FROM MAGAZINE: Changing landscape of African e-commerce

Despite Africa’s transport and regulatory infrastructure being ridden with challenges, some countries of the region are taking the initiatives wherever possible to build e-commerce logistics capabilities. The pace of adoption for logistics technology and online payments solutions is slow. Poor logistics integrator network, lack of postal services, and poor road connectivity for last-mile delivery to landlocked countries, in addition to air freight capacity constraints, need immediate redressal for e-commerce to thrive in Africa as the transportation costs are three to five times higher compared to that of developed countries, Nahida Jafferi reports.

African consumers are projected to spend nearly $75 billion online annually by 2025. According to Statista, the e-commerce sector in Africa generated $16.5-billion in revenues last year, and it is estimated to make $28.9-billion in revenues by 2022.

Around 93 percent of the population in African continent own cell phones, according to Afrobarometer. Less than a third of Africans have the internet service to make online purchases.

Due to logistics issues and lack of funding, 70 percent of e-commerce startups in Africa are not profitable, finds a report by Disrupt Africa on e-commerce startup ecosystem 2017. It also found that 90 percent of investment is going to startups in five African countries of the total 54. 40 percent of Africa’s e-commerce ventures are located in Nigeria, the continent’s largest economy and most populous nation (more than 180 million people). Jumia.com has become the best-funded online marketplace in Africa that surpassed a billion dollars in market value. Jumia.com that has presence in 11 African markets, is betting big on Nigeria as its base for expansion. Its other markets include Algeria, Cameroon, Egypt, Ghana, Ivory Coast, Kenya, Morocco, Senegal, Tanzania, and Uganda.

Besides Jumia, MallForAfrica, Kilimall, BidorBuy, TakeaLot, Konga, and Zando, are some e-commerce sites that are changing the landscape of African e-commerce trade.

High-quality warehousing is in huge demand due to the spurt in e-commerce business in Africa. As per Knight Frank, warehousing and logistics sector in Africa grew by 24 percent over the past 10 years. Africa Logistics Properties (ALP) that provides premium warehousing facilities is disrupting the logistics sector in Kenya and East Africa. Copia Global has leased out a 4,500 sqm facility to run its new central distribution centre at ALP’s logistics hub in Nairobi to run thousands of deliveries a day to its agent network across the region. Copia is an e-commerce app that enables users to browse products and place orders online with the local shopkeepers.

On an average, the cost of transportation is 50-75 percent of the retail price of goods which is two to three times higher when compared to developed countries. The ALP facility aids in reducing the truck turnaround time and save up to 30 percent of operational costs to users. The facility boasts of international standard height of 12m, advanced software, cold storage facilities and high loading bays.

African consumers, like anywhere else, demand quality, affordability and good service. Moreover, e-payment is at a very nascent stage in the continent and cash on delivery service comes with its own set of loopholes, in terms of reliability and security. Companies thus consider local partners with good experience in African supply chain operations. It is difficult to find right logistics partners that are cost efficient and customer friendly.

European and Chinese merchants play a large role in African e-commerce marketplaces. The merchants face logistics and infrastructure challenges in Africa which call for the need of logistics specialists with local expertise and diligence in dealing with limited transport networks, warehousing complications, last-mile delivery, security and customs for e-commerce.

The other factors that need to be taken into account relate to what products best adapt to the supply chain capability and African consumption pattern; whether a particular import is worth the high cost it involves. Keeping this in mind, Cdiscount, an international e-commerce company with presence in Africa, scaled down its product catalogue that complements the African consumer demand and supply chain capacities. Cdiscount has e-commerce sites in Cameroon, Ivory Coast and Senegal, among others.

E-commerce also works as a platform for brands to test and promote its products and analyse its cross-border capability and find out whether a market has potential customers for its brick-and-mortar stores. A sportswear retailer Decathlon partnered with Jumia, to test its product catalogues before launching physical stores in the continent.

