Logistics Tech & Transport Gaps in Africa - Tabbing Takes 04
Without plugging transport infrastructural gaps, logistics tech and trade agreements won't be enough to solve Africa's free trade issues.
Tabbing takes is a weekly-ish take around the most interesting trends in Africa's digital economy, culture and tech.
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The Logistics Landscape
1.3 billion people live in African lands that make up 20% of the total land surface of the earth. Its growing population presents huge market potential that the continent is barely maximizing. A major reason is the lack of free trade and the the difficulty in the movement of goods across the continent.
Economies grow and thrive when there are efficient and effective supply chains - in which logistics plays a vital role.
At the base level, logistics is an essential cog of supply chains - which is the connections and collaborations between suppliers, manufacturers, logistics businesses, wholesalers, retailers and end customers. On the other hand, logistics is how you move and store goods from suppliers and manufacturers down the whole chain.
In large parts of Africa, supply chain and logistics problems abound. The continent’s broken supply chains are a result of infrastructural gaps, trade restrictions among the continent’s countries and other logistics inefficiencies that pose a big challenge to its economic prosperity and growth.
African countries don’t trade very much with each other. They don't have great internal trade ecosystems either, which hurts their ability to significantly grow their economies. In Africa, the cost of logistics as a percentage of GDP is almost double what it is in North America.
It can cost up to five times more to transport goods in sub-Saharan Africa than in the United States.
The number of African countries in the top 30 list of countries on the Logistics Performance Index (LPI-2018) is 0. This index is a measure of on-the-ground trade logistics performance (ease, speed and simplicity of moving goods and services) in countries by assessing indices like cross-border clearance processes, inefficient tax structures, and other bottlenecks.
African countries rank between 1.77 and 3.43 out of 5 on average on the Logistics Performance Index, with South Africa’s 3.67 rating the highest in Africa, putting it in 33rd place on the index. This is no surprise as South Africa has the most developed logistics industry in Africa with an estimated size of $3 billion.
Meanwhile, Nigeria, the continent’s largest market, ranks 110th out of 160 countries on this index. Again this is no surprise as it can take three times as long to import an auto part through Lagos, Nigeria than through Durban, South Africa’s third most populous city.
The continent lacks a logistic integration across its local markets, a major barrier that restricts the movement of goods and even people from one African country to another.
Infra-national trade (within a country) and infra-regional trade (between countries) suffer from problems like bad infrastructure and difficulty in trading across borders in Africa. You can draw a straight line from here to the high transport costs marring the continent.
The high cost of getting goods to and from borders and ports and then to the end-users in Africa is restricting the continent’s potential gains from international trade.
Relatively high transport costs can put upward pressure on the prices of a country’s imports, and at the same time make its exports less competitive in international markets. Both of these factors will likely reduce the country’s level of international trade.
High transport and logistics cost is a major barrier to trade on the continent and they stem from infrastructural problems like the poor road network, underdeveloped transport modes like ocean and air freight, and almost non-existent rail networks, which severely impacts inbound and outbound logistics. Then there's also the case of underdeveloped addressing systems and postal services.
Poor quality roads in urban cities and the almost non-existent road infrastructure in rural areas leave a substantial portion of the African population poorly connected to supply chains. 53% of roads in Sub-saharan Africa is unpaved and they only account for 6 percent of global road networks despite the continent representing 1/5th of the global landmass.
Because of the unpredictability and unreliability of transport networks in Africa, the cost of transport can often be higher than the value of the goods being transported which can create a fragmented network of distributors and retailers.
Another hurdle for supply chains and particularly logistics in Africa is that there aren't enough ports to handle existing inbound traffic. However, this might start to change, with plans in motion to build or expand five major ports: Barra do Dande port and Lobito port in Angola, the Lekki port in Nigeria, Musoma port in Tanzania and Lamu in Kenya.
Underdeveloped postal services and poor addressing systems across Africa drastically restrict the tracking and flow of goods and reverse logistics. Unlike other places like America, Europe and parts of Asia that have strong national postal systems and last-mile overnight delivery services.
Inflated import tariffs and other trade restrictions like poor port, border and customs management. Congestion, long waiting times for loading or unloading, and frequent checkpoints contribute to high logistic costs within African nations. Exporters and importers require 50% more time to get exports to market in Africa than in East Asia.
Reducing these delays could have a dramatically positive effect on logistics costs and trade as a whole. In one of Africa’s busiest ports – the Apapa port in Lagos, people can pay up to $4000 to offload their containers.
