Reinventing The Wheel In An Age-Old Industry

Hi friends 👋🏻,

Welcome to another episode On Today’s Episode (sorry we’re not talking about movies, no pun intended:). Today we’ll be talking about Logistics.

When I started thinking about Logistics in Africa, I was thinking I’d see a lot of fancy technologies adopted or deep insights into how competitors were approaching the problems. However, the consistent point that summed my findings was that Africa has a lot of infrastructure gaps that need to be filled.

Before we begin, let’s clear some misconceptions. Logistics, eCommerce and mobility services tend to get mixed up in discussions. Logistics deals with allowing or facilitating the movement of goods only. This differs from mobility services, which are services permitting the movement of people. Also, e-commerce services like Jumia, to be honest, are blurring the lines between what is strictly an e-commerce service and a logistics company.

So let's begin.

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Understanding Logistics

When you think about logistics, what comes to mind?

• Is it usually those motorcycles with carry-on boxes on their rear seats? Yes? 

• Is it related to those trucks that carry cargo and block the routes from Surulere to Apapa to Lagos Island? Yes??

• Let's try this, is it about those aeroplanes that carry freight or vaccines from MM1 to Heathrow?

I’ll tell you the answer as you read on.

According to Wikipedia;

Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption to meet the requirements of customers or corporations.

Let me give an example of this:

I hadn't previously bought or shipped a product from across the border before so when I had wanted to get a new phone, I decided it needed to cross the waters to get me. (I saved about 6months worth of pocket money and just see what I was thinking about😅).

It was a fairly straightforward process. I went on GSMArena, was impressed by the Xiaomi Redmi Note 4, went on AliExpress, searched for it, paid with my card and received a debit alert. On my AliExpress account, I was given a tracking number to locate where my phone was in the transit process.

The phone spent some days in a Chinese warehouse before being processed and shipped by sea. When it got to Nigeria, there was another round of processing before it was sent to the local NIPOST office in my area. I got a call from an agent to come to pick the phone.

I was lucky enough that the phone came after 20 days, but I’m not going to say I wasn’t holding my breath all through.

Back to the question I asked: Whichever option you picked, you're neither right nor wrong. Logistics isn't just one of these things but all of them and more, which is why it can be so confusing to understand this old school industry.  

In an age where there’s an increasing focus on things like the Metaverse and Web3, logistics brings us down to earth and shows us that the final means of getting a product to the consumer’s hands involve a set of aggregate steps bounded in physical activity.

Transportation and storage are very important aspects of commerce, but poor infrastructure is currently holding back the growth of Africa's logistics markets. By understanding what Logistics is now, let’s see why this opaque sector affects the way you and I buy goods and services

The Numbers.

• The African Development Bank suggest that the continent’s infrastructure needs amount to $130–170 billion a year.

• According to The World Bank’s Logistics Performance Index, about 70% of the three lowest deciles in the ranking are located in Africa.

• African trade in goods and services has gradually risen from 2005 to 2019 however, its global share has remained consistent at just 3% of global imports and exports and intra-African trade accounted for 15% of Africa’s total trade.

• As per global property consultancy Knight Frank, the cost of transport in Africa takes up 50-75% of the retail price of goods(compared to 6% in the US).

Looking at the stats above, you see that Logistics infrastructure isn’t just limited to building roads and other physical touchpoints but also creating accountable mechanisms that enable transparent pricing, open visibility platforms for sourcing and procurement which lead to the flawless movement of goods.

Maintaining a competitive logistics and supply chain ecosystem requires high performing government institutions, financing and industry skills both technical and operational. 

While the promise of the AfCFTA is expected to bring in $450 billion in potential income gains and reduce inefficiencies, the Intra-Africa trade right now isn’t worth much. The total trade from Africa to the rest of the world averaged $760 billion between 2015–2017 but Intra-African trade, which is defined as the average of intra-African exports and imports, was around 2% during this same period.