Xavier Personnic, Head of FMCG/Retail, Bolloré Logistics, Africa division, said, “We see retailers or even some FMCG companies testing brand and category on e-commerce sites across Africa, especially European ones (French and English speaking African countries). And we accompany some of them in connecting with e-commerce players.”

“Jumia is for us the best example of a multi-country player addressing all online models, such as local online retail, local marketplace and international marketplace. We are also one of their preferred partners for international freight forwarding owing to our logistics capabilities. We are also keen to follow clients on their marketplaces worldwide, with the backing of our strong established network,” cited Personnic.

Bolloré Logistics in Africa also proposes clients to embark on Jumia's marketplaces due to its best in class service. Cross-border e-commerce is Bolloré Logistics' core competency in the e-commerce business. They also manage local orders and carry out all logistics operations, may it be for retail or cosmetic chains in South Africa. South Africa, Ivory Coast, Nigeria, Democratic Republic of Congo, Kenya, Cameroon, and Morocco are the markets that are performing best for Bolloré Logistics in Africa.

Personnic said, “We keep track of e-commerce sites development in the 46 African countries where we have established subsidiaries and have logistics operations. We keep contact with them in order to understand their business model, which can be online retail, local market place retail or international market place retail.”

Bolloré Logistics in Africa provides end-to-end logistics services to e-commerce companies having their end consumers located in Africa. “Our main capabilities at the moment concern the logistics execution for the international marketplaces, like Jumia Global. This company has high requirements for their cross-border business and international marketplace reach,” informed Personnic.

In order to ensure a 100 percent compliance, Bolloré Logistics always investigates customs and fiscal procedures, as there are high risks of non-compliant operations, especially in cross-border businesses. It has also invested in IT processes enabling their teams to manage the E2E supply chain, at parcel level, too.

“The e-commerce revenue of Bolloré is still marginal versus brick and mortar retail freight forwarding and logistics operations,” Personnic said. “As far as first mile is concerned, we take care of China and Europe parcel collection for their international marketplace business. With regards to last mile, it depends on each African country as we try to leverage our express delivery operations and services. We operate one of the largest corridor services available in Africa that also serves the hinterland,” he added.

The fastest growing e-commerce markets, namely, China and India, rely heavily on national postal services for hinterland connectivity. In Africa that is not the case. Personnic said, “It actually depends on countries. However, in sub Saharan Africa (South Africa is an exception), postal services don’t have the maturity to handle it. Indeed, major e-commerce players’ offer owned capabilities combined with postal services, when available. They are interested in the capabilities of our express delivery services. Cameroon is one example.”

There is no fixed address system in Cameroon, which complicates delivery process. Many phone calls need to be made to the buyers to finalise the delivery location. In future, location technologies shall lead the way for logistics delivery in African countries.

In addition, online payments can help e-commerce thrive. But what is impeding its growth is the online fraud and phishing attacks on sites. Mobile-money services like M-Pesa gives millions of Africans access to digital finance and this is an emerging trend in Kenya. It is noteworthy to mention that Kenya moved up 21 places in the 2017 World Bank report on ‘Ease of Doing Business Index’ to position 92 globally, making it the third most improved economy in 2017

Daniel Salaton, Manager, Express & E-Commerce, Kenya Airways Cargo, said, “Within Kenya, we have not seen any notable growth for us apart from the current courier business riding on our schedule flights into Mombasa and Kisumu. We have experienced growth in our express and e-commerce portfolio due to our deliberate focus on this segment. The stability in central African countries, in addition to internet and telephone penetration, has resulted in e-commerce growth in this region.”

Salaton noticed that cross-border trade growth is due to Africa’s growing business with Far East and Middle East. Generally growth is seen in non-perishable consumer goods, particularly electronics and small spares. Fashion clothing demand has also gained momentum. He further added, “We focus to give priority capacity access to time-sensitive products. Deploying extra capacity using our B737 freighters during the Easter and Christmas peaks has earned us trust from our customers.”