Another reason logistics is so expensive in Africa than the rest of the world is the concept of "empty runs" where transport vehicles return empty after making a drop (delivery). In essence, transporters cannot ensure dropping off goods for both ends of their journey which means time and fuel is lost which can lead to considerable costs. However, this is changing as technology that matches cargo companies to transporters on the continent is starting to have headway.
It takes a substantial amount of time and money to cross borders and trade on the continent because of the poor logistics and transport infrastructure. This is why the implementation of trade agreements and plugging the continent’s $130-170 billion infrastructure gap is imperative.
African free trade zones and the removal of tariff barriers are also key.
The African Continental Free Trade Agreement (AfCFTA); seemingly the world’s largest free trade area since the WTO, promises an integration of African local markets mostly by slashing border tariffs and allowing the free flow of goods across the borders of African countries.
AfCFTA is an opportunity to bridge some of these gaps with the movement and delivery of goods on the continent, with countries coming together to share and agree on uniform solutions to issues around customs challenges.
Despite the potential benefits of AfCFTA, the agreement faces long-standing obstacles. Like poor infrastructure, unfriendly regulatory regimes and trade laws, border bureaucracy and insufficient access to trade information.
Logistics Tech in Africa
There are so many moving parts involved in moving goods or services from point A to B: The type of good(s) being moved, the mode of transportation (air, land, sea, rail), vehicle type (motorcycles vs truck), address systems, regulation, payments and so on. All of these things combine – to different degrees to define the different kinds of logistics companies that exist.
Logistics businesses tend to be “asset-based” or “non-asset based”. Non-asset-based logistics business don't own the vehicles on their platforms while asset-based logistics business own the vehicles it uses in moving goods. Furthermore, logistic businesses offer different types of logistics services which tend to overlap a lot as far as the overall supply chain is concerned. They are:
Couriers: logistics companies in this segment typically utilise motorcycles or small vehicles in their operations and move mostly small items.
Small Ticket Interstate Logistics: these companies move small to medium-sized items inter-city using vehicles like passenger buses or light-duty trucks.
Big Ticket Interstate or Haulage: companies in this space focus on moving medium to large items/goods between cities using heavy-duty trucks and long haul vehicles.
Freight: This involves one of, or a combination of, small to medium and large goods/items. These goods move from point to point on trains, airplanes or ships. This type of logistic service is often inter-country as well as intercontinental and often requires both heavy equipment and an extensive network.
Digital platforms (Logitech): these logistics businesses use digital technology to tackle logistics services. They are more marketplace businesses, they offer white label enterprise solutions and on-demand middlemen and last-mile delivery startups.
Africa's logistics issues, rapid urbanization and rising ecommerce penetration are an opportunity for logistics companies on the continent to drive the growth of African logistics sectors. The increasing flow of venture capital toward African logistics startups is evidence of this opportunity.
More and more logistics companies are springing up in Africa to find solutions that employ tech to provide a less expensive way to move goods across Africa and bridge its supply chain gap.
Here is a non-exhaustive list of innovative and interesting logistics companies across Africa (and their total fundraises) - delivering effective and efficient logistics capabilities:
Kobo360 ($37.3m): Tech-enabled logistics platform building the Global Logistics Operating System (G-LOS) by aggregating end-to-end haulage operations. e.g connecting companies to delivery vehicles.
Lori Systems ($37.7m): Digital platform building logistics infrastructure for trucking.
Sendy ($26.5m): Kenyan logistics on-demand platform that connects clients to motorbike, vehicle and truck drivers for last-mile delivery. Seeking $100m to expand to West & South Africa.
TradeDepot ($13m): Integrated SaaS platform for efficient consumer goods distribution from manufacturers and suppliers to retailers.
Bosta ($9.5m): Cairo based B2C on-demand courier app.
Sote ($4.4m): Building the operating system for shipping in Africa. Digital logistics infrastructure for cargo clearing and forwarding,
JetStream ($3m): a cross-border logistic company that develops digital solutions (aggregates offline private sector logistics online) for African cargo owners and logistics companies at ports and borders
ILLA ($2.6m): Cairo-based full-stack B2B supply chain management platform focused on middle mile logistics - enabling FMCG brands to reach retailers directly at low costs.
Sendbox ($1.9m): Social commerce app for Ecommerce fulfilment for small merchants.
Yobante ($1.2m): Senegalese delivery startup that wants to optimize domestic, cross-border, and last-mile delivery by connecting retailers, businesses & individuals with carriers for point-to-point delivery. It plans to expand to South Africa and Nigeria.
Empty Trips: a digital marketplace where shippers, agents & transport carriers can connect, bid for cargo, find transport assets to move their cargo.
