The logistics opportunity Africa is offering investors

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In the past decade, the rise of the middle class and the rapid advancement of the Internet and mobile penetration rates have confirmed the belief that African countries are ready for the success of e-commerce.

The telephone penetration rate in sub-Saharan Africa is estimated to be 50 per cent.

However, so far, companies have not been able to develop the potential of e-commerce in sub-Saharan Africa due to logistics issues and low efficiency. According to data from the World Bank, Nigeria is the largest market on the African continent, and its logistics efficiency ranks 110th among 160 countries.

Read: Chinese firm eyes large scale investment in Tanzania

The time it takes to import auto parts through Lagos, Nigeria, is three times as long as the time it takes to import auto parts through Durban, South Africa, according to Aubrey Hruby and Aubrey Rugo writing for How we made it in Africa last year.

According to estimates in 2015, the cost of shipping goods to sub-Saharan Africa may be five times higher than that of the United States. Across the African continent, the lack of integration means that when companies cross national borders, they face a smaller market and a lot of red tape.

According to the African Development Bank (African Development Bank), the African continent needs US$130 billion to US$170 billion in infrastructure investment, such as roads and railways, to achieve its goal by 2025, which means that the funding gap is US$68 billion to US$170 billion.

China, which has a competitive advantage in construction, can play a leading role in closing this gap. It is also important to grow local high and low wealth logistics companies. Before the pandemic, demand for African logistics companies had grown, and more venture capital was introduced into new local logistics companies.

Although the Covid-19 crisis is causing trade disruptions, road transportation is still vital to food supply, medicine and other necessities for people and medical institutions.

To tap into this sector in East Africa, the new East Africa Service 3 (EAS3) will offer direct weekly sailings between China, South-East Asia, Kenya and Tanzania with very competitive transit times.

It will arrive for the first time in Kenya and Tanzania next week enabling our customers to enjoy even better connectivity between Asia and East Africa. In addition, the EAS3 will offer excellent connections to Hapag-Lloyd’s global network via the hub ports of Singapore, Port Kelang and Shanghai. Seven 2,800 TEU vessels will be deployed in the service, including two provided by Hapag-Lloyd.

Hapag-Lloyd entered the Sub-Sahara African market about 13 years ago and has seen steady and significant growth in transported volumes to and from Africa since then. In East Africa, the China Kenya Express Service (CKX) connects Kenya with some of the most important ports in Asia, such as Singapore and Shanghai, while the East Africa Service 2 (EAS2) connects the East African country with the west coast of India and Jebel Ali in Dubai.

In March 2021, Hapag-Lloyd also opened its own new office in Kenya to better serve and be closer to its customers in this thriving economic hub of East Africa. While the main business will be managed from the port city of Mombasa, the company will also have an office in Nairobi, the country’s capital.

Hapag-Lloyd also serves landlocked East African countries – such as Uganda, Rwanda, Burundi and South Sudan – with regular inland connections to and from Mombasa. As part of its growth strategy, the shipping company will also endeavour to develop inland connections to Somalia, Southern Ethiopia and Northern Tanzania.

“Hapag-Lloyd has been steadily expanding its business in East Africa in recent years as part of our strategic focus on selected growth markets worldwide,” said Dheeraj Bhatia, Senior Managing Director Region Middle East at Hapag-Lloyd. “Our new EAS3 service will create a new option for our customers and help us to forge even stronger connections between this flourishing region and the rest of the world.”

Containers ready for dispatch. Logistics offer prime investment opportunities in Africa. [Photo/Pexels.com]
Read: Mombasa and Dar Ports attract more business from the Arabian Gulf

Hapag-Lloyd has also been strengthening its offerings and presence in West Africa in recent years. For example, in October 2019 the Middle East India Africa Express (MIAX) service has been launched, providing direct and fast connections between Middle East, India, South Africa and key markets in West Africa such as Ghana and Nigeria. In September 2020, a new office was opened in Lagos, Nigeria. And, in mid-March 2021, Hapag-Lloyd has signed a sale and purchase agreement with the Dutch container shipping company NileDutch.

The acquisition of NileDutch allows customers to benefit from an even denser network and a much higher frequency of sailings, particularly from and to locations in West and South Africa. Currently, the completion of the transaction is subject to the approval of the responsible antitrust authorities.

Hapag-Lloyd now has five own offices on the continent: in South Africa, Egypt, Ghana, Nigeria and Kenya. In addition, it recently opened a Quality Service Centre in Mauritius.

The first westbound voyage of the EAS3 will start in Shanghai on 29 April 2021 with an estimated arrival in Mombasa on 23 May 2021. Further vessel and schedule details will be announced as soon as possible. The port rotation will be as follows:

Shanghai Ningbo Nansha Singapore Port Kelang Mombasa Dar Es Salaam Port Kelang Singapore Shanghai.

In Nigeria, Kobo360 combines truck drivers and delivery companies. The company was established in Lagos in 2017 and has now expanded its business to four countries.

More than 10,000 drivers and trucks have provided services to large companies such as DHL, Honeywell and Unilever.

The company now plans to expand to ten other countries.

Kenyan logistics company Sendy has a similar asset-light model, raising US$20 million in Series B financing, including investors from Toyota’s trade and investment division. However, the mature logistics market also requires investment in the operation of asset transportation technology. When DHL (the world’s largest logistics company by sales) enters a new country, it usually follows the asset model. Leasing of vehicles, but lack of quality control on the trucks rented, often leads to damage or delays in the arrival of the goods.

This is a particularly serious problem in India, where logistics costs are at least 4% to 5% higher than in Europe. Therefore, DHL opened a subsidiary in the country in 2018 and plans to invest in a fleet of more than 10,000 trucks in the African market.

This will require similar hybrid investments, and companies like Kobo360 will continue to link businesses to delivery vehicles.

Read: German transporter Hapag-Lloyd keen to expand services in East Africa

I have 10 years of experience in multimedia journalism and I use the skills I have gained over this time to meet and ensure goal-surpassing editorial performance. Africa is my business and development on the continent is my heartbeat. Do you have a development story that has to be told? Reach me at njenga.h@theexchange.africa and we can showcase Africa together.

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