Observing the chart above, the countries that account for most of Africa’s trade- Nigeria, Egypt and South Africa conduct only 6, 7 and 19% respectively in intra-regional trade. Egypt has ties in the MENA region and does most of its trade there, Nigeria has oil wealth and so has intercontinental trades, and for South Africa, there are historical reasons that make its economy less dependent on its regional neighbours.

My point is, if these countries aren’t trading or collaborating among themselves, there will be less transfer of wealth, logistics wouldn’t occur as expected and the promise of the AfCFTA would only be delayed.

Although Africa’s share of global trade remains low, the rapid urbanisation in African countries particularly in cities, coupled with the growth of e-commerce, payments and on-demand services have laid the foundations for the adoption of logistics-related services.

Wave after Wave...?

The pace at which African tech has evolved over the last 10 years has been astonishing. Africa now has 7 unicorns and is fast becoming a unicorn factory. 4 of them - Opay, Andela, Chipper Cash and Flutterwave were only just minted this year alone!

To understand how the innovation is happening now, it’ll be good to get some context of how we got here:

1. The first wave was marked by eCommerce companies coming to the fore. Companies like Jumia, Konga, Souq, Takealot raised a lot of money to facilitate commerce over the internet. Jumia (JMIA) raised $1.2billion before going public on the NYSE, Konga - $79.5m, Takealot - $231.1million and Souq raised $460 million before being purchased by Amazon. Over the last decade, a growing middle class has emerged which coupled with the rapid progress in mobile and Internet penetration has made Africa ripe for e-commerce.

2. The second wave was marked by the rise of fintech companies and digital payments. This is where things began to heat up and investments came in like wildfire. Companies like Flutterwave, Paystack, Fawry, Chipper Cash are some of the leaders of this era. Just these four companies have raised a combined $521.9 million with Flutterwave, Fawry and Chipper Cash now Unicorns in less than 5 years. Crazy figures.

With over $3B being invested into the economy in the last decade, it’s now easier to buy things online and pay for them using mobile money, physical or virtual cards.

The growth of e-commerce will lead to a huge growth in Logistics, which in turn will lead to higher volumes and potentially a drop in prices of shipping and delivery.

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The Logistics Landscape in Africa

In 2019, BriterBridges released a report titled “Digitising Logistics in Africa”. It investigates the role of logistics companies in the region and explores the dynamics between contextual challenges and innovation. In the report, they identified over 120 businesses active in the logistics sector across Africa.

From the report, I deduced that while some businesses were pure-play logistics companies, others used e-commerce as a front with logistics as the vehicle for service delivery.

“Uber For X” Companies

Logistics in Africa has numerous challenges including visibility of information, quality service, price fluctuations all of which affect the way businesses forecast demand and manage their supply chain. The value proposition for these types of companies is quite simple;

By building relationships with shippers; people who need to send out goods and carriers; people who ship these goods , they can negotiate fair prices for both sides of the marketplace.

Here are some companies of this type:

• Kobo360 is the “Uber for trucks” and has now expanded into an all-rounded logistics management systems and B2B technology company.

• Trella. Think of them as the Kobo360 for the MENA region.

For these companies, as more shippers join the network, drivers have better options, fewer empty miles and fewer wasted hours allowing them to earn more per day. Also as more carriers join the network, capacity increases and shippers see lower costs and higher service quality. 

Sidenote: Obi Ozor of Kobo360 and Omar Hagrass of Trella worked at Uber before founding their companies. Kobo was in the YC 2018 batch and Trella was in the 2019 batch.

Key takeaway

• These companies offer the same value prop with little differentiation except they control their home markets and markets they have expanded to.

• They are all raising debt. Kobo360 has raised $10m and Trella has raised $12m in debt. The debt is primarily for asset financing or trip financing. This means that carriers most likely take the loads but Kobo360/Trella pays for it and is paid back by shippers within 60 to 90 days. This seems like a necessity in the industry as just aggregating the supply for shippers isn’t enough.

