The key to East Africa’s logistics challenges
Black spots, traffic jams and delays are some of the challenges found on the Northern Corridor, in addition to the high cost of fuel that causes delay of trucks packed along this route as they await clearance, a factor that occasionally contributes to high transportation and operational costs.
According to the 2015 East Africa Logistics Performance Survey, the road between the Port of Mombasa and the town of Mariakani encounters a lot of traffic that would almost take six hours rather than half an hour in normal situations.
It’s for this reason that Eastern African countries came up with a treaty to address some of the challenges they face along the transport network, known as the Northern Corridor.
Created in 1985, the Northern Corridor Transit and Transport Authority (NCTTA) treaty is a transportation network that consists of railways, roads and pipelines that connect countries such as Burundi, Kenya, Uganda, Tanzania, Ethiopia, Sudan and Tanzania.
The Corridor facilitates international trade and movement of people across the region.
According to the 2019 Economic Survey, the Gross Domestic Product (GDP) generated by the Eastern African Community grew by 5.9 percent last year, as compared to 5.3 percent two years ago, mainly driven by growth in the agricultural, infrastructure and service industries and facilitated by the Northern Corridor.
These developments have also been contributed to by a number of companies which transport their cargo along this route. Lori Systems, a logistics platform that helps to manage transport companies ferry their goods for cargo owners, is such a venture.
The company, based on the fifth floor of Pacis Centre- Westlands, Nairobi, was founded by Joshua Sandler, a South African who grew up in the US. According to Ruchir Bhatnagar, the East African General Manager for Lori Systems, the founder’s interest was triggered by the impact logistics have on the end product in emerging markets, while he was undertaking research for his Masters in Business Administration (MBA) thesis at Harvard Business School, Kennedy School of Government, four years ago.
“He realized that the overall contribution of logistics in an emerging market to that end product cost was less than ten percent. However, when he looked at this in an emerging market, it was exorbitantly higher than the sub-ten percent, so in a region like East Africa, we even came up with numbers as high as 40 to 50 percent,” says Bhatnagar.
“So the question is; why is there such a difference? Does this mean that an emerging global market will never be globally competitive? And, the answer is of course, no.”
According to Bhatnagar, Sandler found out that despite the high cost of logistics, emerging markets ought to have been globally competitive so that they can grow. So, he did a project with the Kenyan government and East Africa in general. He also met with many government officials to better understand the problems that existed with regard to logistics.
That was in 2015, a year before Sandler started Lori Systems. The founder’s academic research revealed that while there were transportation assets such as trucks, they were not fully utilized. Currently, the company neither hires trucks or drivers. And its ecosystem consists of both cargo and transport owners. The company’s transport partners have come to register on their platforms. Some enter into long term contracts and run trucks on a consistent loop with them.
The transport sector is mainly driven by personal relationships built on trust over time, meaning that a cargo owner who had transport owners in his network will use those that are accessible to transport his cargo. Anyone outside this network would miss out.
Another challenge was that even if there was a person who wanted to move his cargo from point A to B, there was no co-ordination with the person who could do it, even if there was a transporter who had a truck packed in his yard. This means that the truck owner misses out on his profits that come from carrying a load.
These challenges are what made Sandler see the opportunity that technology could bridge. He founded Lori Systems to do a match between a cargo owner and the transporter. Bhatnagar says that the responsibility of Lori Systems is to make sure that the right kind of truck reports to the right work. Secondly, the startup runs the operations by keeping the cargo owner informed about the safety of their goods while on transit.
“What I mean is, once the truck has been matched, we have a team that actually tracks the truck from on-loading until off-loading, all the way through the journey. Even if there is a mishap along the way, such as a tire bust that could cause a delay in the journey, our team keeps the cargo owner informed that their truck will take a little more time than is required to get to their destination,” says Bhatnagar.
There are other challenges that Lori Systems tries to reduce. These include high cost of financing, which accounts for between 40 to 50 percent, thus causing a disparity in the costs of fuel between corporates and small-scale entrepreneurs, who may lack access to credit or discount facilities.
According to Bhatnagar, Lori Systems comes in to provide a level playing field for the two groups, by helping them get fuel from designated partners by paying cash up front, thus reducing their working capital by 50 percent.