Fastvan ($713k): SA-based SaSS company offering a white-label enterprise solution for logistical companies or small to large 3PLs, Shippers, Brokers, Forwarders, Manufacturers, Retailers.
Imperial: an African and European-focused provider of market access and logistics solutions. Imperial uses Lori System’s proprietary tech platform to provide transporters in southern Africa access to software applications and data so that they can more efficiently manage their fleets and operation.
Cliqhaul: Ghana-based on-demand pickup and delivery mobile platform that allows shippers to connect to carriers, request for a truck of their choice and track deliveries
Optimalogistic: Tunisian based digital logistics marketplace for renting trucks and transporting goods.
AmiTruck: Digital logistics marketplace bringing together cargo owners and transporters.
Logistics startups are tackling some of the biggest issues plaguing Africa's supply chain and logistics ecosystem. By streamlining transport and logistics processes in different parts of the continent, saving costs and providing tech that simplifies pricing, payment, and the smooth movement of goods; as well as aggregating data that offers valuable business intelligence.
Africa’s Logistics Future
Despite the digitization of logistics and the continued rise of B2B logistics companies, the continent will struggle to significantly solve its logistics problems, without more advanced infrastructure.
Africa might seem like a land of opportunity for logistics operators but until it significantly plugs its infrastructural gaps its logistics issues will likely remain.
Its tech heavyweights like Kenya and Nigeria need to significantly improve their transport infrastructure.
Africa’s infrastructural problems hinders development in the logistics sector as it imposes a 40-60% surcharge on the cost of goods. Both the International Finance Corporation (IFC) and the African Development Bank believe that the continent has an infrastructure financing gap of $68-108 billion, and it will need $130-170 billion per year in infrastructure investment – (roads and railways) if it wants to meet baseline targets by 2025.
China is playing a leading role in helping to close that gap by financing massive infrastructure projects in the sub-Saharan regions like South Africa, Tanzania, Ghana and Mozambique.
Investments in the African transport and logistics sector are starting to make a difference to its physical and technical infrastructure. The most prominent in physical infrastructure might be the Tanger Med port in Morocco, which expanded its capacity – from a capacity of 3.5 million TEU in 2007 to 9 million TEU today. Making it one of the top twenty ports worldwide with similar capacity as well-known ports like Hamburg in Germany for example.
AfCTA promises to be catalytic for the logistics industry. It could lead to double trade volumes on the continent, increase intra-African trade and improve cross-border movements. However, for AfCFTA to fulfill its potential, it will require political will on the part of the countries to actively implement the agreement. The treaty alone isn’t sufficient to ensure the intended benefits are felt, active implementation here is the key. Some African logistics companies are positioning themselves to play a key role in the African Continental Free Trade Area (AfCTA).
Government regulatory policy and sector-wide reform are important as well, as they would build investor confidence. These policies aimed at reducing the costs of trade should not solely focus on improving the quality or availability of roads, they have to address the exceptionally high intra-national trade costs that increase the cost of transferring goods and resources within African countries and across them - to and from ports and borders. They need to address restrictions on competition, customs standards and licensing, and border inspections that reduce the efficiency of highways.
Reducing delays at ports and border crossings is also key to improving the cost-efficiency of the logistics sector.
Closing the physical infrastructure gap that plagues the continent will continue to require billions of dollars in investment, government regulation and policy that enable free trade, tech-enabled logistics solutions that improve supply chains and optimize existing infrastructure in African markets.
You can expect more innovative logistics startups to spring up - that could help governments register, track, and automate border crossings for freight carriers and people. And provide solutions for a more streamlined collection of duties for goods that still carry tariffs, while providing them with better visibility in the free-trade area.
The use of GPS and tracking technologies may help curb the challenges associated with the postal and addressing systems on the continent. While drone technology has the potential to lower the cost for shipping freight by air and increase flexibility in order fulfilment. Blockchain technology also seems to appeal to the global logistics industry and that can play a role in Africa too.
Africa needs better transportation networks that will comfortably serve its demands and spiral into trade creating opportunities. It is important that the continent integrates its local markets by building free trade bridges across its borders as it seeks to enhance the gateways that connect it to the rest of the world.
While trade agreements that improve regional economic integration, the ongoing digitization of the logistics sector, may lay the groundwork for large-scale benefits to Africa. But it must first curb the significant challenges that infrastructure poses.
Africa needs to build a solid logistics sector if its to take full advantage of its consumer spending projected to reach $2.1 trillion by 2025, and its mobile-phone penetration likely to stand at 50% by this period.
Can it do it? Tell me what you think.
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Till Next week.
- Fosi