New world demands better logistics firms.
Posted on November 4, 2023
The economy today is reliant on stable logistics and supply chain systems that allow the seamless flow of goods, capital, services, and people. As we recently saw during the COVID-19 pandemic lockdown, the countries’ economies are now more intertwined than ever. A shock in the transport system in one part of the world has far reaching effects that can be felt in other countries.
The World Trade Organization estimates that global trade fell between 13 percent and 32 percent as a result of the lockdown. The fall in trade mainly affected the shipping industry, which accounts for approximately 90 percent of global trade. This decline was also seen in the airline industry, where the International Air Travel Association (IATA) reported a 15 percent decline in air cargo tonnne-kilometres as the result of the pandemic. This crisis laid bare the interconnectedness of the modern world and the need for ingenuity in the operations of businesses. The pandemic has taught managers the urgent need for ingenious ideas that will help businesses withstand unforeseen global challenges.
As the world is recovering from the impact of COVID-19, the Russian War in Ukraine has also compounded the need for changes in the supply chain system. African countries that are particularly reliant on the two warring states have to find alternatives to meet their needs. In the face of these challenges, distribution companies have to tread a fine line between making goods available while maintaining a margin that will support company growth. An East African logistics and supply chain firm has to be aware of the fact that transport and logistic costs compose between 35 percent and 42 percent of production costs, compared to 8% in Asian countries. The economic recovery of countries in this region will rely on the ability of distribution companies to reduce production costs through investing in technology and research that will provide local solutions that are tailored to the environment in East Africa.
So far, governments in the region have invested in strategic infrastructure projects that are aimed at reducing the transport costs in East Africa to meet the global average. According to the East African Business Council transporting a container costs $1.8 per kilometre, which is higher when compared against international competitive prices of $ 1 per kilometre per container.
The falling average transportation costs in East Africa will allow the thriving of local businesses because logistics and freight forwarding companies will be able to easily facilitate the movement of people, goods, capital, and services. On the other hand, strategic partnerships between traders, manufacturers, and logistics companies have never been more important than in these current times. For goods to move, these three key players have to move in unison.
At the backdrop of these private sector efforts, East African governments should lobby and push for increased access of foreign markets by companies coming from this region. A policy change in leading economies that will be more accommodative to the region will lead to economic growth in the region.