FROM MAGAZINE: Africa’s logistics sector making inroads into US market

The African Development Bank forecast a plunge in Africa's 2019 GDP by 0.7 percent due to persisting trade tensions between economic superpowers the United States and China. But logistics players have challenged this situation and have picked it up as an opportunity to tune their businesses accordingly.

The United States' hammering tariffs on more than 800 Chinese products and China retaliating to the same by imposing tariffs on approximately 500 US products have resulted in a bitter trade war between both the countries. However, the African Development Bank (AfDB) forecast a plunge in Africa's 2019 GDP by 0.7 percent due to persisting trade tensions between the economic superpowers. At the same time, Africa has envisaged it as an incentive for economic reform, as US and China will look forward in building their capabilities into different markets to enhancing trade relationship. This calls in for new capabilities in the logistics sector.

Along the similar lines, Fitsum Abadi, MD, Ethiopian Cargo & Logistics Services, remarks, "With the trade tension between US and China, we are taking it as a threat as the volumes have reduced but at the same time, it offers a prospective opportunity. Hence, the Chinese manufacturers will look into other markets and that will be Latin America and Africa. As of now, we are present in Ecuador and Columbia and will be foraying into Santiago and Lima. We have a customer in Europe who is interested to distribute products into Latin America so we are using them as a base slot to develop our Latin American market."

As per World Air Cargo Market Data, the air freight trade volume between North America-Africa and Africa-North America has shown 10.47 percent and 5.2 percent growth, respectively in 2018.

According to the International Air Transport Association (IATA), African air traffic is expected to grow by 15 percent annually for the next 20 years, but the aviation industry may not benefit from this growth if it does not liberalise. African airlines incur the highest operational costs globally due to expensive fuel costs, taxes and tariffs, unfriendly customs regimes and monopolistic environments.

The African Continental Free Trade Area (AfCFTA) will be an opportunity to overcome the socio-economic bottlenecks of the region. On one hand, it will enable African carriers to access easily to their own regional market and on the other hand, it will increase traffic volume among intra-African trade, which has a multiplying impact on the economy in general and on the aviation sector in particular. 

Intra-trade in Africa tends to be low in comparison to its global counterparts because of the substantial amount of time and money required to cross borders and trade, backed by poor logistics and transport infrastructure.  Trade agreements are imperative. Abadi says, "Free trade zones (FTZ) are important both for customers and service providers. What is challenging is the implementation. We want to establish an FTZ in Addis Ababa. We want to create Dubai's Jebel Ali in Africa. But the customs and other regulatory bodies are a challenge. Multi-modal logistics is an innovative idea. For which, we have entered into a joint venture with DHL Global Forwarding to carry the entire document process under a single window."

In November last year, Kenya Airways has commenced direct flight services to New York's John F. Kennedy International Airport (JFK), making it the eighth African country to offer a direct US service. Evans Michoma, manager - cargo, Kenya Airports Authority (KAA), states, "A small fraction of flower is expected to be lifted to New York. Trade opportunities between North America and Africa are a bit complicated as we don't operate dedicated freighters to carry flowers and perishables from Nairobi." Currently, Kenya sells mainly textiles worth Sh36 billion directly to US retailers but eventually, the new direct flights will channel direct sales of flowers, fruits, and vegetables.

In an attempt to position Kenya as a vital hub, Panalpina has expanded its current cold storage facility from the initial 3,500 square metres to a new fully equipped 1,500 square metres facility. This cold storage space at Nairobi's Jomo Kenyatta International Airport will enable more and improved services for its perishables' customers in and out of the country. This set-up within Nairobi airport is unique, as it is the only one with dedicated loading bays for skidded or palletised cargo and with separate cold rooms to manage specific temperature requirements for products such as cuttings. As of date, Panalpina flies most of Kenya's premium perishables out of the country. 

