Memorandum of Understanding between Japanese enterprises, countries in Africa and others. The establishment of Bolloré NYK Auto Logistics Limited as a JapaneseFrench venture opening up business in Africa was announced to a number of government leaders on the day, including Japan’s Prime Minister Shinzo Abe and Kenya’s President Uhuru Kenyatta. PDI is a pre-delivery service for vehicles, including inspection, repair and parts supply.

PMAESA Conference 2016: Port Strategies for Harnessing the African Blue Economy & Investment Options It is with great pleasure that I welcome you to the forthcoming PMAESA 2016 Conference scheduled for 27 November to 1 December 2016 at The Shamandora Hall in Port Sudan under the sponsorship of Sea Ports Corporation Sudan in collaboration with PMAESA. PMAESA is a regional organisation for the ports and maritime sector in eastern and southern Africa. It seeks to promote and nurture best practices among member ports by creating an enabling environment for exchange of information and capacity building to contribute to the economic development of the region. The forthcoming conference is expected to bring together a cross-section of port executives, maritime experts, equipment manufacturers and suppliers as well as port stakeholders from

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within and outside Africa. The theme of the Conference is ‘Port Strategies for Harnessing the African Blue Economy and Investment Options’. SPC in conjunction with PMAESA are looking forward to coming up with tangible action plans for our ports systems and the region to engage in rigorous deliberations and debate to come out with firm deliverables. We have invited some of Africa’s best brains on ports, maritime and economic issues to deliberate on pertinent matters affecting the best way to harness the continent’s Blue Economy. It is our belief that you will take this opportunity to effectively and positively participate in deliberations on the pertinent issues affecting our ports systems. We sincerely believe that your insight into the maritime industry and the changes in the industry will help to improve the

competitiveness of our ports and boost our regional economies to higher levels. The organising committee and our local hosts have drawn up a splendid pre- and post-conference itinerary which we hope you will find heartening. We also welcome you to partner with us in this event through sponsorship and showcasing your products and services in an exhibition that will be running concurrently with the conference. The ambience at the exhibition hall will offer a unique opportunity for industry leaders from Africa and beyond to meet, network and share their specialised knowledge with industry decision-makers from across Eastern and Southern Africa. We look forward to having a fruitful conference and we are confident that it will leave lasting memories of your stay in Port Sudan.

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BRIEFS

New maritime school in Kisumu to boost cargo transport on Lake Victoria

A new maritime school is set to boost Kisumu’s maritime sector while improving cargo transport on Lake Victoria which has been on a decline in recent years. admitting the first batch of about 200 students.

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isumu houses some of the best port equipment in East and Central Africa but slow activity in lake characterized by poor navigation safety measures has left the city idle. Counties bordering the lake region are now banking on the new school to bring back sanity on the lake. Already the counties, under the Lake Region Economic Bloc which brings together 11 regional governments, are developing plans to construct a ring road around the lake to ease movement. The school, according to Kisumu Governor Jack Ranguma, will serve countries in the East African Community and will begin by

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The institution will be based at the former storage facility at the Kisumu port which was refurbished using Sh40 million financing by the World Bank. Already, the EAC has announced plans for safety and security of navigation in Lake Victoria waters with the help of the African Development Bank. “We believe that with the completion of the standard gauge railway through Kisumu to Busia border the lake will be an important asset to the county,” said MrRanguma. Those to be trained will include high school graduates, according to the governor. The counties to benefit include Kisumu, Homa Bay, Kakamega, Kisii, Migori, Nyamira, Siaya, Vihiga, Bungoma, Busia, Bomet, Trans Nzoia and Kericho. Lake Victoria has witnessed an increase in the number of accidents due to lack of trained sailors missing navigation lights, as well as poor navigation routes. Kisumu port manager MwalimuDisi said ship builders, boat operators, engineers, and coxswains from all over East Africa will be trained at the school which will be expanded in phases. “Most of the boat operators on Lake Victoria are neither certified nor trained. This has in turn put a lot of lives at risk. We want to change this trend,” said MrDisi. Kisumu is deemed a critical hub for trade with Tanzania, Uganda, Rwanda, Burundi and other countries in the Great Lakes region. The port registered robust business activity for decades, with the help of a reliable railway system and maritime vessels that ferried cargo to ports such as Mwanza and Bukoba in Tanzania as well as Jinja and Port Bell in Uganda.

PROCUREMENT & LOGISTICS MANAGEMENT NOVEMBER-DECEMBER, 2016 Issue No.: 06/2016


BRIEFS

Kenya’s Turkana residents seeking a share of Tullow’s supply contracts ahead of 2017 crude oil commercialization

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urkana County residents are calling for inclusion in the supply of goods and services to exploration firms involved in early oil production as Kenya gears up for crude oil exports next year. The Turkana Empowerment Advocacy Group (TEAG) wants residents to be given priority in procurement before Tullow Oil and its partners begin daily crude oil output crude in Lokichar in March 2017. TEAG has raised the stakes on the back of Kenya’s draft Local Content Bill 2016, which will compel extractives companies to give priority to the local companies when procuring goods and services. The Bill aims to ensure com-

munities in areas hosting oil, gas and other minerals benefit from exploration and extraction activities. Tullow last week invited contractors to float tenders for trucking services for the crude oil which will be hauled to Mombasa by road. The oil, Tullow said, will be ferried using insulated containers to be provided by successful firms in the bid. TEAG, in a petition to Tullow and Ministry of Energy, said there are local firms owned by community associations or groups who have developed expertise in oil production. TEAG chairman John Ekai said the agreement between Tullow and its contractors should contain a clause that directs the contractor to subcontract some activities to local companies. The petition demands that local content plans be made available to

residents before early production starts. They also want equitable benefits sharing, water wells be drilled and completion of community projects. The proposed legislation by the Senate has rules and guidelines to help the growth of local industry by requiring a minimum percentage by value of goods and services to be provided locally. Senate Energy Committee Chairman Gideon Moi said the proposed Bill will ensure local industries within the extractives sector are able to compete with large multinational companies. “Discovery of oil, gas and other mineral resources was God-sent. These resources were discovered when needed most by Kenya to accelerate economic take-off and achieve comprehensive development,” he said.

Postal Corporation of Kenya eyeing mobile money platform with its digital wallet

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he Postal Corporation of Kenya is set to introduce its digital wallet before the end of the year as it turns to innovation to adjust to changing markets. The state-owned firm will be joining other telecommunications giants that currently dominate the sector in a move to diversify its revenues “We want to provide a digital product that will compete in the market, an affordable one,” said Postmaster-General, Mr Dan Kagwe. Postal Corporation has unveiled a number of innovations to stay afloat including an email service that allows users to link mobile phone numbers to post office boxes and

provides alerts upon the delivery of parcels. The Sh300 per year Posta Mkononi service allows customers to use their cell phone number as the post office box number, and users will be alerted via text message when their mail arrives at Posta. It is also seeking to pull back the young generation to its premises by offering luggage delivery services targeted at university students and has even moved into the clearing and

“We want to provide a digital product that will compete in the market, an affordable one,” said Postmaster-General, Mr Dan Kagwe

forwarding business with Posta Cargo. Posta recently started tracking letters and parcels digitally. The corporation runs 623 post office outlets in the country but has been facing stiff competition from emerging businesses. Its core operations have also been taking a hit from increasing reliance on technology to deliver messages. The agency is determined to revive its courier service which enjoyed monopoly for years, but failed to adapt to changing technology that ultimately saw it lose business. MrKagwe said the company hopes to increase its government business. He also asked the Communications Authority of Kenya to step in and help support the running of non-profitable post office outlets.

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Kenya Orient Insurance launches Marine Cargo cover

Kenya Orient Chairman Titus Muya, Agnes Ndirangu of IRA,National Chamber of Commerce CEO Kiprono Kitony and Kenya Orient Managing Director, Muema Muindi

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enya Orient insurance has launched a comprehensive marine insurance cover dubbed ‘Orient Marine Cargo’ in a move to cash in on the new Marine cover business. The colourful product launch was held today at the Nairobi Serena Hotel and attended by leaders in the insurance and maritime sector including the Kenya Maritime Authority, Insurance Regulatory Authority and the Shippers Council of Eastern Africa among others. Speaking at the event, Kenya Orient Managing Director Mr. Mwema Muindi said the launch is in line with their mission to offer quality services to their clients and foster innovation in Africa. “The new product marks yet another milestone for Kenya Orient. In addition to the Orient commercial cover, the

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best insurance cover in the country, we are proud to introduce Orient Marine Cargo. Our new and refreshed marine cargo cover heralds our continued dedication to setting the pace in offering the best insurance solutions for our customers, consumers and stakeholders in the country.” MrMwema said the launch will help position the company to serve Kenyans even better. The launch comes at the backdrop of a new insurance law, section 20 of the Insurance Act, which requires all importers to have local marine cover from January next year. The Treasury, in collaboration with the Kenya revenue Authority is set to implement the much ignored rule which prohibits placement of Kenyan business with non-Kenyan or foreign insurance markets except under certain circumstances. The new Marine Cargo Insurance (MCI) regulations will place marine business exclusively with locally registered underwriters. According to MrMwema, the marine insurance has in the past failed to attract business due to unaffordable premiums, lack of awareness and the general attitude

of people towards the marine cover business. However, Kenya Orient is ready to take on the new Kshs Sh30 billion marine cargo insurance business by issuing cover to traders. “The new act brings with it new opportunities which we are more than ready to utilize. It is set to reduce the risk of importing goods while linking Kenya’s economy to the international market and we will offer relevant training in order to improve the product,” said MrMwema. Adding to his sentiments, Insurance regulatory Authority(IRA) representative, Agnes Ndirangu said the new marine market will bank on innovation, with the new regulation expected to push marine cargo insurance premiums handled by Kenyan underwriters from Sh2.9 billion last year to over Sh20 billion in the coming year. “The new act is expected to drive up the demand for marine cover and we therefore want to create an enabling environment for the cover to take effect. We are also working together with local underwriters to ensure a smooth transition,” she said. At Sh20 billion, the marine insurance will add about 11 per cent to the total premiums (Sh170 billion) currently handled by Kenyan firms. This will add a key sector to the industry which is currently dominated by motor vehicle and medical classes. Kenya National Chamber of Commerce CEO KipronoKitony commended Kenya Orient for demonstrating their willingness to tap into the rich marine industry adding that they are working to support the new product and ensure that the new Orient Marine Cargo serve its intended purpose. Kenya Orient has been “dubbed” the home of many firsts having launched various products such as Safari Bima; a 24hr accident cover, Motor Pack; the first and only Excess-Free Motor Private insurance, Orient Mobile; the only standalone mobile insurance product in Kenya and Orient Home; The only home insurance with free rescue services in Kenya. It is also among the three out of more than 40 insurance insurance companies in the country with ISO certification.

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Local underwriters seeking to capitalize on new $296m marine cargo market

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ocal insurance firms are seeking to reap big from the new insurance law, section 20 of the Insurance Act, which requires all importers to have local marine cover from January next year. UAP Old Mutual Group and Sanlam Kenya are some of the companies which have expressed interest saying they are ready to take on the Kshs Sh30 billion marine cargo insurance market by issuing cover to traders. Sanlam Kenya Group CEO Mugo Kibati said the local firm will be tapping Sanlam Group’s century-old technical experience and financial muscle to deliver cover for its clients. Sanlam Marine is the largest such insurer in Africa. The new Marine Cargo Insurance (MCI) regulations will place marine business exclusively with locally registered underwriters. According to UAP Old Mutual, the firm has capacity to underwrite up to $250 million (Sh25 billion) in any one risk location. This is after the parent South African group unveiled Specialty Insurance in conjunction with Old Mutual Specialty Insurance. “Importers have traditionally preferred to use foreign firms especially when importing cargo such as mining and construction equipment. We believe the law will help buyers avoid the associated risks,” said UAP Old Mutual Group chief executive Peter Mwangi. Sanlam on the other hand said with Kenya Ports Authority’s expansion of cargo holding facilities at Kilindiniharbour there is need for specialist value-added services such as marine and related portside risk solutions. Through its general insurance subsidiary Sanlam General Insurance, the firm provides value-added risk covers for local and multinational clients importing or exporting products. “Our expertise in this unique field provides us with a meticulous understanding of marine and contemporary port operating risks. From ship, cargo damage, container terminal and maritime construction risks, to natural

Sanlam Emerging Markets Regional Executive for East Africa Mr. Julius Magabe flanked by Sanlam Group CEO Ian Kirk and Sanlam Kenya Group CEO Mr Mugo Kibati, are all smiles as they unveil the Sanlam Kenya brand identity during a media briefing at the Stanley Hotel, Nairobi catastrophes and piracy, all these risks are covered,” said MrKibati. Industry estimates show that if implemented, the new law will push marine cargo insurance premiums handled by Kenyan underwriters from Sh2.9 billion last year to over Sh20 billion in the coming year. About 90 per cent of cargo import insurance is currently handled by foreign firms with importers usually paying the premiums as part of a package (Cost, Insurance and Freight- CIF) to the exporter who handles the underwriting.

“Our expertise in this unique field provides us with a meticulous understanding of marine and contemporary port operating risks. From ship, cargo damage, container terminal and maritime construction risks, to natural catastrophes and piracy, all these risks are covered,” said MrKibati.

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Hanjin Shipping to sell off entire Asia to US route

When Hanjin entered receivership the carrier had an 8.4% market share of the transpacific tradelane and 17.8% of the South Korea to US route, with companies such as LG and Samsung shipping sending 20% and 40% respectively of their exports with the carrierA

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anjin Shipping has received bankruptcy approval orders to sell assets, including its largest trade route, between Asia and North America. Assets which are currently on sale include the company’s operations on the routes, such as manpower systems, five container ships, and ten overseas businesses. The orders were issued by Seoul Central District Court. It is the latest development in the embarrassing demise of the South Korean carrier that has left the nation in shock and the country’s largest port at Busan with a potential huge loss of box throughput. However Busan Port Authority; the governing body of the South Korean port of Busan are optimistic there won’t be an appreciable loss of throughput, as other carriers have quickly stepped in to fill the void. A spokesman for the Seoul Central District Court said yesterday the carrier’s assets would be sold to meet creditors’ claims. These are being collated and must be submitted by 25 October. According to its court filing, Hanjin had debts of $5.4bn at the end of June, but this seems likely to have increased after costs associated with charter party and container lease contract defaults are added. Shipowners face significant costs for the return of their ships, while unpaid bunker

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fuel bills will be substantial, as could lessor claims for re-positioning equipment. Many other service providers remain unpaid and legal costs to protect the interests of creditors could add a third to the debt, according to one shipping lawyer. Hanjin will receive letters of intent concerning the assets sale by 28 October, but declined to comment on asking prices or interested parties. The court spokesman said the potential sale would include manpower systems, five container ships and 10 overseas businesses. When Hanjin entered receivership the carrier had an 8.4% market share of the transpacific tradelane and 17.8% of the South Korea to US route, with companies such as LG and Samsung shipping sending 20% and 40% respectively of their exports with the carrier. However, it could be argued that Hanjin does not have much of value to sell, other than its port investments. Tradelane market share has now been taken by other carriers, including compatriot Hyundai Merchant Marine (HMM), which launched an additional service to target Hanjin shippers. And there is no “good will” to sell after the carrier “abandoned customers” by seeking court protection from creditors,

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and its manpower systems might also be of little value after the line’s failure. Details of the five container ships involved have not been disclosed, but if they are panamaxes their value might be limited to scrap. There are no details of the “10 overseas businesses”, but it is assumed that they are regional offices in the US, and their value would depend on whether they are owned or leased. Like many container terminals around the world, Busan and Hanjin’s local, Newport, have stack after stack of blue Hanjin containers awaiting retrieval. It is however expected that some container owners may decide to abandon empty equipment if the cost of restitution and depot or terminal pickup charges were higher than 75% of the book value of the box. Some 97 of Hanjin’s container ships, carrying cargo worth around USD 14 billion, were left stranded across the globe and unable to load or offload containers.


