Flow of goods: Why the logistics industry matters

Logistics includes an array of activities beyond transportation, including warehousing, brokerage, express delivery, and critical infrastructure services such as terminals.

What you need to know:

Logistics includes an array of activities beyond transportation, including warehousing, brokerage, express delivery, and critical infrastructure services such as terminals. We look at how the logistics industry facilitates seamless trade, integration and the economy, Ismail Musa Ladu explains.

Logistic does not operate in isolation, according to a cross-section of policy experts, sector actors and industry analysts Daily Monitor spoke to.
For starters, logistics and transport almost naturally feeds into each other. Typically, logistics is related to the movement of physical goods and information. Efficient logistics connects firms to domestic and international markets through reliable supply chain networks.
Importantly perhaps, the two in one economic sector in many cases is strongly influenced by the state of the economy, geopolitical developments and even mega trends.

For Uganda’s case, although logistics industry is not as developed compared to some of its regional peers like Kenya, it is almost if not already the heartbeat of the country’s entire economic sectors.
Studies and industries report done by among others PricewaterhouseCoopers (PwC), one of the largest professional services firm in the world, demonstrates how logistics industry is inseparable from the growth or stagnation or even decline of any economy. This is so because of its cross-cutting nature of services it offers across the economic sector value chains.

But more still needs to be done particularly on improving weighbridge processes as this has a high impact on logistics efficiency as well as improving the capacity of third party logistics players (3PL) firms to enable them to provide better service and thereby better meet the requirements of producers, manufactures and traders.
The good news is that the industry efficiency can be measured. And one of the major tools for measuring logistics efficiency is the World Bank Logistics Performance Index (LPI), which is a benchmarking tool that measures performance of the logistics supply chain within a country in comparison with 160 countries.
The comparison is based on the parameters such as customs clearance, infrastructure, logistics competence, tracking and tracing and timeliness. In the LPI report 2016, Uganda was ranked 58th out of 160, and was 5th in Africa.

Relevance

Logistics is crucial in as far as ensuring proper planning, seamless flow of goods, services and information, stocking, warehousing, packaging, waste management and even for operation in the supply processes. In short it is aimed at efficiently satisfying consumer demands through uninterrupted flow of trade.
“Logistics and transport represent a key factor in improving Uganda’s competitiveness,” the acting country director of Trade Mark East Africa in Uganda, Ms Damalie Ssali whose not-for-profit organisation, with the help from its funders such as the Department of International Development (DFID) and the EU spent about a $100million over the last five years in developing transport and logistic facilities in the country, said last week.

Speaking ahead of the Global Logistics Convention (GLC), an annual freight logistics event of the Federation of East African Freight Forwarders Associations (FEAFFA), Ms Ssali further said: “In respect of economic growth, logistic activities directly serve the goal of making the economy dynamic primarily by increasing investments, net exports and equalising the regional imbalances in consumption.”
Importantly perhaps, it is worth noting that in recent years, Uganda has begun to play a wider logistics role in the Great Lakes region despite its landlocked position.

For instance, it is common sight to see importers in South Sudan and the Democratic Republic of Congo keep supplies in bonded facilities in Kampala and bring them into either country when needed, within much shorter time.
As a result, Uganda has seen transit volumes grow, which in turn has led to the emergence of a distribution industry especially in the industrial town of Jinja and Kampala city.

This is well highlighted in the latest Northern Corridor Transport Observatory Report. According to the report published in November 2016, 82 per cent of transit cargo through Mombasa Port was destined for Uganda. Over the last five-year period, from 2012 to 2016, transit cargo through Mombasa Port grew by 4 per cent. This growth was mainly a result of the 7 per cent growth of Ugandan bound cargo, some of which was warehoused and re-exported to the DRC, Rwanda and South Sudan.
This means that trucks which deliver that high volume of imports for Ugandan consumption and re-export are available to transport Ugandan exports back through Mombasa.
The latest Northern Corridor Transport Observatory Report (Nov 2016) further indicates that the cost of transporting a container from Mombasa to Kampala, for imports, is $2,300 on average whilst Kampala to Mombasa, for exports, is $800. Therefore, improving logistics efficiency also supports Uganda’s competitiveness of exports.

Uphill task to climb

However, Uganda still faces higher trade and transport costs than its coastal partners Kenya and Tanzania. This is well captured in the low ranking of the country (Uganda) on the most recent Logistics Performance Index (LPI) where Uganda received a score of 25.4 out of 100 overall for logistics risk, placing it 38th out of 48 countries in the Sub-Saharan Africa (SSA) region.

