Limited Freight Capacity To Constrain Kenya's Exports Into Q1 2025

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Kenya / Fri 18 Oct, 2024

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We forecast Kenya's air freight to grow by 13.5% y-o-y in 2025 to reach 491,300 tonnes, moderating slightly from 2024 growth levels of 14%, but rising by 31.1% compared to pre-pandemic (2019) volumes. Growth will be supported by expanding cargo routes to meet growing demand, particularly to Asia and for intra-regional trade. However, downside risks stem from the withdrawal of some international airlines for more lucrative markets, exacerbated by the lack of binding agreements between Kenya and these airlines. This will elevate cost pressures for Kenyan farmers of cut flowers, fruits and vegetables who are already facing escalating air freight rates.

Kenya's fresh produce sector face significant losses as some international airlines withdraw from the market for higher-paying routes ahead of the festive season. Key e-commerce holidays such as Black Friday (November 29), Cyber Monday (December 2), and Christmas (December 25) are driving the surge in demand for air cargo services, particularly from Asia to the US, as retailers stock up on inventory. International airlines are earning up to USD7 per kg of cargo on Asia to US routes (see chart below), compared to USD2.5-USD2.8 per kg from Kenya. This higher demand and revenue potential in the Asian market are attracting airlines to East-West routes, mainly Asia to North America, resulting in reduced capacity in other regions like Africa. Airlines such as Qatar Airways Cargo and Lufthansa Cargo are strategically increasing capacity on high-demand routes to the US and Europe, capitalising on the growing e-commerce sector. Compounding this issue is the absence of binding agreements between Kenya and international airlines, which allows these companies to leave the market at will, worsening constraints for Africa-borne trade. Owing to these contractual gaps, the Shippers Council of Eastern Africa urged the government to issue temporary permits for freighters and consider wet leasing (paying to use an aircraft with crew, fuel, and insurance for a short period) to fill an 800-tonne capacity gap.

Global shipping disruptions are leading to a greater shift to air freight and complicating Kenya's export logistics. The Red Sea crisis is extending maritime shipping times and elevating costs, reducing competitiveness compared to air freight for perishable goods. Recent operational challenges, including a three-day International Longshoremen's Association port workers strike and hurricanes impacting ports in Florida, US, have led to significant vessel backlogs and delays. These issues have pushed some shippers to switch cargo from sea to air freight. In addition, the US September 2024 announcement to potentially tighten the de minimis exemption, which currently allows small imports to bypass customs fees, has resulted in e-commerce platforms like Temu and Shein expediting shipments before any regulatory changes take effect. This is adding to the pressure on air cargo demand in Asia.

Kenya's horticulture exports to Europe most vulnerable. Kenya is the fourth largest cut flower exporter in the world. The horticulture sector is a major income earner for Kenya, accounting for about 17% of total product exports and earning KES143.8bn (USD1.03bn) in 2023. Fresh cut flowers are the main horticulture products and are primarily exported to Europe, including the Netherlands, the UK, Germany, and Norway. Capacity constraints will particularly affect the export of fresh produce such as flowers, fruits, and vegetables. Kenya's horticulture earnings grew by 15.2% in Q1 2024, despite the currency appreciating. Higher export volumes to the EU, US, and Asia drove this growth. Vegetables led with a 38% earnings increase, while fruits and nuts experienced a 22% rise. Cut flowers experienced a 5% earnings increase despite a 2% drop in volumes.

This commentary is published by BMI, a Fitch Solutions company, and is not a comment on Fitch Ratings Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent sources. Fitch Ratings analysts do not share data or information with BMI. Copyright © 2023 Fitch Solutions Group Limited. All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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