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Kenya, Uganda, Rwanda to launch joint electronic cargo tracking system in January 2017

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enya, Uganda, Rwanda and Burundi will from January monitor cargo movement using the newly introduced Electronic Cargo Tracking System (ECTS) from the port of Mombasa in a move to curb theft and tax evasion on the northern corridor (Mombasa-Kampala-Kigali highway). A Malaysian firm, BSmart has been awarded the contract to roll out the new system. The system is expected to bring to an end dumping of goods in the Kenyan market and keep off rogue traders. The Uganda Revenue Authority (URA) had initiated the project with implementation scheduled for June, but it never took effect due to delays which saw the start date pushed forward. The three countries will jointly attach electronic seals onto cargo at Mombasa port, according to URA. With its special design, goods will no longer disappear in anyone’s territory as rapid response teams will be there to intervene swiftly. The tracking system comprises satellites, a monitoring centre and special electronic seals fitted on cargo containers and trucks, which give the precise location of goods in real time. The system triggers an alarm whenever there is diversion from the designated route, an unusually long stopover or when someone attempts to open a container.

The Kenya Revenue Authority (KRA) confirmed that the regional system established by Bsmart would be used by the three countries. According to the Kenya Revenue Authority (KRA), the system will take off in December. A central command center will be established in Nairobi and 13 rapid response stations established throughout the country to act on any incident. The Ugandan system will also be integrated with the Rwanda Revenue Authority ECTS which was also developed by the Malaysian firm to give a single view of cargo and customs control to all the revenue authorities. Each country previously had separate cargo tracking systems, presenting loopholes due to lack of seamless monitoring. The seals will be funded by TradeMark East Africa as a free service to importers, exporters, clearing agents and transporters conveying goods on the Mombasa-Kampala-Kigali highway. Officials are betting on the project to slash the cost of transporting cargo and boost tax collections. The move is expected to accelerate cargo clearance from the Kilindini port in Mombasa, minimise transit diversion and ensure seamless movement of goods. Kenya introduced its electronic cargo tracking system in July 2009 as it intensified its purge against dumping of transit goods in the local market.

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Uganda and Tanzania move to speed up implementation of joint oil pipeline project Uganda and Tanzania have agreed to fast-track the implementation of the Crude oil export Pipeline from Hoima in Uganda to Tanzania’s Tanga port. The Joint Pipeline Development Committee (JPDC) and project steering committee consisting of energy officials from both countries have met and signed a memorandum of understanding to speed up the project by removing hurdles among them national and local government consents, project route, land access as well as environmental and social aspects that are delaying the implementation process. Tanzania said its cabinet had approved that the country’s attorney general to submit legislation that would allow changes in tax law among incentives the two governments agreed on when routing the pipeline.

Uganda’s cabinet has also been discussing various packages agreed with Tanzania with various issues at different stages of approval. Tanzania said it is also working to ensure smooth operations at the Tanga port in issues such as cargo handling. Both countries have resolved to fasten the upgrading of infrastructure such as feeder and access roads.

Construction of the multibilliondollar crude oil pipeline from Uganda through Tanzania is set for January next year. The project is set to cover 1,443 kilometres. The pipeline is expected to cost about $4bn and will connect Uganda’s western region near Hoima with Tanzania’s port of Tanga covering a distance of 1,443 kilometres.

Construction of $52.3m Athi RiverMachakos dual carriageway to kick off Construction of a Sh5.3 billion($52.3 million) dual carriageway through the Athi River-Machakos section of Mombasa Road is scheduled to kick off after a flag off by President Uhuru Kenyatta making it one of the many multi-billion shilling infrastructure development projects initiated by the President’s administration The 20km dual carriageway, which is designed to ease traffic congestion along the busy Mombasa-Nairobi highway, is being constructed by China Railway 21st Bureau Group. The action came only a day after the President flagged off work on the 120km second phase of the Standard Gauge Railway linking Nairobi with the central Rift Valley town of Naivasha. According to President

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The 20km dual carriageway, which is designed to ease traffic congestion along the busy Mombasa-Nairobi highway, is being constructed by China Railway 21st Bureau Group Kenyatta, the new highway will be convenient for those residing in Machakos and work in Nairobi and vice versa. “With the dual carriageway, more people can now live here in Machakos and work in Nairobi while those living in Nairobi can come and work here,” Mr Kenyatta said during the Mashujaa Day celebrations in Machakos yesterday. The dualing of the Athi River-Machakos turn off section of Mombasa Road comes with three interchanges at Athi River town,

Daystar University and Mua Hills junctions as well as eight kilometres of service roads on either side of the main carriageway at Athi River. With the support of the World Bank, the government will undertake the implementation of the project which is expected to be completed in 18 months’ time. Mr Kenyatta launched the works on the road on his way to Machakos where he led

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the country in celebrating this year’s Heroes’ Day. The government last month announced plans to build a six highway lane to link the capital city Nairobi with Mombasa city at the Port of Mombasa in a bid to ease traffic flow and shorten the time taken for cargo to reach Nairobi and the region. The six highway lane was part of the government’s initiative of expanding the road infrastructure throughout the country to complement the upgrading of the railway line to SGR and the expansion of the Port of Mombasa and Lamu Port. Currently, the two cities are linked by a two lane highway leading to frequent traffic snarl ups caused by cargo trucks, especially at weigh bridges like Mlolongo.


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Maersk Line hails Japanese merger plans, says industry set for major transformation

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anish conglomerate A.P. Moller-Maersk has welcomed the move by its Japanese shipping rivals to merge, a step it says will awaken the ailing industry and return it to profitability. Global shipping is currently facing a slowdown owing to the economic instability in China and tumbling commodity prices which has devastated the world’s freight providers. The three shipping lines namely; Nippon Yusen Kaisha, Mitsui OSK Lines Ltd. and Kawasaki Kisen Kaisha Ltd have announced a merger, giving them control of 7 per cent of the world’s container-shipping trade. It’s the latest example of industry measures to create scale in an effort to adapt to a world in which freight rates have been under pressure since 2007. Maersk Line CEO SorenSkou said the company is undertaking new measures in its expansion plans. The company will stop buying new ships and instead try to expand through takeovers. “Our industry is fragmented and consolidation can help transform our business for the benefit of our customers.” The comments come as Maersk puts its group structure under strategic review. Management has said it wants to split the energy business off from its transport operations. Overcapacity, characterized by an excess of vessels and weak global trade growth have driven container lines to try to underbid each other on the rates they offer clients. This has seen some industry members down their tools. South Korea’s biggest line, Hanjin Shipping Co. filed for bankruptcy protection in August. Maersk Line has since hinted plans to buy parts of the company. Efforts to date to consolidate have included agreements in parts of the industry to share ships, to avoid the cost of building up individual fleets. But Maersk says that may be a less effective way to achieve scale than outright mergers. Maersk, which has not made a large acquisition in more than a decade, is in a vessel alliance with the world’s second largest shipping line, Mediterranean Shipping Co. SEB, which has a hold rating on Maersk’s stock, said the shipping unit’s

AP Moeller-Maersk A/S, whose Maersk Line unit has repeatedly broken the world records it has regularly set in mega container ships developed with Asian ship yards, “is done with ordering new steel”, Michael Pram Rasmussen told Bloomberg at the the company’s Copenhagen headquarters. PHOTO: BLOOMBERG profitability “will be largely determined by cost cuts and utilization,” as results published by peers suggests the industry continues to be under pressure, according to a note. Customers who use Maersk don’t see much relief for the industry ahead, even if consolidation continues. “There might be a short-term increase in container rates, but it doesn’t change the structural problems,” Jens Lund, chief financial officer at DSV A/S, said noted. DSV is the world’s fourthlargest freight-forwarder, handling about 1.2 million 20-foot containers a year. “There’s a lot of overcapacity out there and neither bankruptcies nor mergers will remove any of the world’s container ships, they just change the ownership situation,” added Mr. Lund. The Japanese trio planning to merge are part of a vessel-sharing group known as the Alliance. The merger will see Hapag-Lloyd AG lose

its dominance, according to industry experts. The three Japanese container lines will probably get merger approval from the relevant competition authorities, according to Peter Sand, an analyst at BIMCO, which represents ship owners and operators in about 130 countries. Analysts reckon that consolidation will cure the ailing market, however for scale to be important they must be able to exercise pricing power in all or certain markets. Nippon Yusen, Mitsui OSK and Kawasaki Kisen will invest a total 300 billion yen ($3.86-billion) in the venture, which is expected to result in a “synergy” of 110 billion yen annually. In its remark, Maersk Line said consolidation will aid in the digitization process allowing for better online customer experience as it enables the larger carriers to drive the industry transformation together.

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Top KPA and KRA managers in court for Sh82m container fraud

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fficials from two Kenyan State corporations have been charged with loss of 121 containers at Mombasa Port with an estimated value of KSh 82 million. At least 13 managers from the Kenya Ports Authority (KPA) and the Kenya Revenue Authority (KRA) were charged early this week with crimes ranging including aiding tax evasion and fraud that took place between May and August 2016. The suspects include KPA’s IT manager FatumaNabhany, Kilindini Waterfront Automated Terminal Operation System (KWATOS) Principal Operation Officer NzilaBweniMwadzila, his assistant Joshua Misoi and Principal Officer in charge of monitoring BenardAdungoAmake. Those charged from Kenya Revenue Authority include; Paul Makau, Benedict Opiyo and James Kato, who are supervisors in charge of the system linking KRA and KPA at berth No 5 at Mombasa port. Others include two directors from Jamil Trading Company, Mohamud Hassan Ibrahim and Mohamed Ibrahim Hassan, importers of 120 container out of the fraudulent 121 containers. KRA Commissioner General John Njiraini was the whistle blower in the fraud case that has seen the first top manager from KPA implicated. Seven KPA managers implicated in the theft of 121 containers from the port however denied the charges, alongside their three KRA counterparts before Mombasa Principal Magistrate Francis Kyimbia. The magistrate

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KRA Commissioner General John Njiraini was the whistle blower in the fraud case that has seen the first top manager from KPA implicated ordered them arrested after rejecting an application by State council Eugene Wangila to have them summoned. The officials denied conspiring to facilitate release of 121 containers at KilindiniHabour that saw the government lose Sh82 million in duty. On the other hand, the Jamii Company bosses were charged with procuring and keeping 68 containers whose import duty charges amounting to Sh36 million had not been cleared. In a separate charge, KRA employees Paul Mkau, Vincent NyatundoOnchweri, Benedict Opiyo and James Kato were jointly charged, with others not before, with aiding Jamil to evade tax. Joshua Misoi was also charged that knowingly and without lawful authority, he gained access to the computerised system and caused the unprocedural release of 17 containers. Nabhany and EdarMwakeNgwatu were charged with failing to deactivate the password of a Ms Rose Musau from the system even after she retired, thereby causing the release of 121 containers from the port. The case could see more high-ranking managers arrested over massive theft ate the port of Mombasa. According to detectives, the managers aided in sneaking out cargo which subsequently could not be detected from the port’s clearance system after they hampered the system

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Rwanda to launch world’s first medical supply drones An American company is using drones to deliver blood to clinics in Rwanda. This is a quick, cheap and – crucially – profitable innovation that could save thousands of lives, and revolutionise both healthcare and transport on the continent. By SIMON ALLISON.

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wanda is set to launch the first drone delivery service for medical supply in remote areas as it seeks efficiency in logistical transportation of medical supplies in the country. Rwanda entered into an agreement with Californiabased robotics firm Zipline Inc earlier in the year to build infrastructure for the unmanned aerial system. The project will see the unmanned aerial system used in delivery of much needed supplies to ensure efficiency and timeliness. The drones are expected to turn around the quality and efficiency of medical services in remote areas. Using drone technology is expected cut down the time taken in delivering blood supplies to about 30 minutes on making an order and will not require staff from the health facilities to leave their stations. With the reduced duration in delivery of blood supplies, medical practitioners expect that patients will get urgent attention and will also enable them respond better to emergency cases.

Since the signing of the agreement, the country has been undertaking the building of the right infrastructure as well as integrating into the value chains and building partnerships to ensure smooth operations during the launch. This being the first globally that drones have been used to deliver medical supplies, the team involved said that they were faced with a number of challenges which they overcame through partnerships. Zipline chief executive Keller Rinaudo, said the process to implement the agreement required them to learn through the process as there is no manual book to go by. “Doing something for the first time in the world is always hard. There is no precedent, manual or clear rules to go by. This made it difficult for us and the Government. We got through this by

“Doing something for the first time in the world is always hard. There is no precedent, manual or clear rules to go by

partnering and testing new solutions,” Rinaudo said. Among the steps that the firm took over the nine months was to study and integrate into the blood delivery chain as well as win the confidence of stakeholders such as medical practitioners. “We have been working closely with the government in order to understand how to create an ecosystem. We have had to integrate with the blood supply chain, integrate with the airspace and make sure doctors were comfortable with how this was being done,” he said. According to Rinaudo, the project has brought Rwanda international recognition and increased demand for Zipline’s services with countries streaming in to enquire about the project. The project has drawn a number of global players such as UPS logistics firm, and Global Alliance for Vaccines and Immunisation (GAVI) which have expressed interest in the Rwanda project. UPS Foundation injected $800,000 grant to support the initial launch of the initiative to explore using drones to transform the way life-saving medicines, vaccines and blood are delivered across the world. Kevin Etter, global strategy manager and healthcare marketing at UPS, said the project was a lesson on the power of innovation and partnership

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Kenya’s Lapsset, Oil and Gas projects to take center stage at East Africa Oil and Gas summit

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n the upcoming 4th East Africa Oil and Gas summit scheduled for 15-17 November 2016, the Kenyan government is expected to highlight its progress in implementing infrastructure projects aimed at boosting regional trade by linking the country with Uganda, South Sudan and Ethiopia. Kenya will inform participants about investment opportunities provided by the Lamu Port-Southern SudanEthiopia Transport Corridor (Lapsset) projects at the summit, which is hosted by the Kenyan Ministry of Energy & Petroleum at the Kenyatta International Convention Centre. The Lapsset project will feature the Lamu port, standard gauge railway, roads, refined products pipeline, crude oil pipeline, airports, resort cities and a crude oil refinery. Launched in 2012 by President MwaiKibaki, former Ethiopian Prime Minister MelesZenawi and South Sudan President SalvaKiir, the $26 billion project is the most ambitious and expensive infrastructure project being undertaken in East Africa with 70 individual construction projects spread across four countries.

