Logistics: Partial Open Up, Partial Trophy

Ever since Ethiopia became landlocked after losing its access to the Port of Assab three decades ago, international trade has remained the Achilles heel of Ethiopia’s economy. The country’s dependency on imports could not be matched by efficient logistics services. Numerous service providers fight it out on one major route, the Ethio-Djibouti route, though it’s primarily primed for the state-owned carrier.
Coupled with low support provisioned, the closure of the logistics sector to foreign investors has stunted its growth.
Following the partial opening-up of the sector since 2018, a number of global shipping groups and logistics service providers are inking deals with local firms. Though late, the move is highly expected to buffer financial and knowhow transfers, long and eagerly awaited for by local players. EBR’s Ashenafi Endale looks into the trophies that could be won and persisting gaps haunting local logistics operators.

Characterized by poor technological adoption, inadequate infrastructure, and insufficient customs practices, the logistics sector in Ethiopia is one of the least developed in the world. Of course, the fact that Ethiopia is a landlocked country negatively impacts the performance of the sector. However, import-export transit times in Ethiopia are higher by more than two-fold relative to other landlocked sub-Sahara African nations such as Rwanda.

This stretched transit time—a result of inefficiency and backwardness—makes logistics services very expensive and costs the nation the equivalent of 26Pct of its GDP, annually, according to the new ten years plan document for transport sector.

Freight forwarders, transiters, and shipping agents are the major players in the sector by acting as intermediaries between the shipper/ receiver and the carrier. According to latest data, there are 241 licensed freight forwarding firms, 30 shipping agents and freight forwarders, and 4 joint ventures with foreighers, according to data from Maritime Affairs Authority. These private companies, however, hold only 8Pct of the market. The majority of the market is dominated by the Ethiopian Shipping Lines and Logistics Service Enterprise (ESLSE).

Dagmawit Moges, Minister of Transport says the problem in Ethiopia’s logistics partly emanates from the absence of technological capacity, alongside the lack of investment capital. “Freight forwarding firms and goods-transit and shipping agents operating in the country still rely on backward and manual systems,” she explains. “The use of modern information technology is essential to transform the sector.”

Teodros Abraham, Chairman of Bolloré Transport and Logistics Services Ethiopia, agrees. “Ethiopia must invest in logistics technology. More investments in value addition, distribution, and warehousing are also needed,” he stresses.

Understanding the need, the administration of Prime Minister Abiy Ahmed (PhD) gave the green light to foreign logistics firms to enter the domestic market in September 2018. Immediately after, the Ethiopian Investment Commission (EIC) introduced a law allowing foreign investors to own up to 49Pct in local logistics companies, in stark contrast to the 2012 investment regulation which restricted the involvement of foreign investors in the sector.

The government has specifically targeted garnering USD120 million by the end of 2021 from foreign investors through the privatization of minority stakes in local logistics companies.
On top of finance, the move is expected to bring management efficiencies, according to Dagmawit. “If foreign companies can help improve the efficiency of local logistics firms, the cost of logistics services will reduce,” the minister tells EBR.

“Many foreign and local firms are highly interested in joining Ethiopia’s logistics sector,” says Dagmawit. “Over the last six months, many foreign logistics firms have started undertaking feasibility studies while a few have already joined the sector.”

German based DHL Global Forwarding was first in this regard by inking a partnership deal with Ethiopian Airlines. The two formed DHL-Ethiopian Airlines Logistics Services, in which DHL holds a 49Pct stake. Based in Ethiopia, the new company undertakes business in Africa but with a specific focus on enhancing Ethiopia’s logistics infrastructure and connections.

Berhanu Kassa, General Manager of the venture, says the partnership availed the leverage to tap into more skills and resources. “Since the partnership, we have invested in many areas and established stations in Addis Ababa and in major manufacturing hubs like the Hawassa and Bole Lemi industrial parks as well as in Modjo Dry Port,” Berhanu explains. “By locating operations close to our customers, it allowed us to achieve time and cost efficiencies.”