• As price isn’t a core differentiator, they begin to compete on customer experience as they commoditize supply and create a “managed marketplace”. The jury is still out on managed marketplaces. My bear case for them is that they’re capital intensive, have lower margins, are less scalable, and handicap network effects. 

While these companies leverage fragmented suppliers and networks, this next set of startups are not what you would call “logistics companies” at first glance. Still, they represent what logistics could be when you do much more than matching cargo suppliers and carriers through digital platforms.

B2B Ecommerce 

Jumia is widely regarded as a winner in the B2C eCommerce space but would you regard Jumia as a logistics company? Companies in this segment leverage supplier relationships but the value prop lies in their route to market and whether or not they handle inventory and warehousing. They are e-commerce companies that build a “logistics” company on top of the existing network.

Let’s take an example: TradeDepot. 

Street-side vendors and small shops that provide goods like biscuits, soap, milk and services for hundreds of communities normally had to go far distances to purchase these stuff. Also, they don’t meet the minimum quantity to purchase directly from a distributor. This leaves them with a limited assortment of goods to stock in their stores. With trade depot, they can order goods on their phones which is delivered through their fleet of vans and tricycles.

Now, the value prop of TradeDepot to the retailers is that they buy and hold inventory in select warehouses while providing needed financing to obtain goods.

Most of the other startups in this category have similar business models but the difference is in the Vertical and the Vertical is the Difference (Yes, this is an Indomie reference😁). MaxAB, TradeDepot, Cartona, even mPharma. FMCG, Fashion, Pharmaceuticals, you name it.

Olumide Olusanya, the previous CEO of Gloopro, a B2B e-procurement company sums up most of my thoughts in this excellent thread.

D.O @docolumide

This is one startup, I spent the weekend trying to understand: “how EXACTLY is this startup different from TradeDepot/SokoWatch/MaxAB?” Answer: not one. They also validate the “new expanded” category name I’ve coined for them in “my head”, broader than “Route-to-Market Tech”

Startups can use the same playbook to digitize the mom-and-pops retail segment across any vertical.

Some other companies in this segment include Sendy, Twiga Foods and Sokowatch in Kenya. Twiga Foods. Twiga Foods is a B2B marketplace platform that sources products directly from farmers and delivers them to urban retailers. To date, they have raised a total of $107.1m. Sokowatch connects merchants directly to local and multinational suppliers — such as Unilever and Proctor and Gamble — and digitizes orders, payments and delivery logistics.

Key takeaway

• The recurring theme I see across these players including the Uber for X types is that because of high costs and inefficiencies in the value chain, they have to fit in financing so trade can occur. Please read the last sentence and if you did, the question I pose to you now is: Isn't the government or banks meant to support this?

• The biggest concern and competitor for me is apathy. Retailers may just not need to use any of these services especially when they've got a Mr Michael that they can call by midnight to bring some products the next morning and have been doing so for the last 10+ years. Non-consumption would make these products feel like they are only providing a solution rather than solving a problem.

• There are other opportunities in BNPL and lending yet to be explored. Even using existing retailers to penetrate the B2C segment is something that could happen soon.

Cold-chain startups

I was particularly curious about finding out whether we had cold chain systems that could facilitate the movement of COVID vaccines. But to my surprise, there are only two publicly known companies according to the BriterBridges report. 

• Musanga.

• Vakava. Vakava uses a special cooling system on its cooling units. These are equipped with temperature sensors and trackers which provides visibility during transit and ensure the quality of deliveries. Finland is their HQ and centre of operations but they have sales, production and distribution sites in Kenya, Sweden and the UAE.

According to Wikipedia, A Cold chain is a low temperature-controlled supply chain. An unbroken cold chain is an uninterrupted series of refrigerated production, storage and distribution activities, along with associated equipment and logistics, which maintain quality via a desired low-temperature range. 

