Logistics Update Africa: Getting past the hurdles to the last mile
While the rest of the world might be focusing on reaching its consumer faster, African ecommerce players must channelize their energies on cracking the last mile challenge. That is, making products available to the consumer everywhere and on-time. With unpredictable timelines, e-commerce retailers in some markets are still struggling to earn the trust of consumers with efficient delivery. And the only way to win in this region is to build a model that leverages this sector for its last-mile delivery, Surya Kannothreports.
Over the past few years, the e-commerce industry in Africa has been on the rise thanks to a handful of online retailers like Jumia and Mall for Africa and a growing middle class. But a big bottleneck is getting the product from the transportation hub to a customer’s doorstep, a term called “last-mile delivery” in the business.
It is estimated that the average international cost to the last mile for any manufacturer works to around 28 percent of the cost of the product. But within Africa, this cost spirals to around 35-55 percent pressured by issues such as weak infrastructure, limited delivery options and poor supply chain analytics.
As ecommerce gains momentum, retailers need to expand their distribution networks, build more fulfillment centres, and leverage more on third-party logistics (3PL) partners. At the same time, online retailers must place greater focus on conveniently locating their fulfillment centres close to their markets to facilitate faster deliveries.
Recounting his experience, Prince Nnamdi Ekeh, founder, Yudala and co-CEO of Nigeria’s composite e-commerce giant Konga said, “When we came into the market, we began working with spare parts and logistics companies in Nigeria. When we started, we faced two main problems – one, was in terms of last mile delivery and the other in terms of payments. It would take almost two weeks for delivery whereas in e-commerce, customers need delivery in 2-5 days. Also, customers only opted for Payment on Delivery which third party logistics companies found difficult to manage. Since other logistics companies were not able to handle deliveries efficiently, we decided to come up with our own logistics platform – K-Xpress.”
Konga then invested N2.9 billion in its logistics arm, K-Xpress to build a world-class delivery solutions company to resolve the logistics challenges in Nigeria’s ecommerce emerging business.
Towards the end of 2018, Konga injected over 43 new vehicles and 100 brand new motorcycles into the system that would work not only for Konga but other third-party logistics companies in Nigeria. The company is looking to add 200 new vans and 1000 motorcycles to the system nationwide. While one aspect of this investment is its intention to work with other credible, hardworking Nigerians as franchises to create jobs for more people, the second part is the company’s determination to guarantee same day delivery anywhere in Nigeria.
While ensuring safe and fast deliveries is one part of the story, Africa needs to boost Internet penetration to grow e-commerce. It also needs to get more of its existing Internet users to trust the online market for making purchases, secure servers, bank accounts, and a clearly marked and mapped address system. Unlike developed markets, such as in the European Union, where 68 percent of Internet users made online purchases in 2017, the corresponding figure in Africa was only 13 percent on average in 2017.
“When you talk about the integration between online and offline, since the internet penetration in Nigeria is quite low, for us to scale up successfully, we need to take advantage of physical stores. And that is two things for us – it would help generate revenue, which is good for investors and also helps us integrate with ecommerce platforms. The most expensive part for ecommerce companies is the last mile. But now, 40 percent of our customers choose pick up from the stores, so we save money on last mile delivery. Now because of the efficient payments and no-so efficient logistics we are now working with other companies in Nigeria,” added Prince.
Bwala Africa Group, a last mile logistics marketplace launched last year to solve challenges facing fleet owners, rolled out 8 new trucks from ISUZU East Africa, to meet the rising demand for last mile fleet connectivity.
With three major partnerships with Kenya’s top retail stores like Copia, Naivas and Jumia up its sleeve, Bwala Group will power their last mile deliveries. It is also looking to do payment collections through BwalaPay, its ESCROW system. BwalaPay allows customers to pay on delivery and the seller on the other will either get cash when the item is sold / return of the package, if not sold.
BwalaPay service will be extended to classifieds and other online business entities who are dealing with skeptical customers who are not sure if they will lose money through online fraud.
Bwala Africa is also working on crowdsourcing logistics service providers to fleet owners and connect them to auto garages and mechanics around the country. The firm is also working on its on-demand last mile retail logistics section for its B2B and B2C customers in e-commerce and distribution.
Though Bwala Africa is the first logistics platform and marketplace where logistics providers can meet mechanics, buy spares and insurance, the firm is also the first to offer an escrow payment service to its users building trust between the shipper and the receiver during the transaction.
