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To use them, however, many shipping lines require traders to put down deposits – known as container deposits – to safeguard against possible liabilities such as damage, demurrage, or total loss of the container.
While these deposits do provide a form of financial security for the shipping lines they can be a major issue for importers and exporters, estimated to cost $1.6 billion annually in East Africa alone, creating trade barriers and significantly impacting SMEs.
To learn more about this issue and explore a new container guarantee solution seeking to serve as an alternative to traditional deposits and help promote trade in East Africa, Trade Finance Global (TFG) spoke with Morgan Lépinoy, Managing Director of Viatrans.
Challenges caused by container deposits
Container deposits tie up a significant amount of cash flow and hinder SMEs from using that liquidity to invest in other areas, and they may also make SMEs reluctant to take on new business opportunities that require container deposits, leading to lost opportunities and constrained growth.
Lépinoy said, “The deposit ranges from hundreds to upwards of a couple of thousand US dollars per container depending on their type and destination and can tie up a significant amount of cash for SMEs, particularly if they need to pay deposits for multiple containers.”
Particularly when compared to larger competitors, the high cost, administrative complexities, and lack of standardisation surrounding container deposits create an expensive, time-consuming, and burdensome process that puts SMEs at a competitive disadvantage.
To combat this, Viaservice has developed a container guarantee solution in East Africa that addresses these challenges and promotes trade efficiency in the region.
Lépinoy said, “The solution simplifies the payment process, making it easier, more efficient, and cost-effective for shippers to manage their finances. This, in turn, reduces the administrative burden on SMEs and frees up critical working capital that can be used for other important business activities and operations.”
While developing their offering, Viaservice collaborated with key institutional stakeholders, including shipping lines, clearing and forwarding agents, regulators, and trade facilitation agencies in East Africa.
As a result, SMEs can pursue and win new business opportunities that were previously out of reach, fueling their growth and expansion.
About the container guarantee program
Viaservice’s container guarantee solution maintains the liability chain while enhancing compliance and safeguarding commercial relationships.
Lépinoy said, “For SMEs, the solution provides a cost-effective and reliable way to access containers without tying up significant cash flow. For shipping lines, the solution provides a risk-mitigating alternative that does more than deposit towards securing payment, and removing bad debt”
Each guarantee issued is unique and applicable to a specific bill of lading, ensuring accountability, and customers must comply with prior obligations to remain eligible for future guarantees, reinforcing a culture of accountability in the logistics sector.
By acting as a trusted intermediary for advancing charges on behalf of customers, the solution does not remove any obligations from clients but rather enhances the liability chain and promotes compliance.
Numerous SMEs have made use of Viaservice’s container guarantee solution.
For example, a Tanzanian clearing agent was competing to win a large shipment requiring more than 100 containers. The shipping line was asking for a deposit of $1000 per container but the clearing agent could not afford to have $100,000 simply sit idle as a deposit.
Lépinoy said, “Thanks to our container guarantee solution, they did not have to and were able to secure this large business, all while increasing cash flow. They have since levelled the playing field for the company and are now competing for more and more cargo than before.”
This and other success stories demonstrate how the solution provides an alternative allowing SMEs to compete on equal footing with larger companies, seize new business opportunities, and contribute to the growth of intra-African trade.
Future opportunities for container guarantees expansion
Viaservice’s container guarantee solution has already demonstrated effectiveness in East Africa, but its potential extends beyond the region.
As the model gains recognition and success, there is an opportunity to replicate and expand the solution to other regions in Africa facing similar challenges.
By forming partnerships with local stakeholders, governments, and trade facilitation agencies, Viaservice can extend its reach and enable SMEs across the continent to thrive in international trade.
Furthermore, the success of the container guarantee solution opens doors for collaboration with global shipping lines and logistics providers.
By demonstrating the positive impact on SMEs and the overall trade ecosystem, Viaservice can foster partnerships with international players interested in promoting inclusive and efficient trade practices. This collaboration can contribute to the development of standardised container deposit systems that reduce barriers to trade and further facilitate global commerce.
As the solution expands its footprint and gains recognition, it has the potential to shape trade practices not only in East Africa but also across the African continent, fostering inclusive and sustainable economic growth.