On a lighter note: When I read the above, the Nigerian in me shivered. Where do we get the electricity and cooling units when NEPA is so unreliable? What infrastructure is available to transport these products across the value chain?

However, maybe the Cold Chain problem isn’t just a localised Nigerian problem because viewing the map, only Kenya and Zambia listed startups in this category.

Key Takeaway

• This further makes me believe that some of these problems have less to do with tech but more on infrastructure and policy. If we are to at least have good distribution systems for vaccines, policy changes must be made.

• More companies need to rise to the challenge of tackling the growing market for food and perishable goods distribution that require temperature-controlled transport and storage.

Among all the startups that play in the Logistics space, I was curious to understand why it seemed like Kobo360 was far ahead of everyone else. 

The Curious Case of Kobo360.

Kobo360 is a platform that connects shippers to carriers. It's basically Uber for freight.

So how did Kobo360 “win” the freight and shipping industry?

Since Logistics isn't a winner-take-all market, the key is figuring out which customers to serve and how to best serve them to win the most market share.

In Kobo360's case, they found out that FMCGs like Unilever and companies involved in raw materials and companies in agricultural products like Olam and Dangote were best positioned to be supported. According to the Nigerian Bureau of Statistics, in Q1 2021, agriculture and manufacturing contributed around 52.36% of the nation’s GDP which is about $226m. This suggests a large economic opportunity exists. 

They initially started with last-mile delivery but B2C just proved a tough nut to crack as Obi Ozor inferred in an interview:

"We started doing last-mile delivery…but the volume just wasn’t there for us, so we decided to pivot…to an asset-free model around long-haul trucking,” (or maybe as an Igbo man, he wanted to follow the money😅).

The next step was to provide financing. In that same interview, Obi was asked what was holding back Kobo from becoming a unicorn and in a very succinct reply, he said: “Working capital.”

I wondered why a marketplace needed working capital but the sad reality is that with low credit available from the banking sector, Nigerian corporates thrive on supplier's credit and so invoices could remain unpaid for months. Kobo could be bleeding however they believe that by financing these trips, they would get more carriers which in turn bring more shippers.

Based on these actions, they’ve created a smooth experience where they matter. Since most drivers are not tech-savvy, they built an app for them in the languages they could understand. Smooth also means bundling everything together, providing discounted diesel through KoboCare and vehicle insurance, 84% cheaper than traditional insurance, through KoboSAFE.

By checking their website, you'd see more activities they're involved in and these actions all work together. At the heart of Kobo360's differentiation is the fact that it uses analytics in reverse logistics to crush the price of moving goods.

This tactic works so well as it ensures quality customer experiences where trust is truly the only currency you rely on. The winners who provide the best experience get more carriers which lead to more shippers and a virtuous flywheel kicks in.

Opportunities in an old school industry

Here are some opportunities that I would like founders and entrepreneurs to explore in this space:

1. Leveraging underutilised fixed assets rather than owning inventory. It’s a win-win for everyone. Do consumers need to have products delivered directly to their homes? Can a network of local businesses within 3-5km of a customer’s address be used as access points to provide more flexible delivery options for consumers? Surely something can be built around this.

2. Use tech to reduce costs and drive better operations. It’s 2021 and we’re still hearing stories of delivery drivers being unable to deliver packages due to issues like “inability to find address”.

   FK. @fkabudu

   Honestly cannot explain the way these delivery drivers get under my skin. Why must I speak to you 2 million times before you can do your job??

   

   Akwa Ugo 🦅 @WendyA__

   Dunno how to fix the issue of logistics in Lagos. Someone is calling me with a number I don’t have, claiming to be from a logistics company I DONT KNOW, saying that he’s been asked to deliver to me and he doesn’t understand how to read the delivery address he was given.

   There’s also the issue of costs impacted by returns. This is Reverse logistics and it’s quite a hassle for both consumers and sellers. There’s massive potential in returns optimisation to cut down on costs and significantly increase margins.