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Of particular interest to the EAOGS audience will be the crude oil pipeline between Lamu Port and Kenya’s oil fields in Turkana Basin to Ethiopia and South Sudan; the planned oil refinery in Kenya; and details on how the project is being sustainably financed. Over 3,000 oil and gas executives are expected to attend the EAOGS exhibition and conference – the largest event of its kind in East Africa. Delegates in attendance include the Country Manager for Shell, Regional Director for Delonex Energy and the CEO of OEM Energy. Lapsset Corridor Development Authority director-general SilvesterKasuku will give an update on the projects structure and funding. Other speakers will be KenInvest Managing Director Moses Ikiara, African Development Bank Eastern Africa Regional Director Gabriel Negatu and energy, mineral and oil ministers from Kenya, Uganda and Ethiopia. The Lapsset project will feature the Lamu port, standard gauge railway, roads, refined products pipeline, crude oil pipeline, airports, resort cities and a crude oil refinery

Kenya Bus Service targeting high-end market with new taxi hailing service Kenya Bus Service has announced plans to venture into the taxi hailing business with the launch of an e-hailing app set for March next year. The company is keen on the highend market with top clients such as business executives visiting Kenya from abroad. KBS Management Ltd Managing Director Edwin Mukabanah said: “We are working on an app with an executive edge. The move to focus on the highend market is because of giants like Uber which currently dominate the sector. KBS said it will begin with an initial fleet of 15 cars made up of luxury models such as Mercedes Benz and four-wheel drive sport utility vehicles. MrMukabanah said the taxi business is part of a strategy the firm is undertaking to boost revenues and cut reliance on bus business. The taxi service will mark a major milestone for KBS which pioneered Kenya’s organized public transport. The move by KBS to join taxi hailing business comes at a time when players are engaged in a vicious price war sparked off by Uber and followed by Taxify and Mondo Ride. Other taxi apps in the market are Little Ride and Sendy (both backed by Safaricom), Maramoja, and Dandia, which is owned by Pewin Cabs. Transport firms are turning their focus to offer specialized product due to immense rivalry in the sector which is spurring innovations. BodApp, the first e-hailing app which caters solely for those seeking motorcycle taxis popularly known as bodabodas, has just launched in Nairobi. Prior to BodApp’s entry, Sendy, which started off as a motorcycle courier firm, and Dubai-based Mondo Ride, had bodaboda hailing options along the regular taxi feature. KBS presently manages 272 buses in Nairobi belonging to 142 investors, with the franchise employing 1,250 staff. Other services offered include driver training, vehicle repairs, vehicle parking, insurance agency, vehicle fueling, accident investigation, breakdowns recovery, sale of fuel, and sale of spare parts. MrMukabanah also revealed that KBS will next year expand to offer longdistance passenger services and public transport staffing agency services. Other planned revenue streams include motor vehicle inspection.

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Toyota Tsusho begins fertiliser production in Eldoret Kenya

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oyota Tsusho Corporation has started production of fertiliser at its blending plant in Eldoret, Kenya with a target annual output of 150,000 tonnes. In 2014, Toyota Tsusho entered into an agreement with the Kenyan government to set up a fertiliser manufacturing plant which saw it establish Toyota Tsusho Fertiliser Africa Limited (“TTFA”), a wholly owned subsidiary, and proceeded to construct the fertiliser blending plant. Kenya, is one of Africa’s major agricultural producers; it currently imports 600,000 tons of fertiliser every year. This is equivalent to the country’s entire domestic demand, which is expected to increase as its agriculture develops further. However, transporting imported fertilisers is time-consuming and costly, and the fertilisers are not always suitable for the soil or crop, leading to acidification of farmland and reduced grain harvests. Establishing a domestic fertilizer manufacturing business has therefore long been a key issue. Kenya’s government spends $300 million annually to import fertiliser, which is sold at subsidised price of about $16 to farmers compared with market rates of up to $35 per 50kg bag. MEA fertiliser retails for about $30 a bag while Mavuno, an organic mix, goes for $22 a bag. TTFA chief executive Akira Wada said the company was carrying out feasibility studies on use of natural gas as a feedstock. The company has already exported a consignment to Burundi and is exploring

“We are working with Japan International Cooperation Agency (JICA) to develop fertiliser suitable for paddy rice growing in Mwea in eastern Kenya,” said Mr Wada opportunities in Tanzania, Rwanda and Uganda. Neighbouring Tanzania is also in advanced stages of setting up a fertiliser plant as the region seeks independence from imports. TTFA hopes to boost sales by leveraging on its vehicle dealerships to improve distribution. Kenya relies fully on imports to meet its demand of 600,000 tonnes annually. TTFA is working with Moi University, International Fertiliser Development Centre and Africa Fertiliser Agribusiness Partnership to develop products that nurture African soils and maximize crop output. According to Mr Wada, the firm is targeting products that would yield 30 bags of maize per acre compared with about eight bags per acre that an average farmer harvests. The company imports micronutrients and blends them with local feedstock to make fertilisers for maize, wheat, sugarcane, legumes and rice mostly in the North Rift and western parts of Kenya. “We are working with Japan International Cooperation Agency (JICA) to develop fertiliser suitable for paddy rice growing in Mwea in eastern Kenya,” said Mr Wada.

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COVER STORY

MARINE INSURANCE

underwriters rush to cash in on marine insurance dividend

Kenya Importers to buy local insurance policy under new law effective January 2017

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enyan importers will be required to have local insurance policies when a new Insurance law takes effect in January 01 2017. Kenya Revenue Authority will now demand importers to present their insurance contract with a local firm before clearing goods.

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COVER STORY The Treasury directed the Kenya Revenue Authority (KRA) to enforce the much ignored rule which prohibits placement of Kenyan business with non-Kenyan or foreign insurance markets except under certain circumstances.The new requirement comes at a time importation of high worth equipment and raw materials is expected to increase as a result of the massive infrastructure projects underway in the East and Central African regions. Industry estimates show that such a requirement will push marine cargo insurance premiums handled by Kenyan underwriters from KSh2.9 billion last year to over KSh20 billion in the coming year. About 90 per cent of cargo import insurance is currently handled by foreign firms with importers usually paying the premiums as part of a package (Cost, Insurance and FreightCIF) to the exporter who handles the underwriting. “This means that Kenya’s importers are exporting about KSh20-25 billion per year, typically in hard currencies, to foreign, offshore insurance companies and industries,” James Macharia, the Transport Cabinet Secretary (CS) said in a speech read on his behalf yesterday by Nancy Karigithu, Principal Secretary, Shipping and Maritime Affairs. The requirement for local insurance is contained in Section 20 of the Insurance Act but has never been implemented due to compliance challenges. Six government and private agencies are working on modalities for stemming the expatriation of millions

of dollars that leave the country every year in the form of Marine Cargo Insurance (MCI) premiums with a mandate to fully implement the section to boost insurance business. The team was formed in June this year when the Treasury Cabinet Secretary Mr Henry Rotich announced, in this years’ budget speech, that all imports must be insured locally. Currently, it is a requirement that imports be verified in the source country under the Pre-Export Verification of Conformity (PVoC) mechanism set up by the KRA and the Kenya Bureau of Standards (Kebs). Kenya Shippers Council chief executive Gilbert Langat said their main concern as importers was the capacity of Kenyan underwriters to handle large shipments like bulk cargo that may, for example, have a value of over Sh4 billion. Association of Kenya Insurers (AKI) chief executive Tom Gichuhi said underwriters had enough capacity, adding that in the event they cannot handle some of the business, they will subcontract to international insurers. There are about 15 underwriters who currently offer marine insurance with this number expected to grow as the business widens. At KSh20 billion, the marine insurance will add about 11 per cent to the total premiums (KSh170 billion) currently handled by Kenyan firms. This will add a key sector to the industry which is currently dominated by motor vehicle and medical classes. Section 20(1) of the Insurance Act (Chapter 487, Laws of Kenya) provides: “… No insurer, broker, agent or other person shall directly or indirectly place any Kenya business other than reinsurance business with an insurer not registered under this Act without the prior approval, whether individually or generally, in writing of the commissioner…” The technical team that has been working on how to implement this directive draws its membership from the KRA, Insurance Regulatory Authority (IRA), Kenya International Freight and Warehousing Association (KIFWA), Association of Kenya Insurance (AKI), the Ministry of Transport and the Intergovernmental Standing Committee on Shipping (ISCOS). In a new restructuring of the Transport and Infrastructural Ministry that was done in May this year, the new department was given the marine insurance as one of its core activities.

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COVER STORY

Kenya Shippers call for review of new insurance law which takes effect in January 2017 The newly proposed insurance law that requires importers to purchase marine insurance cover in Kenya has raised concerns over the ability of local underwriters to cover high-profile sea risks.

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hippers want the government to apply the policy to smaller cargo before graduating to bulk cargo such as petroleum and grain. Shippers Council of Eastern Africa (SCEA) chief executive Gilbert Langat said: “If local insurers start with smaller cargo such as motor vehicles or containerized goods, they will be able to deal with any arising problems before moving on to things like petroleum” Ships that transport bulk cargo pose high risk for insurers. In comparison, a variety of products carried by a single vessel may be insured by several firms, thus spreading the associated risk. Importers are now calling on the government to review the implementation of the law and have come up with a list of demands which they presented yesterday during at a meeting with Shipping and Maritime PS Nancy Karigithu, and the Association of Kenya Insurers (AKI). Mr Langat said that importers want to be assured of the insurance sector’s capacity to handle their business efficiently. “The insurers must demonstrate capacity and price competitiveness and above all meet the international standards in terms of using online systems to process applications.” The new Insurance law is expected to take effect in January 01 2017. The Treasury directed the Kenya Revenue Authority (KRA) to enforce the much ignored rule which prohibits placement of Kenyan business with non-Kenyan or foreign insurance markets except under certain circumstances. Under the law, importers will be required to show evidence of a contract with a Kenyan insurance firm before their goods are inspected at the source country or cleared locally. Currently, goods are verified at the source under a system

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set up by the KRA and the Kenya Bureau of Standards (Kebs). The law is expected to scale the value of marine insurance premiums handled by Kenyan companies to more than Sh20 billion up from Sh2.9 billion in 2015. The number of insurance firms offering marine police cover is also expected to rise if the law is implemented. At the moment, only 15 insurance firms offer marine insurance. The AKI has, however, insisted that the local sector is able to handle the expected flood of business. “We don’t have to go out of our way to give incentives. We will price our products properly and competitively,” said chief executive, Tom Gichuhi. Importers expect to meet again with the government and insurance industry players later this month as part of the ongoing negotiations. About 90 per cent of cargo imported into Kenya is underwritten by foreign firms. Importers usually buy insurance as part of a bundled package that includes the cost of the products and shipping. Some industry stakeholders have argued that the law could help buyers avoid the risks associated with relying wholly on sellers to acquire insurance for their cargo. It would be easier to for local businesses to claim payments from locally based firms in cases of lost or damaged cargo, said Mr Stanley Chai, the managing director of Ultimate Maritime Consultants.

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BRIEF

Nakumatt Holding to sell stakes in Kenya and Tanzania outlets in plan to cut debt

Kenyan retailer Nakumatt plans to buy South Africa’s Shoprite’s three stores in Tanzania as it moves to secure a bigger share of a large, untapped market.

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enyan supermarket chain seeking Tanzania’s Fair Competition Commission’s go-ahead to dispose 51% stake for undisclosed amount to Ascent Investment Ltd., Dar es Salaam. The retail chain is seeking additional capital to tweak its operations amid increasing debts regionally. This comes two years after the Kenyan retailer acquired Shoprite shops in Tanzania in a deal that was valued at Sh76 billion. Though the company which owns three retail outlets (one in Arusha and two in Dar es Salaam - remains tightlipped on actual details of the sale, information published by the Fair Competition Commission (FCC) show that the buyer is a company known as Ascent Investment Limited. The latter has already written to the FCC about the intended acquisition and the commission is investigating the matter before approving it. “FCC is currently investigating the acquisition in line with the provisions of the Fair Competition Act 8 of 2003 and the Fair Competition Commission Procedure Rules, 2013,” FCC said in a September 22, 2016 public notice. The competition commission gave interested parties a two-week ultimatum to air their views that would help it in making an informed decision. Nairobi-based retailer has three outlets in Tanzania; acquired Shoprite of South Africa’s stores for 76m Tanzanian shillings 2 years ago

Nakumatt to sell 25 per cent stake to strategic investor as turmoil hits Kenya’s retail sector Family-owned retail chain Nakumatt Holdings is seeking a strategic investor for 25 per cent or more of its stakes after a series of headwinds which has seen the retailer plunge into deep financial crunch. Nakumatt, which is Kenya’s biggest retail chain with 61 stores across East Africa has admitted challenges settling supplier dues which has led to the supermarket chain’s rising debt burden. The retailer said the plans to sell part of its shares to an investor are at an advanced stage and expected to be completed in a few weeks’ time. “Barring any eventualities, this deal will be closed in a few weeks with full disclosure once done,” Neel Shah, the business development director at Nakumatt Holdings. Nakumatt’s gross debt more than tripled to Sh15 billion in February 2015 from Sh4.2 billion in 2011, piling pressure on operations and resulting in long payment delays to suppliers. “This equity fund will help retire existing funding tools, including bank loans and related debts,” said Mr Shah. The plans to sell its shares began in 2009 when a consortium of investors led by Londonbased private equity fund Satya Capital expressed interest but the deal fell through. Earlier, the retailer had hinted plans of raising capital through an initial public offering at the Nairobi Securities Exchange but the search for a strategic investor indicate otherwise. Retailers in the Kenyan market are plunging into financial crisis due to high operating costs, mounting supplier dues, and margin pressures that have pushed them to the red. The current suppliers’ debts at Nakumatt and loss-making position of Uchumi and Ukwala reveal a struggling retail industry. Surging finance costs have eaten into Naku-

matt’s earnings, with gross profit plunging to Sh305 million in February 2015 compared to Sh823 million in 2013. Troubled Uchumi, which is the only listed retailer in East Africa had to battle a winding-up suit early this year, after rising suppliers’ dues amounting to Sh3.6 billion. The NSE-listed retailer reported an after-tax loss of Sh3.4 billion in the year to June 2015 following a decline in revenue and has been forced to rely on short-term bank loans for working capital. Choppies-owned Ukwala Supermarkets has also reported a net loss of Sh270.1 million in the year to June. Choppies last year acquired a 75 per cent stake in family-owned Ukwala for Sh1 billion. Kenya’s top-tier retailers are familyowned, making them prime targets for acquisition by PE funds and foreign supermarket chains. They include Nakumatt, Tuskys and Naivas. Nakumatt, with 42 outlets in Kenya, is majority-owned by the Shah family (92.3 per cent) and Hotnet Ltd — a company associated with former Kilome MP John HarunMwau. This means the sale of a 25 per cent stake will still leave the Shah family as majority shareholder. According to a South African rating agency GCR, the deal struck by Nakumatt would see substantial capital injected into the business, a feat that would markedly ease funding pressure and facilitate the planned rollout of new branches.