Irrespective of the country’s competitive position as a logistics hub, businesses still face a variety of high-level logistics risks including Lack of Private Sector strategy on logistics; Poor organisational capacity and technical skills; Bureaucracy and red tape in setting up logistics operations; Poor transport facilities; Weak adoption of logistics practices; and Dysfunctional advocacy, according to a statement from Trade Mark East Africa (TMEA).

Support

In addition to the government massive investment in infrastructure, TMEA through its funders is also making a telling contribution. TMEA it is at the forefront of many freight logistics related initiatives in Uganda and the wider East African region.
With support from Department of International Development (DFID) through TradeMark East Africa, National Logistics Platform (NLP) under the Private Sector Foundation Uganda is implementing a project that seeks to influence government to reduce these key obstacles affecting logistics services.

The project will work on adopting a private sector strategy for logistics; implementing a monitoring mechanism for the strategy; enhancing capacity of logistics players; improving coordination of logistics stakeholders and influencing policy.
So far more intervention have been made in improving infrastructure through the One Stop Border Posts and improved border clearance through upgrading customs management systems.
Tracing and tracking of consignments is also now possible with the recently launched Regional Electronic Cargo Tracking system that enables one to track their consignment, in real time, from port of entry to destination.

The continental ambition

World Bank statistics put intra-African trade at just 11 per cent of the continent’s total trade between 2007 and 2011. In 2015, intra-African trade was worth just $170 million, according to the same institution’s figures, when the potential stands at trillions of dollars.
According to the executive director of African Economic Research Consortium (AERC), Lemma Senbet, the only way out for African nations such as Uganda is to connect their markets with others so as to allow uninterrupted business flow.

Speaking in an earlier interview, he said connecting transport and logistics across the continent is long overdue. “We have no choice but to integrate our economies or else we get left behind," he said, adding that: “We can start with integrating [Africa] our infrastructures, finance [as a sector] and capital markets. Then we can be part of the global trade.”
This approach is being championed by initiatives such as the African Union’s Continental Free Trade Area (CFTA). It is estimated that the implementation of the CFTA will nearly double intra-African trade by early next decade.

According to the World Economic Forum (WEF), an International Organization for Public-Private Cooperation, already there are some positive results towards integration from some regional trading corridors, such as the Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS) and the East African Community (EAC).
But for Africa to be greater than the sum of its parts, WEF recommends that it must hold and work together. This includes harmonising development and economic policies, regulation, market structure and governance, along with their implementation.
The African Development Bank estimates the continent would need to spend an additional $40 billion a year on infrastructure to turn around its current deficits and keep pace with economic growth.

Weighed opinion

Speaking ahead of the Global Logistics Convention, ending today, the Private Sector Foundation Uganda, executive director, Gideon Badagawa, said: “To integrate economies you must be efficient in transport and logistics. Anything less than that it will be difficult to conduct proper trade amongst ourselves—African countries and we will miss out on the global trade as it is currently the case.”
As for Dr. Merian Sebunya, the chairperson of a leading Cargo Freight Station (CFS) in East Africa and also a consultant in the freight logistics and transport sectors, the industry success in Uganda will depend on the smooth collaboration with all the other economic sectors. She said fragmentation both at the industry level and across the other economic sector will deprive the country of the much-sought after economic growth.

For the continent, she argued that the blue print is almost the same except partnership among countries must be tighter and geared towards one continental goal—efficient logistic and transport across the continent.
Chairman Uganda Freight Forwarders Association and also the chairman organising committee GLC 2018, Hussein Kiddedde, was of the view that the industry standards shouldn’t be implemented for it has an impact on the growth of the sector. The standard should even address the issue of the quality of employees involved in the industry.

The principal transport economist at the Ministry of Works and Transport, Gerald Ekinu, in an interview said Uganda is already working towards improving transport and logistics sector citing the commitment of the government to undertake nearly the $13 billion mega project. Standard Gauge Railway system will link the country to the neighboring countries of Kenya, Rwanda, Democratic Republic of the Congo and South Sudan. The development of SGR which is strategic, is expected to boost trade and lower the cost of doing business.

Speaking about the SGR, President Yoweri Kaguta Museveni said: “A 40feet container costs US$ 3500 from Mombasa to Kampala by road compared to USD 1,500 by rail when the standard gauge railway is ready and will only take one day.”
He continued: “A similar container on the Peking (Beijing) - Shanghai line would cost US$1,500 for transport. That is why we are working for the standard gauge railway. It is in order to lower the costs of doing business in our economy so that we attract more businesses.”