Ahead of the third Global Logistics Convention, in East Africa, which takes place on August 29-30 at the Kigali Convention Centre, Abhishek Sharma, TMEA’s Senior Director for Transport spoke to Business Times’ James Karuhanga about the state of the logistics sector in the region.
According to the logistics expert, in the past 10 years, the status of logistics in the region has improved significantly but challenges persist and that is why such a conference comes in handy.
Most importantly, he noted, it is very important that countries work very hard to reduce the cost of logistics because poor people bear the brunt more when things go wrong in the logistics sector.
What is the situation of the logistics sector in the region at the moment?
In the last, 10 years, the status of logistics in the region has improved significantly; the time and the cost has come down dramatically along both the northern corridor and the central corridor.
For example on the central corridor, for Rwanda, while the average speed of truck on transit was 7 kilometers an hour it has now improved to as much as 14 kilometers an hour and so, that is doubling is speed along the corridor.
This has resulted in a reduction in prices of logistic movements along the corridor.
Which studies back this up?
The Logistics Performance Index of the World Bank also shows a significant improvement in all the countries of the EAC on logistics. What it shows is that normally, the logistics performance of a country is correlated to the GDP.
So, the poorer the country is, the poorer the logistics performance. However, in East Africa, they find that east Africa is quite different because while the GDP of countries is not as high the logistics performance of all the countries is significantly higher than what their GDP would suggest.
They are doing much better in logistics as compared to any other region in Africa as well as globally also, given that the poverty levels are really much better in East Africa.
But can we really say there are no challenges to talk about? What is the reality on the ground on this?
Now, having said that we are doing much better, there are still several challenges along the corridors. One; the costs continue to be high because, one, we don’t have enough return cargo from our countries. While import volumes are large we don’t have enough export volumes. So, that creates empty return trips along the corridors.
The other challenge is that we have not exploited our countries’ multi-model capability that much. We have lakes and rail [potential] but what is happening is that most cargo is moving by road as of now. That creates two problems.
One is that if there was any problem on the northern corridor or the central corridor or the border or if there is some trouble due to political unrest somewhere, it means that cargo to the mainland country can be completely held up.
So, we need to create new avenues of transport or revive them actually. There used to be lake transport and rail transport. Those two things are required and we also have to look at the use of technology on logistics in the region.
For example, on the Northern Corridor, we have a system called the electronic cargo tracking system all the way from Mombasa to Kigali. And it works really well in terms of tracking the truck and it reduces the time that the authorities need to stop the truck for inspection. However, we are still in the process of setting up the same system to the Central Corridor.
So, basically, the use of technology, more and more, is still required.
The other issue is that you find that increasingly, there are a lot of political frictions happening between the EAC countries and that result in the creation of non-tariff barriers by the governments.
So, continuous dialogue is important to ensure that when some of these things arise they are resolved. We need to have better negotiations mechanisms between the countries so as to come to quick resolutions on cargo tracking.
What are the other costs of these challenges on trade?
The biggest impact on trade logistics is on the poor. And I will explain how. Consider that there are two containers moving from the port of Dar es Salaam. One has electronics and another has rice. Two containers coming from Dar es Salaam to Kigali. The value of goods inside the container carrying electronics will be somewhere around $150,000 to $200,000 while the value in the rice container will be around $30,000 to $40,000. Now, if there are delays or the cost of container transport increases, the total logistics cost of sending a container to Kigali is about $3,000 and if you look at the percentage of price that logistic cost will be in the final price of the commodity you find that your rice will be 10 per cent while for electronics it will be 1 per cent or 2 per cent.
So, for high value goods consumed by the rich part of the population the cost of logistics does not make much difference but every time there is an increase in the cost of logistics you will find that the price of the basic commodities will increase significantly.
That is why it is very important that we work very hard to reduce the cost of logistics.
Considering the fact that Kigali is, end this month, hosting the third Global Logistics Convention in East Africa, how does such a conference help?
For the logistics sector, unlike the tourism sector which comprises so many different players; the transporters, the hoteliers, and everything, and are able to come together as one industry and are able to exert influence on the government, the logistics industry in this region has never really come together for a long time as one industry. They have always only operated as freight forwarders, truckers, clearing agents, warehouse owners… but they have never acted as one industry.
So, what is so important about this upcoming conference?
So, this forum, which is a third one following two others [second edition in 2018 was held in Kampala, Uganda, and 2017 inaugural edition in Dar es salaam, Tanzania] the whole idea has been that the industry is brought together as one so that they can discuss issues jointly rather than separately. Such a joint organization will help improve the dialogue with the governments because in this region, the main player that invests money in logistics infrastructure is the government. But the main user of the infrastructure is the industry; the freight forwarders, and others.
It is very important that when we are planning logistics, there is constant dialogue between the government and the logistics players. This kind of forum first helps build, together, the [logistics] industry as one grouping and will help for more dialogue on that.
So, it allows the industry to come together and discuss issues in a joint manner rather than separately just looking for issues around trucking, or issues around freight forwarding or clearance, separately. So, that is the thing.
And you know, all the key players in this [sector], we as Trademark have been supporting them on different initiatives and one of the things we have worked on in Rwanda, Uganda, Kenya and Tanzania, is creation of forums to bring together all these players and allows for dialogue. So, this [upcoming event] will increase momentum on the same.