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COVER STORY

Marine Insurance Cover in Supply Chain

Marine insurance

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arine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. The cover entails: • Marine cargo insurance • Marine hull & liability insurance • Marine carrier’s liability insurance. Marine insurance brokers will work with you and look at every aspect of your insurance risk to ensure you get the appropriate financial protection in the event your vessel or marine cargo is damaged or lost. This could be due to any risk factor from dock strikes to rogue waves, heavy seas, loss of refrigeration or even earthquakes damaging containers on land.

Marine cargo insurance

Marine cargo insurance is the oldest form of insurance in the world. Over the years, potential issues have been clarified to a remarkable degree and marine cargo insurance provides well-proven cover. While many claims are relatively straightforward from an insurance point of view, they can become complex when the rules and regulations of international conventions become involved or where the cause and/or timing of damage is unclear. Often difficulty arises with pinpointing where responsibility passes between parties. We usually ask to review the terms of sale before the contract is signed, so we can assist with mitigating your risk even at this early stage. If this is not possible, we can at least make sure your marine cargo insurance

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While many claims are relatively straightforward from an insurance point of view, they can become complex when the rules and regulations of international conventions become involved or where the cause and/or timing of damage is unclear. is structured in such a way that it covers your risk under the agreed terms of sale. You have the choice of: • Marine open cover, to cover all shipments undertaken annually in Kenya, worldwide or both. • Individual policies taken for one-off or infrequent shipments.

Carrier’s liability insurance

Marine carrier’s liability is a complex area governed under Section 20(1) of the Insurance Act (Chapter 487, Laws of Kenya) which provides that: “… No insurer, broker, agent or other person shall directly or indirectly place any Kenya business other than re-insurance business with an insurer not registered under this Act without the prior approval, whether individually or generally, in writing of the commissioner…” The Act relates to contracts between shipper and contracting carrier, as well as to contracts between contracting carriers and their sub-contractors. People who need carrier’s liability insurance can include: • Freight forwarders • Shipping companies receiving goods at the wharf • Packers, consolidators, warehouse operators and stevedores • Port companies

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COVER STORY

• Wharf marshalling providers. As with marine cargo insurance, the terms of the contract are important in assigning risk. • Limited Carrier’s Risk is the most common contract type in Kenya and applies by default unless specified otherwise. The contracting carrier is liable for loss or damage to the goods throughout the duration of the contract, regardless of who actually damages or loses the goods, but with a set, limited liability per unit of goods. • Declared Value Risk is basically the same as limited carrier’s risk except that the package limitation may be negotiated between the parties. • Declared Terms means the parties can freely negotiate a carriage contract. • Owner’s Risk puts all the risk on the owner, except if damage or loss was intentionally caused by the carrier. Marine insurance experts with any underwriter will make sure that you as carrier get insurance cover for your liability under the contract.

Marine hull and liability insurance

Marine hull and liability insurance covers damage or loss to the vessel, including its machinery and equipment, as well as legal liability to any third party that arises from negligence related to the vessel’s operations or the actions of its masters or crew. Vessel insurance usually requires the vessel to be valued and surveyed for an agreed value to be reached. Coverage is provided for accidental

loss or damage to the vessel anywhere in the agreed navigational limits set by the policy. The experience of the skipper is an important factor in rating the insurance. Liability (also known as “Protection & Indemnity”) can be underwritten as an extension to the hull insurance or as a stand-alone cover via open-market insurance or specialist P&I clubs. The limits selected for liability with vary based on vessel type, use and territorial limits. It should be sufficient to cover cargo liability, salvage or removal of wreck costs, pollution risk and specific crew/passenger related liabilities.

Marine insurance claims

When you have marine insurance through a credible underwriter, they should be able to assist you at claim time too. Using our access to underwriters, we can see to the speedy resolution of your claim. Or if a legal issue arises, we can advise you and help secure expert legal representation for you.

Standard contract terms

FOB (Free on Board): The exporter (seller) arranges insurance up until goods are loaded onto the vessel. The importer (buyer) arranges insurance from the time the goods are loaded onto the vessel. C&F (Cost and Freight): The insurance responsibility passes as for FOB, but one insurer usually covers the goods from the moment it leaves the supplier’s warehouse. CIF (Cost, Insurance and Freight): The exporter (seller) arranges insurance from the time the cargo leaves the originating warehouse all the way to the destination warehouse. Ex warehouse: The importer (buyer) arranges insurance from the time the cargo leaves the originating warehouse.

Sri-Lanka company stops award of KSh3.5bn KTDA power tenders A Sri-Lanka based firmHydropower International (PVT) Ltd has received temporary court orders stopping Kenya Tea Development Authority (KTDA) from awarding a USD 35million tender. The company moved to court alleging bias in the tendering and eventual award of the proposedtender for power projects in Kericho, Bomet and Embu counties. According to them, Hydropower International (PVT) Ltd early November filed an urgent application and obtained temporarily orders stopping the project owners, Kenya Tea Development Agency (Holdings) Ltd and its subsidiary, Kenya Tea Development Agency Power Company Ltd, from proceeding to sign any contract in relation to the contested project. High Court Judge MsaghaMbogholi also granted temporary orders stopping the readvertisement of the tender, pending hearing of the case. “The defendants are hereby stopped from re-advertising, requesting for or receiving any proposals, bids and tender applications, concerning the Engineering, Procurement and Construction of the proposed projects pending hearing of the application,” said Justice Mbogholi. According to them, Hydropower International (PVT) Ltd on Thursday filed an urgent application and obtained temporarily orders stopping the project owners, Kenya Tea Development Agency (Holdings) Ltd and its subsidiary, Kenya Tea Development Agency Power Company Ltd, from proceeding to sign any contract in relation to the contested project. High Court Judge MsaghaMbogholi also granted temporary orders stopping the readvertisement of the tender, pending hearing of the case. “The defendants are hereby stopped from re-advertising, requesting for or receiving any proposals, bids and tender applications, concerning the Engineering, Procurement and Construction of the proposed projects pending hearing of the application,” said Justice Mbogholi. KTDA Power Company Ltd, a subsidiary of KTDA Ltd, has been charged with the implementation of the proposed Chemosit (2.5MW), Kipsonoi I (3.6MW) and Rupingazi (1.8 MW) Small Hydropower Projects located on Rivers Chemosit, Kipsonoi and Rupingazi in Kericho, Bomet and Embu Counties respectively. KTDA Power Company Ltd is undertaking the projects on behalf of Settet Power Company Ltd, and Thuchi Power Company Ltd, which are its Regional Power Companies (RPCs). The Sri Lanka firm, through lawyer Philip Nyachoti, argued that it was among the nine eligible contractors who were successfully prequalified and invited to submit their technical proposals and financial bids for evaluation.

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OUTSOURCING

A Checklist for New Procurement Managers I put together this checklist for procurement managers dent to reduce the level of interference in any customer time-sensitive projects. starting a new position based on some pointers I shared with a LinkedIn colleague. As a procurement 4. Say what you mean and mean professional, there are a few fundamentals that I what you say endeavor to stick to from the beginning of any job. Experience has shown me that

Here are my 8 tips to help get you started off right: 1. Get to know your stakeholders

Having stakeholder buyin is critical because without it, trying to carry projects or initiatives to a meaningful resolution can become very frustrating. While many stakeholders may be aware of your new position, some may fear that you may be encroaching on their territory while others have simply not been told in any great amount of detail just what it is that you do. After a bit of a “hard sell,” they will begin to see you can help them attain their objectives and they will become more open as a result.

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2. Stay out of office politics

It is my experience from everywhere I have worked that there are always office politics in any business, regardless of whether they’re stateowned or private. I try and be as neutral as possible on this score because, by taking sides, there is a potential risk you’ll alienate yourself from stakeholders. Procurement is a change-centric profession, and as such, it impacts all areas of the business. Therefore, when I say politics, I am not referring to networking or engaging with stakeholders. These activities must take place so that you are totally in sync with your stakeholders and, by extension, the business when it comes to understanding specific needs and wants.

when we do not deliver on projects when we’ve said we will, we run the risk of alienating ourselves from our stakeholders. This is not something we want.

5. Insist on crystal clear KPIsand performance deliverables

Clear objectives ensure both you and your manager are on the same

3. Develop a category plan that aligns with your stakeholders’ needs

In my opinion, major sourcing events should not take place when they clash with seasonal peaks or major maintenance, for example, since some of the stakeholders will need to be involved in the sourcing event. It is pru-

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INSIGHT BRIEFS page. There is an old saying: “If you don’t aim at anything, you won’t hit anything”. The added benefit of clear key performance indicators is that when it comes to showing or demonstrating your value to the business, it is clear and unambiguous. For example, the percentage of EBITDA and the criteria for its reporting need to be clear. There are a few ways such as cost avoidance (e.g. putting off a purchase until a time closer to its use) and cost out (e.g. previously paying $400 but getting the same now for $390).

6. Get your team on the same page right from the start

Develop a clear, robust mission statement for your department and get their buy in. There should be very clear indicators to deliver on. Objectives should be clear to the team, and they should each understand the part they play in attaining them.

7. Don’t be afraid to sell yourself

Bring your team’s value proposition to the attention of the business at large; as I mentioned previously, the broader organisation may not always be aware of what value you bring. You can do this by sending direct reports to some of your stakeholders or those in executive management with whom you may not have a great deal of interaction. You could also hold formal inter-team and interdepartmental meetings, develop performance dashboards, or send newsletters and company-wide emails. Careful with the last one, though, as it may get viewed as spam and ignored.

8. Have a sense of humor

Show your sense of humor on your very first day; it’s a great ice breaker. Show it off with sensitivity, though, so you don’t risk being taken as irresponsible. This article was originally published in January 2015 and has been updated to reflect current industry trends Courtesy http://blog.deltabid.com

The professional Supply Chain practitioners Consulting Excellence The Consulting Excellence framework drives our behaviour and resonates throughout our values. The core of the framework sits within 3 pillars, or headings: ethical behaviour; client service and value; and professional development.

We specialize in: 1 Organizing training workshops for procurement, logistics, professionals and stake holders. 2 Develop and design organisation magazines. 3 Market Price Survey for procuring Agencies. 4 Formulation of tender documents and advertisements. 5 Organizing bid bonds and tender security for suppliers. 6 Developing training material for institutional development. 7 Supply Chain Performance Index Research Proc & Logistix Consult Limited

P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/02044002479 projects@procurementandlogisticsonline.com www.procurementandlogisticsonline.com

PROCUREMENT & LOGISTICS MANAGEMENT SEPTEMBER NOVEMBER-DECEMBER - OCTOBER 2016 Issue No.: 06/2016 05/2016

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PACKAGING

Packaging Design

10 Critical Considerations

Does your product packaging capture attention? Have personality? Communicate the attributes of your brand — instantly? Is it recognizably yours? Remember: Packaging is your brand rendered in 3-D. This means that, to many customers, the product is the package — and the package is the product. “The physical manifestation of a brand is shockingly important,” says renowned management expert Tom Peters. Whether your product is consumer or business-tobusiness, a strong, consistent packaging strategy is a must. Before you roll out a new packaging design, take a minute to consider these 10 tips — to ensure that your packaging has real presence.

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1. Know your competition

Scrutinize the size, color, brand positioning, and messaging of competitors’ packaging. What’s successful? What’s not? Visit numerous retail environments. As you look around, ask yourself: How will our package stand out in this context?

2. Know yourself

Do you have a clearly defined brand? What’s your product story? Do you know — precisely

“The physical manifestation of a brand is shockingly important,” says renowned management expert Tom Peters.

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PACKAGING

— how you wish to differentiate your product? Make sure the impression you’re making is coherent and intentional.

3. Establish design criteria

Create the standards against which you will measure design options. What, exactly, do you expect your package design to communicate? What are the technical requirements? How will your package be oriented on the shelf? By nailing down clear criteria up front, you can move more swiftly to consensus — and completion.

4. Distill your message

Packaging is not a brochure. Resist the urge to put your entire brochure content on the package. What’s your key sales message? State it prominently. Too much clutter obscures your message.

Packaging is your brand rendered in 3-D. This means that, to many customers, the product is the package — and the package is the product. “The physical manifestation of a brand is shockingly important,” says renowned management expert Tom Peters 5. Tell a consistent story

Step back and take a look at all your marketing communications. Review your literature, website, and advertising. How does your packaging fit into the marketing mix? Don’t underestimate its role. Most buying decisions are made at the shelf.

6. Hammer out the details

Packaging requirements can be complicated. What technical language must appear? Which legal language? Do you require space for translations?

Be specific. These important details affect the design.

7. Test design options

Use focus groups. Seek feedback from your customers. Ask your sales representatives. How does the package look? Function? Feel? What does it communicate? Rigorously examine design options against the criteria you established.

8. Strive for production value

Use the highest-quality materials available within your budget. At minimum, your packaging must look as professional as what it houses. Customers judge products in an instant, based on the quality of the packaging.

9. Stay current

The lifespan of packaging is typically measured in years, not decades. Your packaging must appear current. It must highlight product attributes that satisfy current consumer demands. Make sure you don’t communicate “yesterday.” (Unless, of course, that’s your brand story.)

10. Dress your product well

Give your packaging due attention before sending it out to work for you. How will it withstand handling? Resist fading? Stand out on a crowded shelf? Catch the eye of a passing consumer? Dress your product well. It will be away from home for a long time.

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INSIGHT

Softer Demand, Stronger Supply BMI View: The persistent market dynamic of softer demand and stronger supply will become a more dominant driver of prices as the impact of OPEC’s verbal interventions begins to fade and expectations for coordinated cuts are readjusted.

W

e see a trading range of USD43.053.0/bbl leading oil markets into the new year and we maintain our forecasts of average USD55/bbl and USD53.5/bbl for Brent and WTI respectively for 2017. The OPEC meeting of November 30 will dominate market discourse. Indications are it will be a net positive for prices with a watered down agreement looking the most likely outcome currently. On the fundamentals, demand signals are neutral, while high frequency supply indicators from OPEC and the United States are showing fresh production gains since August. This persistent soft demand and strong supply picture is the driving dynamic of our price convictions, to a greater extent than the impact from OPEC’s verbal interventions.