MACCFA Freight Logistics PLC, a local company engaged in freight forwarding and customs clearing services, also recently sold 49Pct of its shares to CEVA Logistics. Re-established in New York in 2006 and listed on the Swiss Stock Exchange, CEVA Logistics was itself acquired by CMA CGM in 2019, the Marseille based global shipping group. With USD23.48 billion in revenue, CMA CGM ranks as the fourth largest global shipping line, following the Danish A.P. Moller-Maersk Group, Mediterranean Shipping Company S.A (MSC) and China Ocean Shipping Company (COSCO Group).

“We entered a partnership with CEVA Logistics to bring modern and value-adding logistics solutions to Ethiopia,” says Mulugeta Assefa, Chairman of MACCFA Freight Logistics.
The French firm Bolloré Transport and Logistics also opened an office in Addis Ababa after sealing an agreement with CSL Logistics Services PLC, a local firm with operations in sea and air freight, land transportation, cargo consolidation, chartering of vessels or flights, warehousing, distribution, and customs clearance.

Although a few foreign companies have joined the local market and a number of others have shown interest in creating joint ventures after the introduction of the new decree, Daniel Zemichael, CEO of Freighters International, one of the biggest private shipping companies in Ethiopia, says the benefit expected from this 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. These foreign companies prefer to bring knowhow than capital.”

Although the reform is encouraging, stakeholders say the private sector must be further encouraged. The prevailing multimodal transport system, which consolidates the logistics sector around ESLSE, leaving out private companies, still remains a challenge. Under this system, private companies are allowed to operate under ESLSE as a subcontractor, if they meet certain requirements like ETB10 million in capital and 5,000 square meters of land for transit purposes.

The unimodal system, which aims to deliver goods directly to receivers and takes excessive time at the Port of Djibouti, uses a Kaliti warehouse as the final terminal. The multimodal system, where the documentation process is done while goods are being transported, reduces the time of stay in Djibouti and uses the Modjo Dry Port. Multimodal service, which uses multiple means of transport like rail and road, under which the carrier is responsible for the goods, is monopolized by ESLSE, because private logistic companies lack the finance, land space and support to engage.

Out of total cargo, 48Pct is transported through the multimodal system. The government plans to increase the share of cargo transported through this arrangement to 90Pct within the next ten years.

To facilitate this, the Council of Ministers is expected to ratify a regulation and “the government has decided to open up the multimodal system to private operators. We planned to have five private multimodal operators in the next ten years,” says Dagmawit.

Experts also argue more investments are necessary across the end-to-end logistics value chain. Freight transport operators are the major players in the value chain. There are 120 domestic, 105 cross-border, and 59 special freight carriers operating in Ethiopia. Of these, 155 are unions, constituting 55Pct, and 129 are share and privately owned companies.

A total of 2,482 domestic and 12,766 cross border vehicles are operating. Additionally, 3,107 tanker trucks are in service. Currently, each truck is able to serve 2.5 monthly trips. However, stakeholders say, either the number of trips or trucks must increase. The government is planning to increase the number of freight vehicles from the current 14,000 to 22,000 by 2030.

Ethiopia’s total import volume is expected to almost double from 17.1 to 30 million metric tons within the next ten years, according to Dagmawit. Of this, freight transported by trucks will increase from 16.1 million MT in 2020 to 23.3 million by 2030. Loads transported by air cargo are expected to increase from 0.432 million to 1.157 million MT.

The other challenge observed in the logistics sector are the hurdles in Djibouti. “The major challenge we have is the inefficiency observed there,” says Daniel. “It never goes as planned even though we have an office to handle our business in Djibouti.”

Over 95Pct of Ethiopia’s foreign trade is via Djibouti. The logistics strategy recently approved by the Council of Ministers also states that Ethiopia should employ alternative port routes in Somalia, Eritrea, Kenya, and within Djibouti itself. The government plans to increase the number of functional sea ports from three to seven within the next ten years.

“Since August 2020, we started using the Port of Tadjoura, thereby maximizing options in Djibouti itself. We are also capitalizing on other neighborly countries’ ports,” adds. Dagmawit.
Daniel says as a landlocked nation, we face this challenge. “However, port corridor management must be as clear as crystal. This means, Ethiopia needs ports she controls and runs.” EBR

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