“Foreign Companies Prefer to Bring Knowhow than Capital.”

Daniel Zemichael, a father of three, is Founder and CEO of Freighters International, one of the biggest private shipping companies in Ethiopia. Established 35 years ago with ETB100,000 in capital, and growing to its current ETB20 million; Freighters International is the exclusive agent for Maersk, a Danish shipping company active in ocean and inland freight transportation. EBR sat down with the logistics guru, to converse on the expected impacts of recent governmental moves to allow foreign companies to own a minority stake in local logistics companies amongst other topics.

Recently, the government allowed foreign companies to own up to 49Pct of local logistics companies. How would local firms benefit?
A number of international companies have shown interest in creating joint ventures with local companies after the introduction of the new decree. The expected benefit is the knowhow foreign companies bring to the table.

Foreign companies do not feel safe in investing their capital in developing countries, particularly in Africa. So, they limit their commitment. They prefer to bring the knowhow than capital. Usually, they prefer the capital to be created by the partnering company. They are a bit reserved even on transferring technology, because technology itself is capital nowadays. But foreign companies can bring the knowhow.

Can foreign logistics companies provide solutions for the sector’s hurdles in Ethiopia?
The majority of raw materials in Ethiopia are imported. The only local input available in the country is manpower. Without solving logistics problems and making the import of raw materials and goods easy and simple, Ethiopia cannot achieve industrialization. Therefore, by creating an end-to-end logistics value chain, foreign logistics companies can help.

The state-owned Ethiopian Shipping Lines and Logistics Service Enterprise (ESLSE) handles 95Pct of the logistics operations of the country while private actors play a small role. Why is that?
ESLSE has over sixty years of experience. A private logistics company can bring ten containers from Europe to Ethiopia. But ESLSE has the capacity to bring thousands of containers at once. Larger volumes determine the bargaining power in the global logistics industry.

This is true wherever you go. In the coming five to ten years, there will be only five to ten strong carriers in the world. The rest will disappear and only the big operators will dominate the ocean, dictating consumers.

Ethiopia’s annual import volume is forecasted to double to 30 million metric tons in the next ten years. Can private companies in the sector gain from this opportunity?
Such endeavors require investing billions to bring equipment and train staff, among other things. I do not think there is a single private company in Ethiopia able to come up with such capital.

The second most important thing the private investor cannot come up with is land. To effectively operate, a logistics company must have between 50,000 to 100,000 square meters of land. This is mainly for trucks and containers storage. Today, accessing even 20,000 square meters of land within the vicinities of Addis Ababa is practically impossible.
Freighters International is one of the oldest private logistics companies in Ethiopia. We had a project to develop a facility that would have allowed us to provide an all-rounded logistics service. But we could not succeed in getting the land. Without access to land we cannot take a step forward.

A number of private companies are investing and managing ports located along the Red Sea. Is it better for Ethiopia to deal with companies or countries?
DP World, an Emirates-based port developer, negotiated with the Somalian government to develop Berbera Port and got a concession for 35 years. Ethiopia was also invited and holds a 19Pct share in the port. Ethiopia’s share is strategic because the destination for most of the shipments coming through Berbera is Ethiopia. DP World is a company but also represents a semi-government interest.

Government to government dealing is risky in Africa. African states have fought each other in the past. I am not sure whether negotiations and agreements can bear healthier fruit when done at government or company level. It might be easier to deal with a private company, but your investment might not be guaranteed.

What mechanisms are there for Ethiopia to use Assab Port?
We share a lot of values with Eritrea. If possible, I would attempt to control, develop, and use Assab Port for at least fifty to hundred years, even if we have to pay two or three times over. This is the best deal you can make for the port.

If the corridor management is left to Eritrea, our working procedures will be in a limbo, just like what is happening at the Port of Djibouti. Port corridor management must be as clear as crystal, if we have to acquire Assab. Ethiopia needs a port she controls and runs.

Can other ports along the Red Sea be beneficial for Ethiopia?
Lamu Port could be cheaper, faster, and more convenient for southern parts of Ethiopia. Assab Port and the Port Sudan are easily accessible for northern parts. It is only one-and-a-half days between Assab and Kombolcha. Between Massawa and Mekele, it takes one day. Between Port Sudan and Bahir Dar or Gondar, it takes two days. This enables Ethiopia to spread its cargo regionally. Ports in Somalia are another option. Somalia has the longest coast line in the Red Sea area.

The African Continental Free Trade Agreement (AfCFTA) is expected to be realized soon. Do you think it will be easy for local logistics companies to operate and transport goods from one African country to another?
I do not think it will be easy because each nation has its own culture. For instance, the system of many African countries is usually highly corrupted. It takes some time to adapt to such trends. It is especially difficult for trucking service providers. Air cargo can give effective services under AfCFTA.

What is the most difficult job for a private domestic logistics company?
The major challenge we have is the inefficiency at the Port of Djibouti. It never goes as planned. Fortunately, we have an office to handle our business in Djibouti. However, we are unable still to deliver goods according to plans. This frustrates us every day.

As a landlocked nation, we face this challenge. You can plan as much as you want but unless the administrators in Djibouti give you the green light to move the items, you are stuck. This is a serious challenge. Although the administrators there are cooperative, things do not happen as you wish due to various limitations. As a landlocked country, Ethiopia should have a say on what is going on in the Port of Djibouti.

What is your company’s experience in providing end-to-end logistics services?
We started new services recently. In the Hawassa Industrial Park, textile manufacturers stuff the container with goods at the factory. The products will be packed, tagged, and priced there. We then ship it. It will be unpacked when it arrives at its final destination. Currently, we give door-to-door services for factories inside the Hawassa and Bole Lemi industrial parks.
The investment required to perform such an end-to-end service is not so much. You only invest in knowhow and manpower.

We have also recently leased a terminal operation space at the Modjo Dry Port from ESLSE. This allows us to carry out logistical operations where we place products from one or more exporter or importer in the same container. The receiver is usually one, however. This especially benefits exporters. In the past, an exporter could not send his goods until the container was full. But now this is possible as he can share the container with others.

What type of agreement do you have with Maersk?
We help Maersk find markets. We issue documents for exporters and the bill of lading. We are responsible for anything concerning Ethiopian shipping on behalf of Maersk.

What is the annual delivery capacity of Freighters International?
We have trucks that can carry up to 300 tons. We deliver large pieces of equipment to mega projects. In terms of project cargo, we move 20,000 to 22,000 tons. In terms of containers, we move 20,000 to 22,000 containers annually. We have our own fleet of trucks to transport shipments from Djibouti to destinations in Ethiopia. We have 55 trucks for our own internal use, exclusively. Additionally, we sublease additional trucks from the market. EBR

9th Year • Feb 16 – Mar 15 2021 • No. 95