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Initial momentum for more coordinated OPEC action has faded as technical details are slow to take shape and dissent is emerging from some producers such as Iraq. We think it is most likely (we assign a 50% probability) that a watered down version of the Algiers agreement to put in place a collective target of 32.5-33.0mn b/d (for six months) will come out of the meeting ( ‘OPEC: Deal or No Deal?’, 27 October 2016). By watered down we mean either there will be a coordinated effort to ‘freeze’ production - other than the exempt Libya and Nigeria and Iran with a 4.0mn b/d cap; or, the production target is raised above the 33mn b/d proposal, to a level where a small cut is taken among core-GCC members. This will be net positive for prices pushing them towards the upper band of our assigned trading range. While OPEC’s verbal intervention temporarily helped to buttress prices and market sentiment,

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INSIGHT production in the background has been growing, decelerating the global market rebalancing and fuelling a fundamental picture of persistent bullish supply. According to data by Bloomberg and the organisation itself, OPEC output is currently 2.0mn b/d above the five-year average production. We note that some members have been reporting higher totals in direct communication to OPEC, compared with secondary sources, therefore the total OPEC number could be inflated by nearly 800,000b/d. Direct communication data for September indicated that total OPEC production was 34.2mn b/d, whereas secondary source information shows closer to 33.4mn b/d - a small cut from the target that was considered during the meeting in Algiers. Initial estimates for OPEC production in October suggest a strong increase, reducing the likelihood of a cut to 33mn b/d being palatable for Saudi Arabia. Reuters reports that Saudi Arabian production has remained steady for October, which is out of seasonal norms in which production winds down as peak summer demand eases. This suggests that perhaps Saudi Arabia is increasing stockpiles rather than winding down output in anticipation of tougher negotiations at the upcoming meeting. Releasing from storage will ultimately buffer its export capabilities and revenues for the following months, but it will not ameliorate the surplus in the market as such. Based on tanker data from Bloomberg, Libya’s exports will average 466,258b/d for the month of October - the highest rate since 2014. We are forecasting production to rise into a range of 650,000 - 700,000b/d by year end. Outside OPEC, Russia’s production has been persistently high, with an unprecedented increase of 400,000 b/d reported for September 2016 and crude output reaching 11.2mn b/d in October. The latest EIA data showing a gain of 51,000b/d in US oil production in August 2016 over July adds credence to the underlying fundamental view that rebalancing is being pushed further away. Instead rebalancing is taking place in the market from higher cost producers like China, Mexico and Colombia. The outlook for crude oil demand to the end of the year is neutral to negative. Refinery outages are so low compared to historical trends that we see limited scope for the typical autumn increase in demand from refiners when

facilities are brought back online. This means that our forecast of USD45.5/ bbl for 2016 - which took into account higher demand from refiners - will likely prove to be too high, with current 2016 YTD average of USD44.0/bbl. Financial markets are also signalling a persistent oversupply, with the prompt to second month Brent contract contango widening noticeably since August 2016. The spread has narrowed since the contract rolled over at the end of October, but remains wide. The technical picture for front month Brent showed a bearish break lower below the multi-month support at USD48/bbl on November 1. This was driven by re-pricing to the downside of expectations that OPEC will be able to agree to coordinated action. We see next support at around USD43/bbl and a Trump surprise victory in the US elections, followed by an acrimonious OPEC meeting as triggers for testing that support, neither of which are our core views. Prices in the low-USD50s/bbl trading range will continue forcing barrels out of the market, though as production costs have fallen over the past 24 months, with less money required to extract one barrel of oil, this will also be a process that can take longer than expected. We now expect the market to come into balance by 2017, as compared to H216 previously. A market deficit will pave the way for a sharper rise in prices in 2018, although a large inventory overhang and price-sensitive production in the US will cap gains. In the United States, the Permian basin continues its successful production growth, while the increase in the number of rigs foretells further gains in the coming months ( see October’s Oil Price Outlook - ‘Brent: Supply Resilience To Postpone Rebalancing’, 5 October 2016). Our narrative for the demand side remains intact, with EMs the drivers of demand growth. Any faltering of the tentative recovery in major EMs will have a knock-on effect on our demand outlook as well, further pushing out a rebalancing of the market. Our most recent analysis on structural trends driving demand for fuels focused around the correlation between demographic trends and demand for fuels. The demographic tailwinds to fuels consumption growth in emerging markets will begin to fade in coming years, a net negative dynamic for consumption trends. We have observed a strong cor-

relation between urbanisation and a rising active population and fuels consumption growth. As urbanisation growth slows in the major EMs and dependent populations rise these demographic tailwinds will also wither, leading to an overall slowdown in consumption growth ( see ‘EM Fuels Demand: The Demographic Drag’, 19 October). We believe this will be a crucial dynamic that will cap oil price gains over the coming decade, which is reflected in our forecast of an average annual gain of 6% for prices in 20172025, compared to 9% for 2006 - 2014. Risks To Outlook Upside

Downside

Effective coordinated OPEC action to reduce supply

Stronger-than-expected return to market for Libya and Nigeria

Return of disruption in Libya and Nigeria

Weak global economic growth

PdVSA debt default

Pressure on refining margins squeezing demand

Strengthening of EM currency vs USD Source: BMI Research

Risk in Focus: What About Venezuela?

Venezuela’s and PdVSA’s precarious fiscal position has galvanized the Venezuelan oil minister, Eulogio Del Pino, to be the strongest and most vociferous advocate for coordinated OPEC action since prices began their precipitous slide in Q3 2014. The NOC’s and sovereign’s financial status has deteriorated significantly and for the first time our Venezuela Country Risk Analysts consider a PdVSA and sovereign default as increasingly likely in 2017. Under this scenario, we expect PdVSA will enter administration (Chapter 11 - type bankruptcy), continuing operations and sales of oil while undergoing debt restructuring negotiations. Continued upstream activity would therefore inflict a minor disruption to the global supply/demand balance; however we would expect initial confusion and risk premiums to take a toll on prices. We forecast Venezuela will produce an average of 2.1mn b/d of crude in 2017, a near 5.0% decline y-o-y.

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INSIGHT

T IFC financing initiative to spur institutional interest

he IFC on October 10 th unveiled its Managed Co-Lending Portfolio Programme Infrastructure (MCPP) initiative, a comprehensive investment framework aimed at improving the risk dynamics of investing in emerging market infrastructure projects, which are traditionally associated with higher levels of risk. We expect the MCPP programme to catalyse a significant uptick in investment inflows into emerging market infrastructure projects, as institutional investors look to increase their exposure to the asset class in a low yield environment.

MCPP To Offer Significant Upside

The International Financial Corporation’s (IFC) recent introduction of a new debt financing framework will facilitate greater investment in emerging market infrastructure by institutional investors, as robust risk-mitigation measures and the IFC’s track record in sourcing a globally diversified array of viable projects makes investing in a relatively high-risk sector more attractive. 36

The MCPP initiative, which aims to raise over USD5bn in debt financing to modernise infrastructure in emerging markets over the next five years, will offer institutional investors three main advantages: Credit Enhancement: In tandem with the Swedish International Development Cooperation Agency (SIDA), IFC’s investment in infrastructure projects will be in a first loss position and subordinated to other senior investors, boosting the credit profile of select investments to investment grade. This will to a large extent mitigate the higher credit risk associated with investing in emerging market infrastructure, enabling many institutional investors to participate in the market for the first time. There is significant risk in providing credit for greenfield infrastructure projects, given the propensity for delays and cost overruns in the construction phase.

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SHIPPING Syndication: IFC will create an emerging markets loan portfolio mirroring its own investments; institutional investors will be offered a portion of each loan IFC underwrites in a passive, rule based allocation process (keeping management fees low) and will be able to lend on the same terms as IFC. Diversification: Investors will derive diversification benefits from IFC’s expertise in originating viable infrastructure projects and managing an infrastructure investment portfolio spanning 60 countries globally. Given IFC’s focus on emerging markets, participation in the MCPP will afford investors increased exposure to the burgeoning infrastructure sectors of those countries and diversify their portfolios away from traditional low-risk infrastructure investment destinations in North America and Western Europe. IFC hopes to leverage the MCPP as a means to pair private investment with institutional guarantees in a bid to bridge an annual infrastructure financing deficit estimated to reach USD1tn, with each USD1 invested anticipated to mobilize an additional USD8 10 from a third party. Germany-based Allianz has pledged USD500mn to the program. With MCPP currently in negotiations with prominent institutional investors such as French insurer AXA and UK-based Prudential for additional commitments of USD500mn, we expect that the MCPP initiative will continue to build upon its initial success in attracting investment inflows and reach its USD5bn fundraising target.

Improved Risk Profile To Whet Investor Appetite

We have long highlighted the scope for greater institutional investment in the infrastructure space and expect IFC’s MCPP initiative to add further impetus to this trend (see, ‘Five Key Themes For 2016: Infrastructure,’ December 5, 2015). With global yields negative or low, institutional investors will increasingly turn to infrastructure assets in a hunt for yield; record fundraising over the course of 2016 by infrastructure-focused funds such as Global Infrastructure Partners and Brookfield bears testament to this increased investor appetite (see , ‘GIP Investment To Provide Diversification And Stability,’ September 19, 2016). Given the elevated levels of risk associated with investing in emerging markets characterized by political instability and regulatory uncertainty, IFC’s provision of a first loss guarantee will be particularly instrumental in attracting financial inflows from institutional investors. The attendant improvement in the credit profile of prospective projects will allow pension funds - who are typically constrained by risk-averse investment mandates but increasingly touted as the next big infrastructure investors - to enlarge their exposure to emerging market infrastructure, unlocking a vast reservoir of potential investment for the sector.

Transport infrastructure investment revving up Sub-Saharan Africa’s logistics

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he major investments being made into transport infrastructure in certain SSA markets will be extremely important to future economic growth. In particular the improvements in logistical capacity will be felt strongest in Mozambique, Namibia and Uganda, while Ethiopia, Tanzania and Cameroon will also see major gains. Nigeria, Angola and Ghana need to invest more to maintain their competitiveness, according to our Infrastructure Key Projects Database and Logistics Risk Index. Transport infrastructure investment is key to the development of economies in Sub-Saharan Africa (SSA). After decades of underinvestment and poorly planned projects, we are now beginning to see many more road, rail, port and airport projects proliferate across some major - and minor - SSA economies. These projects are aimed at better connecting these markets both internally and internationally. The resulting effects of better transport links are hard to quantify, but looking at BMI’s proprietary Infrastructure Key Projects Database and Operational Risk Indices, we can highlight markets which stand to make major strides towards improving their logistical capacity, which will have wide-ranging benefits for the SSA economy. To best ascertain those markets which are investing in their transport infrastructure and are going to make the biggest gains, it is important to take the size of the market into account. Looking at the chart below, it is clear that the largest economies in Africa - South Africa and Nigeria - are the ones with the largest transport project pipelines, which include all transport projects planned and under construction in our Key Projects Database. Comparing just South Africa and Nigeria, which have USD68.6bn USD38.9bn transport projects in planning or under development respectively, South Africa is likely to extend its lead in terms of infrastructure quality in SSA, while Nigeria will likely continue to struggle with inadequate connectivity. However, looking at the region more broadly, the outperforming markets in terms of the ratio of transport projects in planning or under construction to the size of the economy are Mozambique, Namibia and Uganda. These markets are investing 1.1, 0.7 and 0.5 times the value of their economy directly into transport infrastructure projects; this will have a revolutionary impact on these economies, considering they are small markets. Mozambique is looking to ramp up its coal exports through rail corridors and deep-water ports; Namibia is looking to become a logistics hub for Southern Africa; and Uganda looking to integrate itself into the booming East Africa region. While risks are endemic when developing African infrastructure, and the financing deficit will be chief among the factors which may limit project realisation, these country-specific motivations should ensure transportation goals are implemented. Notable underperformers in the ratio of GDP to transport investment are Ghana and Angola, which are some of the SSA region’s most developed economies. Taking this into consideration, the lack of investment going into transport infrastructure may threaten those positions as they begin to lose trade to better connected competitors, while their own economies are stifled by poor internal connections leading to congestion. Important markets to watch in terms of logistical capacity are Ethiopia, Tanzania and Cameroon. Looking at the chart below we can see that they currently rate in the bottom half of the selected markets in BMI’s Logistics Risk Index, which quantifies the development of a country’s logistics network. However, with investment ratios of 0.3, 0.5 and 0.3 respectively, these markets are investing heavily in boosting their transport connections. Ethiopia is in the midst of a major road and rail building programme, Tanzania is developing rail connections to the rest of East Africa and plans a major international port in Bagamoyo, and Cameroon has been investing heavily in its airport infrastructure. Over the coming years, these markets will rise up the rankings within our Logistics Risk Index, faster than peers with lower transport investment ratios.

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INSIGHT

Bid Security and Bid Securing Declaration:

Similarities and Differences

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uring the bidding process, it is customary to require interested bidders to provide a bid security or bid securing declaration along with their bid. This may be necessary in order for the procuring entity to have a certain degree of assurance that bidders would be discouraged from withdrawing their bid or refusing to sign the contract if they are selected for contract award.

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What is a bid security?

A bid security is a monetary guarantee intended to dissuade bidders from withdrawing their bids before the end of the bid validity period because they would otherwise forfeit the bid security amount to the procuring entity. A bid security may be a fixed monetary sum or a percentage of the bid price, usually less than 5%. The format and amount should be stipulated in the governing procurement rules and clearly stated in the bidding documents. Some of the acceptable formats of the bid security are: • unconditional bank guarantee, • irrevocable letter of credit,

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INSIGHT • •

certified check, or bond.

What is a bid securing declaration?

The bid securing declaration is a non-monetary form of bid security. It is a notarized sworn statement made by a bidder committing to sign the contract if they are selected before the end of the bid validity period stipulated in the bidding documents. In this sworn statement, the bidder agrees to be automatically disqualified from bidding for any future government contracts for a stipulated period of time if they either withdraw their bid, fail to sign the contract before the end of the bid validity period or are unable to provide a performance guarantee, if required.

Purpose

The main purpose of the bid security and the bid securing declaration is to prevent bidders from withdrawing their bids before the end of the bid validity period or from refusing to sign the contract if awarded. Any of these actions by the bidder could result in delaying the procurement process, with the adverse consequence of not only possibly delaying the delivery of public good and services, but also wasting public funds as a result of time and effort expended in the procurement process.

Three Differences

1. A bid security requires a bank guarantee, while the bid securing declarations requires only a notarized sworn statement 2. The bid security implies a possible material loss in case it is forfeited, while a bid securing declaration entails a potential loss of future bidding opportunities. 3. A bid security may result in a direct monetary loss to the bidder, while the bid securing declaration may result in an opportunity cost.

A bid securing declaration allows qualified bidders to participate in the procurement process without incurring the cost of obtaining the bid security, and thus may increase the level of participation in the bidding process.

Disadvantages •

Advantages and Disadvantages Advantages •

The bid security assures the procuring entity that the bidder is serious. If the bidders are eligible and qualified, and their prices are reasonable, there is a greater probability that a contract will be signed.

Some bidders may be deterred from bidding if they consider the bid security amount too high. The cost of the bid security may be added by the bidder into their bid price to cover the expense incurred. Some qualified bidders may not be able to afford the bid security, resulting in a reduction of the number of bids received, effectively restricting the competition.

A bid securing declaration allows qualified bidders to participate in the procurement process without incurring the cost of obtaining the bid security, and thus may increase the level of participation in the bidding process.

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TECHNOLOGY

Technology in warehousing:

How to improve performance

W

arehouses are changing at an unprecedented rate, particularly due to the growth in e-commerce with sales in Europe predicted to push through the $700 billion barrier, from $457 billion this year, by 2020.