In Kenya, road transport is preferred partly due to the cost involved and a lot of capacity offered by the bus operators. The main challenge is to transfer goods cross- border to land locked countries for last-mile delivery. Around 15 percent of the world’s population is in Africa, yet, its aviation sector comprises less than three percent of the global market. Mostly it is cheaper to fly goods from one African country via the Middle East to another African country than directly between two African countries.

Market Volatility
Rates are always dynamic because airlines make pricing decisions based on numerous factors ranging from cost of handling, fuel, demand for a particular route, capacity available, etc.

Salaton said, “Rates have a direct effect on the demand for a cargo product and route for that matter. Forwarders and businesses choose airlines based on this factor, in addition to other critical factors like service. Rates can affect consumer choice of the final product as logistics costs directly impact the final selling price.”

The main challenge, he said, to e-commerce logistics is the traditional mindset and processes developed years ago. The analogy of new wine in old wineskin.

To deal with high air freight rates and capacity constraints, Personnic said that Bolloré Logistics is building local stock consignment solutions for e-commerce, which enables to shift from air freight services to sea freight services. However, 90 percent of e-commerce shipments are routed through air by Bolloré, and the development of stock consignment solutions is likely to change that.

“Our largest operations lie at the moment in Ivory Coast with an average of 1,500 orders a week. We are witnessing a huge increase in business. We are also developing a lot in Cameroon, Ghana, and Nigeria, where both, customs authorities and tax authorities have a strong willingness to ease e-commerce emergence. Other countries such as Egypt or Kenya are still more difficult to address,” highlighted Personnic.

Expediting Cargo
Kenya Airways Cargo has developed a modern express center, arguably the first in Africa, with a 24-hour dedicated team that focuses on speed and service. Salaton informed, “We are working to develop and support emerging e-commerce players by assuring them of capacity on our flights and giving them the right pricing. We launched our state-of-the-art Cargo Express Center last year with this segment in mind. We now have a dedicated team that focuses on this niche group. We are also involved in discussions with government agencies to facilitate compliance by players transiting our hub.”

He further expressed, “We say: ‘when it’s gotta go, it’s gotta go!’ We are one of the few airlines in the world that achieve a 45 minute transit time for connections ex-Nairobi hub. We have engaged our government agencies to work 24 hours and that facilitates clearance of inbound material. Our express material has priority access to capacity and on some lanes we have a deliberate understanding with our passenger colleagues to protect some capacity for this traffic.”

In terms of IT solutions to book space well in advance, Salaton said that Kenya Airways Cargo has a cargo handling system that allows its customers to book prior to arrival at the airport. “This system is integrated with our load planning system and we are all able to plan better because of this enhanced communication. The teams can assess capacity offering faster and make informed decisions,” he informed.

In February 2018, African carriers saw capacity increase by 3.9 percent while freight demand grew by 15.9 percent compared to same period last year. This was the largest increase of any region. “The February phenomenon can be attributed to several factors. Many organisations slowdown in January and picked up as February beckons. Valentine’s Day is one of the busiest time for air cargo.” Talking about the capacity constraints in the market, Salaton said that Kenya Airways Cargo has grown its freighter network with B737 that help de-feed its NBO hub and serve other African destinations.”

At the last Air Cargo Africa event in 2017, Rainer Mueller, VP, Commercial, Saudia Cargo, called for a better hubbing system in Nairobi or a trucking system to other countries, which could be combined with the integrators, who need better support in Africa. The top five promising states listed in the 2016 Agility Emerging Markets Logistics Index, ranked Kenya behind South Africa and Nigeria but ahead of Ghana and Angola.

E-commerce needs a conscious push in the region, as a key driver to air freight and logistics. It is imperative to urgently address the need for a good integrator network, better road and airport infrastructure and conducive regulations.