Bwala Africa is currently working on a 12,000 sqm warehouse to consolidate the orders for various retail needs to ease delivery and last mile order fulfilments. The firm also planning to expand into Uganda, Zambia, Ghana, Zimbabwe and South Africa as well as in Asia, Bangladesh, India and Philippines.
While things are on the mend in the rest of Africa, the ecommerce situation in South Africa might be slightly better. But last mile logistics remains a concern in South Africa as well.
“Since we showcase many retailers in South Africa, including the large ones, we have solved most of the problems in South Africa. Last mile logistics is very expensive. We can’t use the post office because it is very inefficient so for ecommerce deliveries it just doesn’t work. Couriers, therefore, fill that gap. But that is obviously expensive. Generally, the user experience is at par with what you see in mid to developed markets. Most of the big retailers in South Africa still struggle to deliver the experience online that they do offline if they are a traditional offline retailer,” observes Kevin Tucker, CEO, PriceCheck.
Meanwhile, Ethiopian Airlines’ managing director Fitsum Abadi impressed upon the need to develop infrastructure in ICT (Information and Communication Technology), connectivity and information along with the development of an integrated multimodal services, where door to door connectivity can be easy.
“Air connectivity is very important but the crucial thing is that we also have to connect it with the land and sea. The information flow needs to be easily accessible to all youngsters and middle-class societies so that they can buy and get whatever they want to buy easily. So, I can see, for drones, for example, or our own investment in Addis Ababa – a big cargo hub with latest technology fitted warehouse or a joint venture with a global leading logistics provider DHL. We have entered into a JV to provide door to door services, integrated from a shipper or production houses to a super market or a consignee. So, this type of set ups or arrangements will facilitate the ecommerce in Africa,” he said.
Alastair Tempest, CEO, Ecommerce Forum of Africa also spoke about the need for infrastructure development in ICT. “Looking beyond South Africa, there is a serious problem with respect to lack of infrastructure for ecommerce. Furthermore, ICT is another area of concern as most parts of Africa have an issue of network coverage.”
Ecommerce readiness indicator
The latest business to consumer (B2C) e-commerce index by United Nations Conference on Trade and Development (UNCTAD) ranks 151 countries globally, including 44 African nations by measuring their readiness for online shopping. The index is based on four indicators: bank or mobile money account penetration, internet usage, availability of internet servers and the reliability of postal services.
But the report notes a “disparity in core indicators and actual shopping” across Africa. Libya, ranked 13th in Africa for e-commerce readiness, has the highest proportion of online shoppers on the continent among people aged 15 and older. In fact, six of the top ten countries by proportion of online shoppers do not rank among the ten highest ranked countries for readiness in UNCTAD’s report. By sheer volume however, Nigeria, South Africa and Kenya accounted for nearly half of Africa’s estimated 21 million online shoppers in 2017.
“Africa trails behind the rest of the world in its preparedness to engage in and benefit from the digital economy. Three-quarters of the African population have yet to start using the Internet,” UNCTAD Secretary-General Mukhisa Kituyi said.
“However, the continent is showing progress in key indicators related to B2C e-commerce. Since 2014, sub-Saharan Africa has surpassed world growth on three out of the four indicators used in the index,” he added.
“We estimate that there was at least 21 million online shoppers in Africa last year, less than 2 percent of the world total, with three countries – Nigeria, South Africa and Kenya – accounting for almost half. Nevertheless, the number of African online shoppers has surged annually by 18 percent since 2014, faster than the world average growth rate of 12 percent.”
The top three African countries in the index each has a distinctive strength in one of the four areas measured by the index which not only counts numbers of online shoppers but measures ease of payment and delivery.
While the B2C E-commerce Index correlates with the proportion of online shoppers for the world as a whole, in Africa this relationship is more tenuous as other factors than those captured by the index may be at play.
According to a report by McKinsey Global Institute, the demand for world-class online shopping opportunities is growing exponentially in Africa’s leading economies, as urbanisation and incomes continue to rise.
Despite the growing demand, many US and UK-based retailers do not offer shipping to African countries, owing to the perceived logistical challenges involved such as high last-mile delivery costs and fraud concerns. This perception needs to change as Africa steps up its efforts to make the ecommerce experience more efficient.