Companies like Deliv in the US, JD.com in China and Amazon, with Prime, are accelerating the move to sameday delivery as retailers, in particular, look to fulfillment

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to provide a competitive edge and consumers want their goods delivered more quickly. While there’s a need to do more, more quickly, there remains a drive to cut costs in the warehouse. With these conflicting pressures in mind, and with technology, particularly scanners for data capture, offering new ways to enhance productivity, there are five things to look for when upgrading your team’s devices. A recent analysis among senior warehouse managers across Europe, Asia and the US to assess how they see operations changing by 2020

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TECHNOLOGY

was conducted. Given the growth in e-commerce, it will come as no surprise that 76 per cent expect to increase their number of warehouses. Warehouse are fast building upwards, with higher shelving to reduce the footprint (and cost of space). As well as expanding space, many warehouses are increasing their use of temporary staff to cope with seasonal demand. Among the top 2020 investment priorities according to the analysis, technology was high on the agenda: equipping staff with mobile devices (72.5%), barcode scanning (67.6%) and the Internet of Things (61.8%) all featured in the top five. Although there are few warehouses where paper is used in some areas, there is a greater urgency to exploit technology such as barcode labels, along with automated data capture, to streamline workflows, and gain real-time visibility over every item – from goods-in to put-away, pick and dispatch. Key to capturing data are the handheld scanners used by teams and, with changes in technology, there are five things that are recommended when thinking of looking for your next devices. They include:

1. Workflows

The design of warehouses is changing, with higher shelves. If you need your teams to pick goods from these shelves, or conduct regular stock counts, you’ll need devices that scan over both short and longer distances. This is especially so for forklift drivers who want to be able to scan from their cab. Advanced scan engines are available that can achieve this close, and at a distance, data capture to help your users work more quickly and conveniently.

2. Accurate data capture

Just as camera images have advanced significantly in recent years, so have scan engines. It’s worth looking at the latest options as they’re able to reduce errors by capturing not only all types of barcodes but barcodes in any condition – codes that are scratched, faded, incomplete and even hidden under layers of shrink wrap.

3. Unstoppable performance

In any normal warehouse scanners are subject to harsh and unforgiving environment be it being thrown between people, dropped from high shelves, and even used as hammers to break into boxes. In such cases your scanners need to be built tough to cope with the rough treatment and keep working day in and day out.

4. Intuitive operation

There’s a wider choice of Android and touch-based scanning devices out

While it’s contradictory that there’s an expectation on many warehouses to boost productivity, efficiency, and performance, while also reducing costs, new scanning technology can help

there now – including wearable options. And when you pair these devices with voice guidance, to talk your users through tasks step-by-step, we see significant gains in productivity and accuracy with a marked reduction in error count too. What’s more, devices are becoming much more intuitive; training time falls markedly when you provide users with technology that they can get to grips with quickly and which takes an active role in assisting them with their tasks.

5. Full-shift performance

Shifts in warehouses can last eight hours or longer and battery life must extend at least beyond this. Also, as with any device, the way your people look after batteries can greatly extend their life cycle. With this in mind, it’s valuable to look for scanners that include battery gauges, and which offer your IT team the option of remotely tracking battery management over time (e.g. when and how often batteries are being charged). By encouraging best practice in battery care, you can help reduce the total cost of ownership of your devices. While it’s contradictory that there’s an expectation on many warehouses to boost productivity, efficiency, and performance, while also reducing costs, new scanning technology can help. The latest devices can capture more codes, more quickly, are robust and easier to use, and can be remotely monitored to optimise the way they’re used. And, when paired with new workflow systems, such as voice guidance, they can also help your teams get up to speed with less training, reduce errors and pick more quickly. As the needs of your warehouse change, it can be useful to see how new technology is evolving to help meet these demands.

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PROCUREMENT

Procurement Transformation towards Sustainable World 360 Degree approach

Hariharan Laxminarayan , BEngg, FCIPS, FIn

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Globally, Businesses and hence Organizations are changing by the minute. And if this is just a step change from the previous decades, there will be always more to it in coming days, months and years, decade is too far.

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e hear of markets expanding and supply chains shrinking; the buzz words as internationally localized; new highly sophisticated E-Systems being introduced every other day that eases human (in) efficiencies, technology advances oh yes one can see, Virtual world – Offices, Warehouses, processes, supplies & supply transactions, perhaps even human resources will become virtual soon - With the world shrinking and internationally a very wide spread conscious awareness and interchange of information, feedbacks, views, concepts, ideas, products, services, choices, culture, people and people spend all integrating to bring highest efficiency with utmost transparency at the

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PROCUREMENT optimal investment – any single action from any of these today as an enabler of meeting the demands today has come under the umbrella of procurement transformations. All oriented towards process optimization with a transparency of spend to reflect continual improvement – all state of art technologically adapted international organizations world over must be procurement transformed! Adapting to the latest technological software that captures every cent of spend with minimum human intervention giving a bottoms up to the profit centre! Think of it deeper from the sense what does a procurement transformation actually bring forth. Google for some of the better known elaboration of Procurement transformation, one good one is “specific type of organisational change management which focuses on strategies to enable major and long-term improvements to procurement and supply management processes, activities and relationships (Day and Atkinson, 2004)” To have a complete picture of Procurement Transformation, fundamentally it is mandatory that all the 5 P’s of Procurement have to be transformed from grass root level upwards. P for Planning – Collecting, compiling every bit of intelligence by continual assessment of the organizational environment, employees, people, customers, operations today and strategies tomorrow to determine needs of present and the result of changes in organizational processes, structures, technologies and the environment - well articulated by the availability, reliability and resource ability of data and analytics management which remains a key to P for Planning transformation. P for Process – Encouraging, engaging and elevating the road map of systems, technologies, policies, regulations, compliances and the changes that radically impact the definition of Value – essentially encompassing a sense of ownership on the end to end Process performance, and endless migrations towards a sustainable total cost of such ownership over the processes. P for People – Where future is unknown when you begin and change is a resistance, the transformation of people resources becomes a fundamental part of transformation process – that needs to be reflected by “emergence”

P Planning

P People

P Process

P Procurement Transformation

P Products

of new mindsets and new behaviors from the existing P for People to establish the P for Partnerships between all such changed mindsets within and outside the premises of the business organization – and this P for People & Partnerships will make such adaptation to transformation entirely seamless. P for Products - The outputs of any commercial business activities are reflected in the value generated to the customers by way of their spend on your efforts throughout the organizational business process giving ways to continually enhanced derivatives. P for Payment is as much critical part of the transformation process that enables the payments to suppliers by interfaced integration providing visibility on complete spend of business with an engineered intelligent payable system in place. One must appreciate that Organizations and Procurement Teams

P Payment

globally are aggressively and radically advancing the transformations, some of them highly successful that is reflected in the values of the organizational brand value capture and impressive returns on the investment. The transformations represent a significant contribution not just for their individual organizations but a global platform for Procurement as a Profession in providing the accelerated growth to a sustainable world of future. If at all we get bogged down by transformations in one single segmented area or we forget the big picture at the grass root level, the 5-P above is a reflection and an induced inspiration of making it happen on a 360 degree level. (The contents and opinions expressed in this material are entirely personal, and do not represent or reflect on those of my past or present employers)

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PROCUREMENT

7 Things to do to Quickly Become Proficient When You Are a Newly Appointed and Inexperienced Public Procurement Practitioner Introduction

M

any of us begin working as newly appointed public procurement practitioners with no idea of what to do or where to start. And it may take several years before we develop a system for being more efficient and effective in our work. Over the years, I’ve come to the conclusion that to quickly achieve proficiency in public procurement management, there are seven things you need to do.

1. Study the Public Procurement Rules

Most public procurement organizations are governed by a legal framework (procurement rules) consisting of a procurement law or regulation (sometimes called “the Act”). This is further developed into policies and procedures, procurement and contract administration manuals and guidelines, including standard bidding documents which are used for inviting bids and proposals. The language of public procurement policies, procedures, guidelines, manuals and standard bidding documents must align with what is stipulated in the public procurement legal framework. Adherence to the public procurement rules is obligatory and infractions are punishable by law. You should study and get familiar with these documents because they

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PROCUREMENT

pertain to your work and how you should do it. You should start with the procurement law or regulation, then study the procurement manual (or manuals, if there are many), then the standard bidding documents for each of the procurement categories (goods, services or infrastructure works) that you will be expected to work with. The procurement rules govern everything from the identification of a requirement through to the closing out of a contract; sometimes including disposal, reutilization and destruction of goods.

2. Learn the Public Procurement Principles and Follow the Code of Conduct

Procurement principles are the foundation of public procurement. You need to get to know them well, even if they are not clearly spelled out in the procurement rules. You should also follow the code of conduct, which should be based on the procurement principles. However, although most procurement organizations have a code of conduct, many don’t. So you will need to be guided primarily by the procurement principles. As a public procurement practitioner, officer or specialist, you must have a clear understanding of the public procurement principles, and know how to apply them to guide your procurement related decisions. By integrating these principles into your work ethic, the results of your decisions will always

be in line with the goal of public procurement. As a public procurement practitioner you are also a public servant. You manage public funds, are bound by an ethical code of conduct, and are accountable for what you do or fail to do when managing those funds. 3. Understand the Public Procurement System What is usually called the procurement process or cycle is really a procurement system made up of different (sub) processes that are completed in successive stages. It is important for you to learn all of the processes in which you will be involved and especially those for which you are responsible. Some important processes you need to learn are the: • procurement requisitioning process • Bidding and selection process • Process of approval of: • Procurement requisitions • Adverts • Bidding documents • Evaluation panels • Evaluation reports • Draft contracts • Bid opening process • Record-keeping process

4. Develop and Use Checklists

If you are fortunate, there may be a few checklists in some of the legal framework documents that you will have access to and need to use. Some of them will be helpful and easy

to apply; some will be confusing. I recommend that you develop your own checklists for the different procedures and processes you read about in pertinent documents, and those that you may be taught in a formal training setting, or learn from your own studies. Checklists are important to your professional development as a procurement practitioner. When properly developed and used, they will allow you to remember all the steps needed to complete a process, so you don’t have to rely on memory. This is very important in public procurement where there are many different steps that need to be followed, and where missing a step could be misinterpreted and be a cause for embarrassment or even disciplinary action. You should try to develop simple checklists, using your own words based on your understanding, to help you remember what needs to be done, when and by whom in the different processes that you are responsible for or are working on. A few examples of what you can develop checklists for are: • How to prepare an advert (What it needs to contain; what the approval process is, and how long will it take?) • How to prepare a bidding document (What is the approval process and how long does it take?). • Where does the procurement process start and where does it end?

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PROCUREMENT only on the organization’s server, so you will need to find out. For storing documents in the Cloud, I use Dropbox and, to a lesser extent, Google Drive. With both you get several gigabytes of free space to work with, so you don’t need to pay for using them. I’ve been using Workflowy, Dropbox, and Google calendar for many years on various projects and highly recommend them.

6. Find a Mentor

Preparing a procurement plan. How is it done? • Preparing a procurement schedule. How is it done? • What are the different things that need approval, who approves them and when? • Process for selecting a procurement method; how is it done? • Developing and filing procurement and contract records, how is it done? As you may have realized by now, it’s essential to ask yourself (and others) questions, and to take notes and develop checklists for future reference. It is also important to verify the answers to your questions with a written document. Knowing the reference source is vital. In public procurement, the rules you need to follow should be in writing. And you need to ensure that you know where to confirm any information you receive, in order to ensure you are developing your checklists with verified information.

5. Get Organized

In public procurement management, you will be working with internal and external customers, different government departments, contractors, suppliers and service providers, and other stakeholders. You will also be working on different procurement requirements at various stages in the procurement process. This can all become very overwhelming if you are not organized. Following are some of the applications I use to organize my work (and personal life): • To organize my work, record ideas and take notes, I use Workflowy. I find it very simple to use for keeping to-do lists (and all sorts of lists), and I also use it for preparing checklists.

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The following video (click here) gives you the basics of Workflowy in less than 3 minutes. • I use Google Calendar to set reminders of important dates for the different procurement requirements I’m working on at a given moment. It can also be used to send reminders to others on tasks they need to complete. Other types of electronic calendars could also be used. Examples of information on which you can create reminders on your calendar are: • Dates when a procurement process is expected to begin (as a reminder for you or someone else if you are not responsible) • Dates when a particular procurement needs to be advertised • Dates of pre-bid meetings and/or site visits • Last date for responding to requests for clarification from bidders • Bid submission date • Bid opening date Assuming you are using a computer, you need to develop a logical filing system for documents you prepare, and try to protect them from loss by storing the most important in the Cloud, as well as on your hard drive, to safeguard them in the event of hard drive failure or damage to your computer. Depending on your organization, you may be required to store certain documents

For storing documents in the Cloud, I use Dropbox and, to a lesser extent, Google Drive. With both you get several gigabytes of free space to work with, so you don’t need to pay for using them.

Being new on the job, someone will/should be there to teach you what you need to do, but don’t depend on it. Take some time to get to know the people you will be working with and who seems to be the most knowledgeable, and try to learn as much as you can from that person. You may even need to look for a mentor outside of your organization. Try learning as much as you can from those who are willing to teach you, and make an effort to verify what they are telling you to determine if it is in accordance with the procurement rules. Don’t just take their word for it. Verify the information you are given. In public procurement most of what you do should be written down somewhere. Very seldom are there instances where there are no guidelines for what to do under a specific situation. When this happens the decision on how to proceed would not be yours to make. It would be the decision of your supervisor, a senior procurement person, or approving authority. Ask questions. Many questions. Don’t be afraid to repeat yourself. Also listen carefully to the answers to your questions. Keep notes and develop simple checklists, where possible, that will serve you as a reminder and for future reference.

7. Strive to Continually Improve

Continue reading and studying. Never think you know it all. Continuous learning and professional development through reading, and by trying to teach lesser experienced practitioners, is essential. By teaching someone else, you learn even more. So keep reading and pass on what you learn to others. The more you teach, the more you learn. The more you know, the better for your organization and career development. Leave a comment if you found this article useful. Also share with us any tools you are using besides the ones mentioned.

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LOGISTICS

NCIC ethnic diversity test reveals Kenyan shipping and logistics parastatals not compliant in terms of ethnic inclusion

“All public establishments shall seek to represent the diversity of the people of Kenya in the employment of staff. No public establishment shall have more than one third of its staff from the same ethnic community”, reads Section 7 of the NCIC Act (2008).

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n ethnic diversity test conducted by the National Cohesion and Integration Commission (NCIC) reveals that Kenyan parastatals in the shipping and logistics sector are operating against a law that stipulates no single community should be in control of more than a third of a public company. The study points out the Kenya Ports Authority (KPA), Kenya Roads Board, Kenya Ferry Services (KFS), and Kenya Rural Roads Authority (Kerra) are the parastatals that are dominated by members from a single community. KPA is the second-biggest employer in the country with 6,543 employees, with the Mijikenda controlling 41.6 per cent of the total workforce. According to NCIC, four firms “contravene Section 7(2) of the NCIC Act which requires all public institutions to instill diversity in the employment of staff. Other transport and logistics-related public firms were found compliant in terms of ethnic inclusion, including Kenya National Highway Authority, Kenya Railways, Kenya Maritime Authority, Kenya Airports Authority, and Kenya Civil Aviation Authority.

