By Alison Buckholtz

Where does a freight truck go after it delivers its cargo?

In much of the world, logistics companies use technology to match available vehicles with shippers that need to move goods, ensuring that every mile is paid for. But automating freight management has been difficult in Africa, where drivers are typically solo operators scheduling their own jobs. The process regularly results in “empty runs” – trucks with no cargo for the return route, forcing drivers to idle for days.

That’s part of what makes logistics costs in Africa almost double that of North America, according to data from supply chain firm Armstrong & Associates. The high price holds back trade and raises costs for consumers, making basic necessities like diapers, soap, and food unaffordable for many.

“Everyone from local business owners to multinationals knows that Africa’s supply chain is broken,” said Samakab Hashi, a Nairobi-based partner at Lateral Capital, which invests in early-stage and growth ventures in sub-Saharan Africa.

But technology created by African e-logistics companies is beginning to patch the supply chain gaps. Industry observers like Hashi say that e-logistics companies are becoming well positioned to meet a projected increase in intra-regional trade when the African Continental Free Trade Area (AfCFTA) opens next month.

Digital platforms from startups such as Kobo360 and Trukker aggregate and then connect truck owners and drivers with enterprise clients who would have previously not have access to each other. By navigating scheduling, customs requirements, and payment via phone apps, these firms appear to be lowering the cost of doing business.

Analysts have observed more investor interest in African e-logistics companies, according to Adedoyin Amosun, a Nigeria-based analyst at PwC. Private investment in transport and logistics startups signals “a significant shift from investing in financial services and digitally-focused startups and may point to the opportunity to solve the problems bedevilling the [African] logistics sector”, she said.

“A bigger pie”

Tech-enabled freight and delivery services in developing economies are attracting global attention. IFC reported last year that “E-logistics is the most promising area for immediate investment opportunities that involve AI [artificial intelligence] applications in emerging markets.” This is especially true for Africa, where logistics startups had a “record-breaking” year in 2019, according to the African Tech Startups Funding Report. Total annual funding in this sector has jumped 6,746% since 2016, the report said.

Companies are demonstrating that they can make logistics cheaper, said Obi Ozor, CEO and co-founder of African digital logistics platform Kobo360. He estimates that digitisation matching trucks and shippers saved customers about 7.1% on logistics costs in 2019 and helped drivers earn 27% more through optimisation and increased utilisation of their vehicles.

Widely adopted automation after the pandemic will lower the cost of logistics even further, Ozor believes. This echoes IFC research on the impact of Covid-19 on logistics. “Companies with robust digital capabilities that allow them to provide cargo visibility/traceability and do business online are at an advantage” during lockdowns and their aftermath, a recent report stated.

Technology customised for Africa is important because the continent’s logistics sector is fragmented, with standards, requirements, and costs that vary country by country. The World Bank’s Logistics Performance Index has for several years ranked many African countries low on indicators such as cross-border clearance processes, quality of trade, infrastructure, inconsistent tax regimes, and consignments’ track and trace mechanisms.

Enactment of the Africa free trade agreement aims to confront these challenges by creating a single market for goods and services, laying a foundation for the establishment of a continental customs union. The trade agreement aims to reduce tariffs on 90% of all goods and facilitate free movement of goods, services, capital, and people. It promises to unite a market of 1.3 billion people and a combined GDP of $2.6 trillion, according to a joint study by IFC and Google.

A large number of African companies can benefit from the combination of tech-enabled logistics and a continent-wide, streamlined trade process, according to Hashi, from Lateral Capital. “The new zone will make the pie bigger for everybody,” he said.

Digitising delivery

Unlocking intra-regional trade is central to African economic growth because low levels of intra-regional trade limit trade diversification – a situation with far-reaching implications. Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015–2017, while comparative figures for America, Asia, Europe, and the East Asia and Pacific region were, respectively, 47%, 61%, 67% and 7%, according to the United Nations Conference on Trade and Development (UNCTAD).

AfCFTA’s approach to intra-regional trade “will be a great boon to logistics,” said Gaurav Biswas, CEO and co-founder of Trukker, an intercity and long-haul e-logistics company that expanded from the UAE and Saudi Arabia to Egypt in early 2020.

Biswas has seen firsthand the potential of technology to transform the logistics and road freight sector, where little has changed for decades. “In an era of blockchain, there are still companies that are still faxing a gate pass,” he said. “But you can now digitise transactions via a smartphone … If you can standardise and digitise document processing, you build immense commercial advantage based on improved asset utilisation and improved working conditions [for drivers].”

Both Ozor and Biswas have said that boosting their drivers’ quality of life and career opportunities are essential to the companies’ success. Automating the logistics process can protect the drivers, Biswas said. E-invoicing assures that they will be paid on time, digital signatures limit their exposure to Covid-19, and other technology helps drivers with insurance, fuel cards, vehicle maintenance, and saving money to eventually purchase their own trucks instead of leasing them.

“After all, they’re entrepreneurs, just like we are,” Biswas said.

This article was originally published by the IFC.