“We also seek to address the challenge of lack of an insurance cover for transport partners of Lori, to cover their cost of expensive goods while in transit, which is a challenge for small scale entrepreneurs. Also, a transporter who does not have a cover for three months, does not have to take an annual one,” the GM says.
He adds that the company also comes in to address the challenge of untracked goods moving through the border by offering European Credit Transfer and Accumulation System (ECTS) financing for its transport partners. This is a government form of financing which applies to the electronic tracking of goods when they are moving cross-border- say from Kenya into Uganda.
“Lori Systems, through its internet portal, is responsible for making sure that a truck is available when required. We also enable cargo owners to track their own goods, which gives them a peace of mind,” says Bhatnagar.
There are difficulties that Lori Systems has been able to lessen, such as reducing delays as transporters await clearance at the borders. The process, the GM says, starts with being prepared, where the operations and customer service teams keep the transport partners informed about any delay. Lori Systems also advises its transport partners to keep their immigration passport documents ready as they pass through immigration checks at the Port of Mombasa, or as they move from Uganda to Kenya. This ensures the documentation is ready.
Bhatnagar says Lori Systems operates in East Africa, with its Kenyan offices in Mombasa and Nairobi, as well as in Kampala and Malaba in Uganda. It also has partners who transports goods from the Democratic Republic of Congo, Rwanda and South Sudan.
In 2017, Lori Systems won $25,000 from Startup Battlefield Africa by TechCrunch, an annual competition hosted by Disrupt-Africa held in San Franscisco, a city in the American state of California. Previously, Lori Systems raised USD 6.1 million in a seed round from local and international investors, which was pumped into the company for investments.
Bhatnagar says that Lori Systems has few direct competitors because of its business model, which focuses on a small niche, called the prime mover’s segment. It identifies its competitor as the Nigeria-based Kobo 360, which has recently launched in East Africa. Area of focus is the full truck load and cranes.
But the focus for Lori is on different parties in the food chain segment. Bhatnagar says this is because Lori Systems focuses on agriculture and the containerised business, which is between 40 to 45 percent and could either be general cargo from a general container. The containers go to both Kenya and Uganda, so that each sector has its own pricing, based on differences in documentation, timing and risks. He says about 50 to 55 percent of its business is bulk agriculture, either sorghum or wheat. However, Lori Systems does not at the moment focus on the perishable category. The company’s customers comprise of millers in East Africa. And the pricing is based on the value that its goods and services has on its cargo owners and transport partners.
“One is you can give a target price, for instance: I want to pay X to move goods from A to B. Through our platform, we take your voice and we propagate it to all our partners, saying that there are goods from point A to B and this is the target price,” Bhatnagar says.
In terms of e-logistics, the startup is the largest company in East Africa, as measured by the number of trucks it has been able to load, as well as being able to be the first to focus on the prime mover segment.
“The founder chose East Africa as the ideal place to set up Lori Systems. He decided to found a Kenyan company here in Nairobi. He did not do an African-wide study but chose to work with the Kenyan government,” Bhatnagar says.
The company then spread its branches to Kampala, Uganda, then to West Africa’s Ghana and Nigeria. It recently launched in Ethiopia. It currently has a total of 150 employees, spread across these subsidiaries.
Before the second phase of the Standard Gauge Railway (SGR) project, linking Nairobi and Mombasa, was completed three years ago, there was a lot of confusion. The project was a new idea that most people misunderstood, says Bhatnagar. But Lori Systems then came in to help its partners and customers do business by helping them understand properly the opportunities within the project.
In the next five years, according to the GM, Lori Systems, as a market leader, sees itself growing and introducing new technology that are of benefit to its projects. These can either be insurance schemes or fuel financing. There are also new products that the company may want to launch, in areas that can make it easier for our customers to focus on the core business.
He says Lori Systems is a young, vibrant organisation that is growing in leaps and bounds. But as the company scales, so will its challenges. This is why it is constantly bringing on board talent that will have industry-wide best practices.
Bhatnagar, the GM
Bhatnagar himself is an engineer who gained his experience on the job, as he did not come from a logistics background. He gained his experience in product development, worked in various industries in Sales and Marketing, both in distribution as well as manufacturing. But from that he has been able to extract industry best practices, from a wide array of different kinds of industries, in different parts of the world.
He advises entrepreneurs to think outside the box and try to solve problems in terms of scalability and optimization. If one has an idea, he adds, they should go after it and address a very basic problem with technology problems that are in place.