The rural roads agency has 246 employees from the Kikuyu community out of the total 668 workers, translating to 36.8 per cent. Kenya Ferry Services has 290 employees of which more than half or 151 workers are from the Mijikenda community, reads the cohesion report. At the Kenya Roads Board, which collects the road maintenance levy fund charged at Sh18 per litre, the Kikuyu make up the highest number of employees comprising of 37 per cent of the entire staff. Firms that embrace diversity – ethnic, gender – at the workplace are likely to generate higher returns, gain higher market share, and gain a competitive edge in accessing new markets. NCIC conducts annual audits to measure the ethnic diversity of all State corporations, agencies and independent offices, national as well as county government civil service. “All public establishments shall seek to represent the diversity of the people of Kenya in the employment of staff. No public establishment shall have more than one third of its staff from the same ethnic community”, reads Section 7 of the NCIC Act (2008). According to the study, KPA’s top management is also skewed in favour of the Mijikenda community, who occupy a quarter of the 71 mid-level positions, says the NCIC. Similarly, at the ferry agency, the Mijikenda take up half or three of the six senior level managers, followed by two from Meru community and one member from Luo tribe.

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EVENTS

2016 National Procurement & Supply Chain Awards

The National Procurement & Supply Chain Awards are the benchmark for excellence for those demonstrating best practice and innovation in the procurement and supply chain profession in Ireland. 48

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EVENTS

Shortlisted Congratulations to The National Procurement & Supply Chain Awards 2016 finalists! The winners will be revealed at the gala awards ceremony on Tuesday, December 6th at the DoubleTree by Hilton Hotel Dublin.

Overall Excellence Award

The recipient of this award will be announced at the awards ceremony on Tuesday, December 6th at the DoubleTree by Hilton Hotel Dublin.

Leader of the Year

The recipient of this award will be announced at the awards ceremony on Tuesday, December 6th at the DoubleTree by Hilton Hotel Dublin.

Procurement Excellence Award Private Sector 1. 2. 3. 4.

BWG FOODS Dun & Bradstreet eir Food Academy & SuperValu

Procurement Excellence Award Public Sector

1. Communication & Information Services - Óglaigh na hÉireann 2. Education Procurement Service 3. Office of Government Procurement

Supply Chain Excellence Award

1. BWG FOODS 2. Naval Humanitarian Rescue Operation - Óglaigh na hÉireann 3. PET Production Line Continuous Improvement - Coca Cola Hellenic

Procurement Team of the Year

1. Communication & Information Services Team - Óglaigh na hÉireann 2. Education Procurement Service 3. Food Academy Team - SuperValu 4. Sourcing Team - Office of Government Procurement

Supply Chain Team of the Year

1. Coca Cola Hellenic 2. Naval Service Team - Óglaigh na hÉireann

Procurement Project of the Year - Private Sector 1. 2. 3. 4. 5.

BWG FOODS Fiber to the Home - eir Food Academy & SuperValu Janssen Network Splitter Change - eir

Procurement Project of the Year - Public Sector 1. Chemical & Reagent Framework Agreement - Education Procurement Service 2. MRE ROV - Education Procurement Service 3. National Framework for Provision of Legal Services - Office of Government Procurement

Supply Chain Initiative of the Year

1. BWG FOODS 2. Naval Humanitarian Rescue Operation - Óglaigh na hÉireann 3. PET Production Line Continuous Improvement - Coca Cola Hellenic

Green Project of the Year

3. SuperValu & Food Academy, Bord Bia & the Local Enterprise Office Network 4. Supplier Network & Purchase Order Collaborations - Pfizer Grange Castle

Procurement Collaboration Award - Public Sector

1. Air Corps Operational Picture Óglaigh na hÉireann 2. Chemicals & Reagents Framework - Education Procurement Service 3. Office of Government Procurement & 1916 Rising State Commemorations Team 4. On-Line Resources for Public Libraries - Education Procurement Service

Best Cross Functional Collaboration 1. 2. 3. 4.

eir Food Academy & SuperValu Janssen National University of Ireland Galway

Innovation Award

1. Chemicals & Reagents Framework Agreement - Education Procurement Service 2. ISO 50001 Certification - An Garda Síochána 3. Solvent Waste Project - Pfizer Grange Castle 4. Waste Water Treatment Plant Manor Farm

1. Chemicals & Reagents Framework - Education Procurement Service 2. DI Diver - BWG FOODS 3. Janssen 4. Manor Farm 5. National University of Ireland Galway 6. Network Splitter Change - eir 7. Public Procurement: Rules of the Road - Bid Management Services

International Project of the Year

Best Use of Technology

1. 3rd Party Artwork Design Program - Pfizer 2. Janssen

Procurement Collaboration Award - Private Sector 1. eir & 3rd Party PR Services Providers 2. Janssen

1. Agrologic Chick Scale - Manor Farm 2. B2BGateway.net EDI Connect App 3. Coupa & DocuSign - eir 4. DI Diver - BWG FOODS 5. Food Academy & SuperValu 6. Microsoft CRM - Ace Express Freight

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EVENTS

5th AFRICAN LOGISTICS CONFERENCE CONCLUDES 2 DAY EVENT IN KENYA

By Michael Masinde

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he 5th African Logistics Conference held at the United Nations office, Nairobi on the 27th and 28th of October saw a mix of industry players gather to discuss key issues raised by the Global Logistics Cluster in its paper ‘Delivering in a Moving World’ at the World Humanitarian Summit, 2016. The two day event, Organized by HELP Logistics East Africa team and co-facilitated by WFP, The University of Nairobi, The International Association of Public Health Logisticians (represented by Pamela Steele Associates) and the Inter Agency Working Group, brought together a wide and diverse group of humanitarian supply chain practitioners. Over 150 supply chain delegates attended the event including representatives from more than 70 Donors, UN agencies, Government bodies, Red Cross and Crescent agencies, commercial companies and Universities. Speakers at the event focused their presentations on localization, collaboration and coordination among other logistics functions of humanitarian organizations. Another focus area was how humanitarian supply chains could adapt to fit the ever changing humanitarian business contexts and the future roles of humanitarian supply chain leaders, managers and logisticians. Some of the organizations in attendance included SIGINON, KEMSA, UNHRD, The University of Dar-Es-Salaam, The Kenya Red Cross, CHMP, The JSI Insupply project being undertaken in Nandi County, IASTA products, The Kuehne Logistics University, OXFAM among others. In their speech on collaboration, localization and co-ordination, Mrs. Jasmine Chandani and Dr. Andrew Kisang’ noted the considerable contribution that planning and co-ordination assisted Nandi County in implementation of the JSI Insupply Project which has seen great improvement in real time supply chain reporting. Nandi County also recorded improved supply chain visibility and hence notable improvement in effective, efficient and equitable distribution of health supplies. They also shared with other delegates

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how important leadership commitment, championing of local solutions, sensitization across the supply chains and stakeholder collaboration were in ensuring fast and effective service delivery. Stephano Peveri from United Nations Humanitarian Responses Depot shared a revitalizing presentation on how changing humanitarian contexts provides opportunity for growth of humanitarian supply chains, from global service delivery to local and regional service delivery. He pointed out how important it was to strategically locate a humanitarian supply chains ‘center of gravity’(where the hub is located) so as to maximize efficiency of the supply chains operations and improve its agility. Mr. Peveri also emphasized on how the changing humanitarian landscape was giving rise to supply chain networks. The concept of supply chain networks was also reiterated by Mr. Timothy Theuri, who noted that this concept was key in ensuring ‘more is done with less’.

Douglas Onyancha from the Kenya Medical Supplies Agency emphasized on having a strong link among between supply chain related organizations and the national developmental agenda. He pointed out the need to: Establish agile supply chains and average collaborations with supply chain partnerships across the supply chain are among the key prerequisites for establishing effective humanitarian supply chains. End to End supply chain visibility, organizational and staff capacity improvement and managing parallel supply chains were presented as the key supply chain areas that needed improvement. Siginon Group’s Job Kemboi graced the conference with best practices in handling of goods at the ports and best ways to manage interactions and maintain good relationships with customs officials. Mr. Kemboi noted the importance of good warehousing practices and dissemination of real time information as Key enablers in easing the process of goods clearance at customs. “It is vital to secure proper

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EVENTS

documentation in good time and the government should invest in good infrastructure and regulations to support and fast-track the industry and sector at large.” Fiona Lithgow, of the Logistics Cluster gave a keynote on the importance of co-ordination, logistics service facilitation and information management to ensure responsiveness of humanitarian supply chains. She equally noted that there exists room for growth for humanitarian supply chains especially when it boiled down to cooperation and partnership among key stakeholders. While a lot more was discussed on the 1st day of the conference, the second day was kick started by Mr. Trip Allport from the ‘Project Last Mile’ who shared insight on the role and workings of the private sector in supporting humanitarian work and humanitarian supply chains. Professor Gituro Wainaina from the Kenyan vision 2030 flagship project shared a wealth of knowledge on how humanitarian supply chains could adapt to change in volatile environments. He equally reinforced the concept of having and developing supply chain networks by asking if it was better to have a warehouse full of inventory in form of humanitarian supplies in antici-

pation of a humanitarian need or have the right supply chain networks and partners who were ready to respond with the same supplies. “Localization of humanitarian supplies is key in responding to emergencies and hence a key determinant of humanitarian supply chain performance”, He emphasized. Rolf Campbell from IASTA products hoped that humanitarian supply chains would be as efficient and ready to respond in flexibility and agility like armies around the world when deployed. “For private sectors around the world to continuously participate in humanitarian work, more needs to be done in terms of private sector segmentation, mobilization and motivation”, said Mr Campbell. Mr Campbell’s sentiments were echoed by Mr. Trip Allport, who said that private sector segmentation was key in managing their participation in humanitarian work. It emerged that humanitarian stakeholders seeking private sector participation, should identify their needs well and approach private sector players who would have various forms of capacity (not just monetary) to alleviate that need. Of key importance to upcoming supply chain professionals and logisti-

cians was a panel discussion by Mr. Martin Ohsien, Mr Adrian VanderKnaap and Professor Kovacs from the Hankeen School of Economics. It emerged during this discussion that there was need for upcoming supply chain professionals to develop key skills to perform in the humanitarian supply chain sector which is ever-changing and noted to have a considerable high rate of employee turnover. Key skills identified for university graduates to nurture included business and data analytics skills, negotiation skills, Information and Technology and risk management Skills. In her remarks, Ms. Aida Nakyazze, a logistics professional and also one of the organizers said: “I enjoyed the event greatly. It’s always a good idea to share and exchange ideas on how to better coordinate within the regional humanitarian field.” “Not any organization has monopoly over the beneficiaries. If our aim is to help as many beneficiaries as we can during times of crisis, then its only logical that different players in the field communicate with each other so that they know how best to reach that goal, efficiently. I’m glad the conference provided that platform for the attendants to share ideas on how best to make this happen. It is a much needed starting point for the field in the East African region.” Mr Cormac O’sullivan, said,” The 5th Africa Logistics Conference enabled supply chain practitioners from the region to present their perspectives on important themes like localization, nationalization and adapting to change in the humanitarian world.” The 5th African Logistics conference, was nothing short of a success which saw over 150 delegates from across the world gather in Nairobi, Kenya to discuss humanitarian supply chains. Recordings of the event can be accessed on YouTube and a report of the conference will be published this month.

The 5th African Logistics conference, was nothing short of a success which saw over 150 delegates from across the world gather in Nairobi, Kenya to discuss humanitarian supply chains

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MANAGEMENT

Supply Chain Management Takes Center Stage By Thomas W. Derry

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he supply management function is in the spotlight as a key driver of profitability. Approximately 82 percent of all chief procurement officers (CPOs) report directly to their CEOs, according to CAPS Research. CPOs have reach, influence, and responsibilities that go far beyond the cost containment practice of the past into virtually all areas of a company’s operations. John A. Hill, president of Air Reduction Company, was prescient in 1953 when he recognized the growing influence of supply management as a “profit-making activity” best handled as a separate and distinct function reporting to the chief executive or another top-level operating executive. Since Hill first talked about a “purchasing revolution” more than 60 years ago at the National Association of Purchasing Agents’ national conference, the CPO has become the linchpin of a company’s competitive advantage as well as the guardian of its corporate reputation and social responsibility.

A SEAT AT THE TABLE

Today’s CPO is a key member of the executive team tasked with identifying and mitigating crises, including natural disasters, product failures, ethics breaches, or financial problems. And whenever that crisis hits, CPOs are at the table with the CEO, chief operating officer, chief financial officer, and the heads of legal, public relations, and the affected business units. As professionals who understand the entire process of manufacturing, shipping, and marketing products, and who recognize that suppliers can be closely aligned with the company’s goals and objectives, CPOs help define a company’s competitive advantage. In 2015, 83 percent of all corporate spending went to hundreds of thousands of global suppliers and only 17 percent went toward corporate manufacturing plants, staff, and operations infrastructure, according to CAPS Research. Consider the perspective of Alan Mulally, former president and CEO of Ford Motor Company and former CEO of Boeing Commercial Airplanes, who credits the procurement/supplier relationship with those companies’ success. Speaking to several people prior to presenting at the ISM2016 conference, he said: “Boeing and Ford are two of the most successful corporations in the world and I would credit their relationships with their suppliers as an absolute key to their long-term success. All of my years at both I’ve always had the head of procurement on the leadership team.” The CPO’s role also has expanded to include managing the globalization of business and ensuring compliance with sustainability and social responsibility principles. Not only does the government discipline companies for not adhering to regulations that protect humankind and the environment, but consumers also punish companies that don’t handle themselves responsibly through public outcry and boycotts.

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Thomas W. Derry is Chief Executive Officer, Institute for Supply Management, 480-7526276

MAKING A DIFFERENCE

When companies have hundreds or even thousands of suppliers under contract, they face huge levels of complexity in protecting their ethics, image, and reputation. Among suppliers, poor working conditions, loose financial transactions, skirting environmental regulations, or substandard material or parts quality can all turn into scandals that affect the contracting organization. The procurement profession has evolved significantly since its early days as a tactical buying function. Procurement is a profession that offers a real opportunity for a challenging career where one can truly make a difference in the world.

As professionals who understand the entire process of manufacturing, shipping, and marketing products, and who recognize that suppliers can be closely aligned with the company’s goals and objectives, CPOs help define a company’s competitive advantage

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MANAGEMENT

Is Your Business Prepared for the Worst? By Raymond G. Monteith

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isasters and tragedy happen every day. From fires and theft to severe weather events, we experience disruptive incidents on a regular basis. So how prepared is your business to withstand a crisis? How well have you incorporated risk analysis and crisis preparation into your business operations?