3. Offering sourcing and procurement and Just-In-Time warehousing. Gloopro does this but I don’t know if anyone else does. This would make freight and package delivery less reliant on ports and ease pressures on transport networks. For implementation, the focus could be given to corridors that support specific services. In Nigeria, for example, the Enugu-Onitsha route may serve as a hub to warehouse manufactured goods and Makurdi can be used as a hub for food.

4. Offering embedded finance. From a company perspective, this makes a lot of sense because their users are already financially engaged with them and extensions like deposits and savings feel like natural additions to the existing offering. I am still hesitant about how this could play out.

5. Cross-border processing. Oneport is doing something in this space but I would love to see more companies get into this.

6. A Plaid for logistics. I haven’t quite wrapped my head around this one. Here’s what I was trying to get at: How can we reduce cold starts in logistics? In Fintech, anyone can start a payments company if they have the volume. What does this look like for logistics? It sounds ambitious if not even preposterous but we need this level of ambition to achieve great things.

Possible Partnerships.

Due to a lack of viable 3PL options — Jumia was forced to burn capital by forming their delivery services. Still, they’ve gone ahead to offer shipment, haulage and storage services. The line between an e-commerce and logistics company only keeps blurring.

I believe Jumia would see the good value of investing in on-demand delivery companies like Max or Kwik. Not only them, but they should also invest in B2B companies like Omnibiz/TradeDepot/Sokowatch.

In practice, this is what it would look like:

Kwik would be used for delivery services from Omnibiz/TradeDepot warehouses through Jumia’s e-commerce website.

Kwik/Max’s delivery fleet will pick up orders from Omnibiz/TradeDepot’s warehouses, sorting and distribution centres and then complete the last-mile delivery.

The transactions could be paid on delivery or cashless depending on whatever is agreed. Omnibiz/TradeDepot will benefit from Jumia’s B2C e-commerce platform and Jumia will benefit from their B2B network which is largely focused on the offline market.

Overall thoughts: Adapt or Die

While a lot of money has flooded into the African tech ecosystem, large parts of the market remain offline and this is where most of the economic activities take place. Retailers, Mom-and-Pop shop owners and other small businesses form the crux of local entrepreneurship on the continent and need to be supported in every way possible to grow the wealth of nations.

During the pandemic, many of them had to adapt to the change and damage being done to their businesses. Many of them depended on services like TradeDepot, Trella, Twiga Foods, Sokowatch and many more to survive. Those that used them won’t easily forget the help these platforms provided during time of uncertainty.

I am also very happy with the progress made so far in the logistics sector for various reasons:

• The new ideas that have been adopted in the logistics function— the shift from manual to digital, from just logistics as just trucks to something that is actively used in value exchange.

• Functional silos coming down where logistics can impact not just transportation but other functions such as warehouse management, sourcing and procurement, freight management etc.

• The possibilities of partnerships, mergers and acquisitions open up new opportunities as more online trade takes place and more offline and traditional players reap the fruit of logistics innovators.

Fintech may be glamorous, eCommerce may be glamorous, entertainment certainly is. With Logistics, livelihoods and businesses are all on the line.

Logistics may not be glamorous but it speaks to fulfilling the wants and needs of real people, solving the practical problems of satisfying millions of people and companies across the globe, on time and efficiently. 

Once logistics begin to work as they should, we will begin to see real improvements in adjacent industries like fashion, retail, eCommerce, manufacturing, agriculture and lots more.

Logistics may be boring but it poses a real problem that touches each one of us and we need to bring bold ideas to confront it.

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If you enjoyed this piece, please try to share it with your friends, bosses, journalists, co-workers and anyone else that can benefit from this piece.

Also, if you’re an early-stage startup in Africa in the seed to Series A stage that wants to share your story to a wider audience and also bag some extra deals :), I’d love to hear about what you’re working on. You can reach out to me on kamsonwani@yahoo.com or Twitter: @gerald_wan

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Thanks for reading and see you on the next episode,

Kamso.