With more freighters to join Ethiopian Airlines fleet, Ethiopian Cargo & Logistics Services is set to consolidate its role in availing much-needed air freight service within Africa and beyond, further catalysing the continent's economic growth. The company which began its operations a couple of years ago, is planning for a phase II development with a 600,000 tonnes capacity warehouse. It is expected to start within three years as soon as the current capacity is fully utilised. On Vision 2025 of the company, Abadi said, "From the 9 B777F aircraft at present, we are looking forward to having 18 aircraft. We are continuing to invest in fleet expansion, technology advancements, and infrastructure." As per its 15-year growth road map, the company envisions to generate $2 billion revenue and transporting 820,000 tonnes of cargo to 57 destinations.   

Applauding the continent's air cargo potential,  Jacob Matthew, president of Middle East & Pacific Rim, National, commented, "Few weeks  ago, The Federal Emergency Management Agency (FEMA), one of the agencies in the US, had a massive cargo to be moved to the Caribbean islands and one of the applications was coming from Ethiopian, the ones who operate that sector. As a US carrier, we were surprised, as it was taking the US airline's business, but then it was more of relief and rebuilding stuff and Ethiopian and other foreign carriers did operate that sector. My point is within the African continent itself, African carriers have to evolve to the next level, build trust and more trade to start between African countries themselves. Once the profit and the revenue come in, then you will be much more successful."

Meanwhile, on the passenger front, South African Airways (SAA) has expanded its non-stop service between Ghana and Washington D.C's Dulles International Airport. The increased service will start on April 1, 2019. In another move, Royal Air Maroc (RAM) will debut the first nonstop flight from Miami to Casablanca, Morocco, on April 3, 2019. Earlier in 2018, Ethiopian Airlines has launched new thrice-weekly nonstop flights to Chicago. Another route from Addis Ababa to Dublin, Ohio via Madrid from December 15, 2018, was also introduced. This new route will be the only and first of its kind to connect West Africa with the West Coast of the US with a direct flight. 

On the cargo side, Virgin Atlantic Cargo has increased its presence in South Africa's air cargo market with the start of a second daily service connecting London and Johannesburg. The launch of double daily Boeing 787-9 flights will also give a boost to Virgin Atlantic customers in the US, who now have access to additional cargo capacity to South Africa over London.

At the fifth edition of Air Cargo Africa 2019 held at Johannesburg, South Africa, Charles Shilowa, the group executive for business development at Airports Company South Africa (ACSA), remarked, "The company is on the verge of upscaling and modernising its air cargo operations at O R. Tambo International Airport and the construction of airport's new midfield air cargo terminal is about to begin."

Identifying the potential of logistics sector in Africa, DP World and the government of Rwanda have set up a state-of-the-art logistics hub, located 20 kilometres from Kigali, close to the international airport. The facility is East Africa's first-ever inland dry port developed by DP World. DP World Kigali (DPWK) is a secure, bonded facility spread over 13 hectares and features an inland container terminal (ICT) with modern warehousing capacity, a container yard, and other facilities. DPWK accesses two secure trade gateways for eastern Africa, the port of Mombasa in Kenya and Dar es Salaam in Tanzania. Similarly, Rwanda is working closely with Tanzania on a new standard gauge railway from Dar es Salaam to Kigali that will add a direct rail corridor to the two existing road routes, further improving connectivity for containers and bulk goods.

The 2018 African Growth and Opportunity Act (AGOA) which has been extended until 2025, strengthens US trade with sub-Saharan Africa. AGOA has abolished import duties on more than 1,800 products manufactured in eligible sub-Saharan Africa countries - those with established or making continuous progress with a market-based economy, elimination of trade and investment barriers to the US, and among others. Once fully implemented, AfCFTA will remove tariffs on 90 percent of goods and allow free access to goods, services, and commodities. While Africa is forging new trade relations internally, the Trump administration has a new proposal for future US-Africa trade relations and wants to establish a free trade agreement that could serve as a model for developing countries. Kenya, Cte d'Ivoire, and Ghana are under consideration as partners for developing the first model.

However, the AfCFTA still has to come into force. It is therefore critical for the African Union to adopt a more proactive strategy for its relations with the US and propose an attractive continental partnership.