TF Spotlight: The dynamics of Logistics in Africa
Continental Free Trade Agreement (AfCFTA) has been making a lot of waves in the present times. How do you think will this help the freight services?
The African Continental Free Trade Area (AfCFTA) is an exciting game-changer for the continent. Its launch was timely to enable the continent’s track building back post-COVID-19. No, better time for more trade and greater cooperation than now.
According to United Nations Conference on Trade and Development (UNCTAD), Africa accounts for just 2% of global trade. Reports by World Economic Forum also indicate that 17% of African exports are intra-continental, compared with 59% for Asia and 68% for Europe. The report posts that AfCFTA will create the largest free trade area in the world measured by the number of countries participating. Connecting 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at $3.4 trillion.
It is estimated that the agreement will increase intra-continental exports by 81%, while the increase to non-African countries would be 19% which means increased cargo movement within the continent. Markets and economies across the region will reshape, leading to the creation of new industries, and the expansion of key sectors in the value chain, including Logistics and distribution services. In my view, if this pact is implemented to the letter, freight services will benefit from its varied anticipated positive economic outcomes.
In its 115 years of existence, Mitchell Cotts has grown from a clearing and forwarding firm that offers warehousing, air freight and transportation services. With what vision do you walk forward?
We are guided by our company vision: To be the preferred partner for end-to-end Logistics solutions in Eastern Africa and consistently make a deliberate effort to bring our vision to life every day at work. We are confident about the work we have done to date. We realise that as a mature company, the real work has only begun. Competition is getting increasingly fierce therefore continuous innovation and agility have enabled us to remain afloat and retain customers despite the challenges faced in a fast-changing business environment.
Driven by customer needs, we continue to invest in critical areas including, strengthening our regional presence in Eastern Africa – Kenya, Uganda, Rwanda, South Sudan, and Eastern DRC. We recently launched a state of art, semi-automated Air cargo terminal facility at Jomo Kenyatta International Airport for cargo handling targeting imports and exports of both perishables and dry goods.
We are also working on new temperature-controlled storage solutions targeting local and export markets.
Recently, Mitchell Cotts has applied for international certification by health authorities to handle the imports. The company will modify its existing pharma unit at its $25 million facilities at the Airport. How future-ready do you think are you?
Well, that’s still a very open question considering the uncertain times we operate. In my purview, no organisation can confidently say they are future-ready 100%.
Businesses are today confronted by unprecedented disruptions, uncertainties, and immense changes that are very rapid. There is no doubt the prevailing business environment brings both risk and opportunity. Our focus has been to increase efficiency by streamlining operations and taking full advantage of viable opportunities.
Mitchell Cotts is a futuristic company that believes in driving success by aligning distinctive capabilities with business strategy and applying them consistently. We are continuously assessing our potential to effectively compete in the saturated marketplace, thus continuously evolving with changing customer needs. Building and refining our competence to enable us to drive customer value and remain relevant in the marketplace, of course, is a marathon, not a sprint.
Being in a pandemic for more than a year, do you think the Logistics industry has understood the critical importance of digital integration?
The effects of COVID-19 continue to have a significant impact on the Logistics industry. The negative impact of the pandemic on the sector will be felt for years to come. However, on a positive note, the disruption triggered increased investment and adoption of technology by futuristic Logistics companies. To a great extent, industry players have understood the importance of leveraging digital integration in minimising disruptions. The majority of Logistics companies are notably in the midst of a tech-driven revolution that successfully generated useful and necessary discussions in boardrooms on how disruptions can mitigate and minimise future leveraging on technology.
Companies are proactively searching for opportunities to enhance and grow technology capabilities, and implement digitally-enabled future-of-work tools, including those for business processes and back-office functions that are customer-centric. We have become more open to technology adoption to serve our customers better in all facets of the business, such as warehouse management systems, CRM tools, and fleet management among others.
What challenges do you think is African air cargo facing today, and how can it overcome them?
Research by the world bank indicates that Africa’s population will be 1.4 billion in 2025 and 1.9 billion by 2050. The size and rate of expansion of a country or city’s population, wealth and trade activity are all indicators of the potential level of aviation activity expected.
Published reports by World Bank indicate that the demand for air freight in Africa is affected by cost, typically priced 4–5 times that of road transport and 12–16 times that of sea transport. Air freight rates generally range from $1.50–$4.50 per kilogram, while the value of air cargo typically exceeds $4.00 per kilogram. The estimated aircraft lease costs are about 20% higher in Africa than in Europe. These costs are passed to shippers, making operators offer non-competitive rates.
To give the air cargo sector fresh impetus, African governments need to commit to the “open skies” agreements already signed and designate a continental body to negotiate traffic agreements with Europe and the Arab States of the Persian Gulf. Africa is developing fast, and its airspace is in demand therefore, reciprocal agreements should be possible., Africa needs to present a united front at these negotiations.
Africa’s landlocked countries experience difficulty generating significant outbound flow to achieve enough traffic to attract air freight services that are both frequent and competitively priced. This makes inbound- airfreight rates much higher in these countries. Permitting free competition, or “open skies,” for Air Cargo services can be significant but not sufficient because most cargo transports through small shipments in passenger aircraft in these countries.
Another crucial challenge experienced by African Air Cargo is the fuel price. Fuel prices are approximately 20-30% higher in Africa than in other parts of the world.
Africa’s low level of connectivity is a challenge driven by the relatively small size of the African airlines’ fleets. Despite representing 15% of the world’s population, African airlines operate only 5.5% of the world’s commercial passenger and freighter aircraft, thereby having the lowest level of aircraft per capita of any world region. The average age of these fleets is the oldest of any world region (17 compared to 13 years the global average), and their aircraft mix tends to involve smaller than average aircraft. This has seen African air cargo grapple with the high maintenance cost resulting from an old fleet.
The availability and quality of aviation infrastructure vary across Africa. Established hubs such as Nairobi, Johannesburg, Cairo, and Addis provide airlines with sufficient infrastructure to develop their operations from these Airports. Airport infrastructure is a critical economic growth factor and essential to Africa’s development. In Western Africa, some Airports do provide important connectivity infrastructure issues that prevent most West African countries from developing fully operational hubs. Though, the most appropriate location for an aviation hub in West Africa is in Lagos, Nigeria. Due to the size of its economy, population, and level of intercontinental traffic compared to the other options. However, safety issues and the lack of infrastructure do not make it an immediately attractive choice.
Air cargo has the potential to create a vast contribution to Africa’s economic growth. It is vital for transporting perishable goods to open up and connect markets, facilitate trade and enable African firms to integrate global supply chains.
Enhancing air connectivity can help air cargo operators raise productivity by encouraging investment and innovation and improving business operations and efficiency. Although the challenges are considerable, the sector has enormous untapped potential. The situation can improve if the continent has calculated an effort to eliminate non-physical barriers that continue to obstruct the development of inter-African air transport.