Effective risk assessment depends on using our imagination to evaluate multiple risk indicators and combine them into scenarios that might be outside of normal experience. This is the realm of rare events that are often conveniently characterized as black swan or perfect storm events. The terms suggest the events have never been observed or experienced before and are therefore impossible to predict and prepare for. But the use of these terms may simply be an excuse for ignoring signals and failing to anticipate events despite the evidence provided by industry experience and near-miss accidents. The 2011 tsunami that damaged the Fukushima nuclear reactors reached a wave height of 14 meters. That wave height was not unprecedented and had been exceeded by wave heights estimated up to 20 meters in previously recorded events. Despite evidence of the potential for significantly higher wave heights, the Fukushima Daiichi nuclear reactors were designed to withstand only a wave height of up to 5.7 meters. Recent changes in rail tank car standards following the tragic derailment in Lac Mégantic in July 2013 have focused on the failure of DOT-111 rail cars to withstand rupturing, the need for enhanced braking systems, and the need for speed regulation among other requirements. This is a positive and necessary step toward safer rail transportation. Lac Mégantic was a mobilizing event that generated a number of recommendations for improvements to rail operations and the transportation of dangerous cargo, particularly crude oil and ethanol, in Canada and the United States. But the

events that led to the derailment in Lac Mégantic were not without precedent either. In January 2007, four runaway train cars rolled approximately 20 miles before colliding with two unoccupied engines outside of Irvine, Ky. The National Transportation Safety Board has warned of the inadequacy of the DOT-111 cars for decades, citing their well-documented tendency to rupture or puncture. The cars have failed catastrophically in derailments involving flammable or hazardous liquids. The need for speed regulators and positive train controls (PTC) is also well understood by the industry and is required under the Rail Safety Improvement Act of 2008. The recent Amtrak derailment in Philadelphia—which may have been avoided had PTC been implemented—highlights the importance of rapid implementation of acknowledged safety best practices. While these two diverse and extreme events were outside of normal experience, neither was unimaginable. Had key risk indicators been acknowledged, it is conceivable the events could have been anticipated and their consequences less severe. Clearly, a resilient business is one that identifies the signals and anticipates and prepares for a critical event well in advance. While not all critical events can be accurately predicted or prevented, planning for them is crucial. Thorough crisis preparation will enable

Raymond G. Monteith, MA, CRM, is Senior Vice President, Risk Control Services Leader – Canada, HUB International Limited, 604-269-1962 a company to anticipate events and adapt operations accordingly.

There are four key steps required in crisis preparation:

1. Identify the risks. Understand what events could arise and imagine the worst-case implications of those events. 2. Develop a plan for rare events and worst-case scenarios that may never happen and develop effective and adaptable response protocols for managing through the crisis. 3. Communicate and implement the plan across the organization. Identify key actions and responsibilities and identify and train the people who will carry them out. 4. Test and evaluate the plan frequently. The midst of a crisis is not the time to discover the plan’s weaknesses. Crisis plans should be evaluated against and adapted for changing circumstances. Because an event has not occurred in a company’s experience does not mean it will not occur. Effective risk analysis and crisis preparation is an essential business strategy.

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MANAGEMENT

8 Ways to File Effective Freight Claims

No matter how much you try to prevent cargo loss and damage, well...stuff happens. Follow these eight steps to help recoup your losses.

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he carrier’s representative verified that the packaging approach met shipping standards. The shipment, an 11-foot by 18-inch LED sign, was fully cushioned, crated, and secured to a skid. The driver whisked it away. Then the customer called the vendor to complain that the sign arrived heavily damaged, with no indication there was ever a crate. The customer questioned the vendor’s packaging practices. Months later, the freight claim was still unresolved. That was the experience of Erie, Pa.-based LED sign maker Signal Technologies when its previously reliable carrier suddenly stopped being so careful. Damage rates increased, and some claims were denied for its products, which are heavy but contain delicate electronic components. But this story has a happy ending. Signal sought help from Logistics Plus, a third-party logistics provider also headquartered in Erie. Despite using the same carrier, damages stopped, rates came down, and Signal received more flexible pickup times. For Signal Technologies, the lesson was clear: clout and volume are valuable tools in moving goods damage free. The good news is that damage rates have declined as packaging processes improve, and more shippers use pallets and shrink wrap. Improved shipment visibility has also helped minimize loss. Despite such improvements, damage, loss, and theft continue to occur. Planning for them is key to preventing claims and settling them quickly when they do occur.

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“The industry tends to be reactive rather than proactive, focusing on a specific claim and then preventing that cause from reoccurring,” according to Austin, Texas-based logistics security services provider FreightWatch International’s Supply Chain Intelligence Center. “A more proactive approach is to understand the potential risks that exist, and put a process in place that will prevent problems before they happen. When you put a process in place to proactively mitigate risks, you usually take care of the ‘reactive’ side as well by having an auditable record for every shipment.” Through every stage of the shipping process, companies can take the following eight steps to avoid loss and damage, and to position themselves to recoup losses if they occur. 1. Select carriers with care. Carriers vary widely in service quality, and it can be tough to get data on carrier-specific or industry-wide loss, damage, and theft rates. These rates also vary by commodity, and how manufacturers measure damage, says James Hicks, president of claims management firm Progeny Claims Services, based in Crown Point, Ind. Knowing how individual carriers handle claims

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MANAGEMENT is one benefit of working with a broker or third-party logistics (3PL) provider. “Third parties have more leverage and influence with carriers, so they usually can get an appropriate and quick response,” says Bruce Kennedy, executive vice president of strategic initiatives for Logistics Plus. He urges shippers to ask about claims assistance services when selecting a 3PL. To minimize shipment damage and loss, Kennedy recommends using regional carriers whenever possible, which avoids intermediaries and the extra handling that can occur. The risk of damage is even greater when shippers make spot buys outside their carrier contracts. Without a contract, the terms listed on the bill of lading become the default terms, which can lead to a gray area if damage occurs. “Carriers are supposed to prepare the bill of lading, but shippers often do it,” notes Raymond Selvaggio, general counsel for Huntington, N.Y.-based industry group Transport Logistics Council. It becomes unclear if the carrier’s rules tariff then applies. Shippers creating their own bills of lading should seek counsel to make sure damage claims filing deadlines and other terms are correctly spelled out, Selvaggio recommends. Carriers also vary in their ability to track cargo as it moves through their network. Many now offer detailed shipment visibility systems that can help prevent loss, and track down missing cargo. That’s particularly valuable in the case of trailer drops, notes Hicks, because the shipper isn’t present to inspect or sign for the shipment. Some shippers turn to technology to protect their freight. For example, fleet tracking software developer Omnitracs, based in Dallas, uses GPS and cellular technology to create geofences that help fleets track their trailers. “Shipments are most vulnerable for theft or damage when a trailer is disconnected from a tractor,” says Jim Sassen, senior manager of product marketing for Omnitracs. “Shippers using software such as Omnitracs’ can tell if someone has reconnected the trailer, if it has moved or been opened, and if cargo has been removed, which trips a door sensor.” Tractor-trailer operators increasingly integrate shipment visibility data with information about the driver’s identity, creating a chain of custody that is invaluable in the claims process, as well as for locating lost cargo. Omnitracs’ sister companies offer technology that

equips drivers with mobile computers to scan barcodes, capture signatures, and photograph damages, further enhancing accuracy as well as fueling the claims process. 2. Know your risks. Watching for freight movement patterns and trends can help shippers prevent damage and loss incidents. For example, the rate of fictitious pickups and driver theft is rising in the United States, with 70 percent of incidents occurring on weekends or holidays, according to FreightWatch. The company recommends that shippers and carriers pursue background investigations, security awareness training, and quantifiable in-transit security programs that include tracking technology and real-time monitoring. “Freight transportation policies should acknowledge high-threat areas and no-stop zones, actions required by the shipper and the carrier throughout the duration of the shipment, actions to take or countermeasures to employ during a suspected or actual threat event, and contingency plans to respond to mechanical difficulty or required route deviations,” the firm advises. “Careful analysis must be applied to the enterprise’s logistics footprint to determine the most feasible and applicable in-transit security policy.” Shippers can also track their own damage and loss patterns to identify and address recurring trends. 3. Forge solid contracts. Freight liability is covered by a large body of law, and varies by mode and country. These regulations are important to understand. But shippers should also make sure they are adequately protected and insured through the documents that define their relationships with their carriers. Most important are the carrier’s rules tariff and/or the contract between the carrier and shipper. The bill of lading may also spell out these terms. This language states the carrier’s level of liability, typically by dollars per pound up to a maximum, as well as the exceptions to those terms. Liability and terms differ by mode; a parcel limit may be $100, an LTL shipment might be $1 per pound, and a truckload would be regarded as a single shipment and have a higher liability limit. Most carriers offer insurance for shipments exceeding these limits, or they can be added as a rider to the shipper’s own insurance.

Shippers sometimes make assumptions about carrier liability. During the sales process, for instance, carriers often point to the amount of liability coverage they maintain. “But it may be lost on shippers that the insurance is to protect the carrier, and may not cover the claim,” warns Selvaggio. So while a shipment may be worth $300,000, it only qualifies for a limit of 50 cents per pound up to $10,000 because of the terms. Shippers must know the value of their goods and how well they align with the carrier’s liability limits. While shippers have some wiggle room to negotiate liability terms in an individual carrier contract, “carriers have become much more strident in maintaining the maximum levels of liability and the exceptions,” compared to the unlimited liability they once offered, says Kennedy. Carrier insurance is costly, and many carriers are selfinsured. Shippers should also be careful not to negotiate away their rights, such as those granted under the CarmackAmendment, adds Hicks, and make sure they’re comfortable with the terms, such as how quickly the carrier will address any claims. Another important consideration to address in a contract is what happens to damaged product. The law states that in the absence of specific contract terms, the shipper and the consignee have the primary duty to salvage the product, says Selvaggio. If they decide the product has no value, they can dispose of it or allow the carrier to salvage it. But typically, the right to salvage or dispose of product is written into contracts. The nature of the product is key here—food products, for example, are extremely delicate. A broken seal is often grounds to destroy the product because a brand doesn’t want to risk compromised food entering the commerce stream. Even non-foods can be a risk; imagine damaged building materials ending up being used during construction. 4. Package with care. The best way to prevent damage and loss is to ensure freight is fully secure and protected. Poor packaging and labeling is the most common error when preparing a shipment, says Vickie L. Visser, a claims prevention director for Holland, an LTL carrier based in Holland, Mich. “When using an LTL carrier, a shipment could end up being handled or loaded on multiple trailers between pickup, transit, and delivery, depending on the

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MANAGEMENT destination,” she notes. All ground shipments should be protected with proper packaging in compliance with the National Motor Freight Classification, Visser advises. Shipments of high value or prone to potential theft should be transported on a shrink-wrapped skid with high security tape around the skid noting: “Do Not Break Wrap.” Every piece of a shipment should be labeled with shipper and consignee names and addresses to ensure the entire shipment arrives together. The information on the freight must match the bill of lading. It’s also important to understand the shipping mode you are using. Packaging demands for truckload or rail shipments are different than for LTL shipments. Carriers may refuse to handle shipments that don’t meet packaging standards because this increases the likelihood of loss or damage—and a claim. A third-party packaging expert can help ensure packaging materials and practices meet carrier standards, and balance cost vs. protection. 5. Establish strong shipping and receiving practices. What happens at shipping and receiving has a major impact on how quickly and smoothly claims are resolved (see sidebar). Establishing solid processes is key. “Small companies typically have small shipping and receiving departments,” says Sara Schweda, manager of client solutions for Hudson, Ohio-based 3PL GTS. “As a result, shipping and receiving practices may not be consistent, so when damage is discovered, they realize they lack the right notations or paperwork.” 6. File promptly. Missing filing deadlines is a leading reason shippers cannot recoup their losses. Freight terms determine which party files a claim—generally it’s the owner of the goods, whether that’s the shipper or the consignee. Deadlines differ by mode and carrier. For example, the carrier may want initial notification of damage within 15 days, a claims filing within nine months, and a lawsuit within two months and one day. Filing typically entails filling out a claim form with data including the specific nature of the loss or damage, the value of the goods, the cost of the goods, and receiving documents such as the bill of lading, delivery receipt, packing list, and photos. Complete

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“We don’t process claims, but we educate customers by offering feedback and knowledge,” says GTS’s Schweda. “We make sure shippers are informed on how to file freight claims and what to expect from carriers.” documentation speeds the claims filing process. Shippers sometimes get tripped up by mistaking informal communication with the carrier about the claim as formal notification, adds Selvaggio. Some shippers decide it is worthwhile to outsource claims management to a third party, especially when they file 500 or more claims annually. Outsourcing saves money through more efficient processes, and claims tend to get resolved more quickly, Selvaggio adds. “And shippers handling claims in-house should centralize the process, and make sure they hire skilled individuals who know the manufacturing network and inventory processes,” advises Hicks. Some 3PLs also offer claims assistance, while others provide advice and education. “We don’t process claims, but we educate customers by offering feedback and knowledge,” says GTS’s Schweda. “We make sure shippers are informed on how to file freight claims and what to expect from carriers.” 7. Prepare for inspection. Carriers may choose to inspect a damaged shipment, usually within one week of delivery, though they may have up to 120 days to do so. The value of the shipment and extent of damage determine whether the carrier will want to inspect. “If the damage was noted on delivery, the product is low value, and the customer has taken good photos, we will likely waive an inspection,” says Holland’s Visser. Carriers are reducing their use of inspections. “Skill sets are eroding as the carrier workforce starts to reach retirement age,” notes Hicks. New inspectors have fewer chances to get out in the field to gain a real-world perspective on freight handling and

damages. “Claims is about networking to find different ways and means to resolve them,” he says. “Today’s market is far less confrontational on claims than it was 25 years ago.” Carriers use data about damages to improve processes. For example, “claims investigators at Holland handle specific accounts by shipper, not by claimant,” says Visser. “The investigators are then familiar with how the freight is packaged, and if damages are normally mitigated. They watch for trends by reviewing the frequency of claims. It is also a win for the claimants as they get to work with the same claims investigator.” 8. Await carrier feedback. Carriers usually have about 30 days to initially acknowledge a claim, but the entire claims process may take anywhere from weeks to months, with some carriers responding faster than others. Claims involving shipments that are lost and never found tend to get resolved quickly, while those damaged due to poor packaging can take some time. If carriers decline some or all of the claim, they must explain why. It may be tempting to simply reduce payment to the carrier by the amount of a pending claim, or even a settled one. But typically carriers prohibit that, says Selvaggio, although shippers can negotiate into their contract the ability to take a set-off for claims in which the carrier has admitted liability. Shippers occasionally need to dispute the carrier’s findings. Many rules tariffs include a requirement for arbitration: UPS Freight’s rules tariff, for example, requires one for disputes concerning freight valued at less than $15,000. Larger disputes may end up in court. Given the cost of that route, Hicks recommends negotiating on claims up to $100,000.

REDUCING COSTS THROUGH CLAIMS

While preparation and prevention can go a long way, freight damage, loss, and theft will never disappear. While claims management is not the sexiest area of supply chain operations, shippers that create solid carrier contracts and implement shipping and receiving processes with claims in mind can reap dividends in lower costs and happier customers. The content in this article is provided for informational purposes only and does not constitute legal advice.

PROCUREMENT & LOGISTICS MANAGEMENT NOVEMBER-DECEMBER, 2016 Issue No.: 06/2016


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Procurement and Logistics Management Magazine  
Procurement and Logistics Management Magazine  

November December 2016 Issue

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