Challenges of Logistics Operations in Nigeria

Except you’re involved in the scene one way or the other, the logistics industry is one that many people barely notice how it contributes to everyday life — well, until logistics channels get clogged. You notice the scramble as Goods and services have to locate people fast.

The global logistics industry has a market size of over $8 trillion. While global markets were more slow-going in 2020 as the pandemic hit and a series of nationwide lockdowns followed, countries have continued to rebound ever since, with more progress expected. A similar phenomenon is expected in Nigeria, where even though growth in the logistics industry has moved rather slowly over the years, a 4% compound annual growth rate (CAGR) is forecasted for the coming years according to Modor Intelligence.

The 2018 Logistics and Supply Chain Industry report estimated Nigeria’s logistics sector at 250 billion naira. This is despite the challenges plaguing the sector. The Nigerian logistics and supply chain industry has long been marred by challenges. It is even more unfortunate that recent events such as insecurity have added to the mix.

Long-term challenges remain, such as inadequate roads and road networks, paucity of skilled manpower, over-taxation, reliance on old technologies, and so on. Solving some of these challenges will have a ripple effect on the economy as it will help drive trade and economic growth across the nation. Some of these challenges are discussed below:

Government Policies

An array of different government policies has affected the sector over the years. In July 2020, the Ministry of Communications and the Digital Economy released a new set of guidelines in the “Courier and Logistics Services Operations regulation (2020)” which among other regulations, introduced new licensing fees for courier and logistics companies. The fees were however reversed after a public outcry but show how unstable the sector can be to government intervention at any time. It may be argued that government regulations have their merits to regularise the sector but abrupt, sweeping policy changes without a proper audit of the sector may prove detrimental to players.

Inadequate infrastructure

Bad roads, power outages, and other infrastructure remain key issues affecting Nigeria. Moody’s estimated that Nigeria’s infrastructure will need over $3 trillion in thirty years to bridge the gap. Budgetary allocations to infrastructure may have been commendable compared to other areas, but they are grossly inadequate to tackle the current infrastructure deficit. For example, in the 2021 budget, infrastructure amounted to 1.45 trillion, or 8.9% of the total budget. This shows that the government is committed to resolving the infrastructure deficit, but there’s a need for more private sector funding.

Insecurity

Bandits, kidnappers, rampaging herdsmen, cattle rustlers, intercommunal clashes, or outright terrorist attacks; the title may be different but the result is increasing insecurity in parts of the country. This makes supply chain and logistics operations difficult particularly in affected areas.

Multiple taxations

It is no secret the sheer number of multiple, often ‘informal’, taxes that businesses have to pay to operate logistics operations. Community levies, company income tax, ‘money-for-chief’, marching ground, and all manner of tax names. This makes it difficult for companies to thrive.

Inefficient seaports and custom services

Apapa port is in the news every other day with government promises about decongesting it but this is far from the reality. Customs processes in Nigeria are slow and often riddled with one-too-many middlemen. Commendably, there have been government efforts to introduce digital solutions to alleviate this problem, but the process still needs a lot of work. These delays in clearance mean the ports are crowded for longer periods and goods take time to get to users. This likely leads to a loss of time, revenue, and brand image on the part of logistics operators.

The need for more partnerships between operators

More partnerships between operators

This opinion piece points out the need for partnerships, acquisitions, and mergers among logistics operators in the country. Choosing to operate in silos may not be the best approach to tackling collective problems encountered in the industry. Supply chain and logistics is a huge industry, and one way to make fast strides in the sector is through strategic partnerships. Governments, foreign and local companies have to pool financial and physical resources to solve shared challenges in logistics operations in the country and across Africa. Obinna Anyaegbu, the CEO of Chisco Express, a digital logistics company, has opined that for medium to long haul movement of goods, it would do well with a more interconnected rail network with private sector participants providing rolling stock while the government guarantees rail access for a fee or a rail line infrastructure concession to build/maintain, and operate. This would drastically bring down the cost of some critical high volume commodities (FMCG, flour, rice, millet, beans, sorghum, etc.) per kg and would go a long way to ensuring food security.

Skill Gap

The logistics sector has not been left behind by recent technological disruptions. Emerging tech innovations such as drone deliveries, blockchain, and other forms of automation and digitization continue to change logistics operations. Having a ready workforce equipped with the necessary knowledge is needed now more than ever to bridge the skill gap. In Nigeria, employers often lament the dearth of properly skilled job seekers to meet labour needs. In the logistics sector, properly trained drivers, dispatchers, and warehouse managers continue to remain in high demand.

Growth potential and recommendations

Regardless of these challenges, the growing popularity of the e-commerce sector has driven more investments into logistics operations. While shopping is done online, physical goods have to be transported to buyers. Small and medium-scale businesses are also leveraging e-commerce tech to sell their products and services and will require logistics providers.

Government budgetary allocations towards infrastructure are necessary and highly commended. But, as earlier pointed out, more private funding is required. Also, proper implementation is expected of all state governments to take responsibility for the growth of infrastructure in their states to provide the best environments for business and living. Federal government projects such as the construction of railways, roads, seaports, airports, and the passage of relevant policies to drive growth, should be deployed quickly. Government should also create an enabling environment for a tech disruption in the sector. Events of government interference in some fintech services and products leave much to be desired of other sectors. However, tech products in this space should be given the due support or enabling environment to bring the needed change.

Another interesting recommendation is highlighted in this opinion piece on the need for a “holistic national freight logistics strategy for Nigeria for the next few decades.” Such a strategy would, in essence, bring together all tiers of government and industry to provide a coordinated, national multi-modal approach to freight planning. And it would address Nigeria’s freight while supporting its long-term international competitiveness. ” It’s easy to imagine how this coordinated approach would benefit the logistics industry in the country. In all, the government must provide a suitable environment for logistics to maximize the benefits of trade both within the country as well as across Africa with the African Continental Free Trade Agreement.

In an attempt to provide sustainable solutions to some of these challenges, Obinna Anyaegbu, the CEO of Chisco Express — a digital integrated logistics company, leveraging technology to deliver excellence to the African supply chain industry, seeks to contribute to reducing the skill gap in the sector by training job seekers with the latest trends and innovations in the sector. Chisco Express also recognizes the importance of partnerships to deliver better logistics services to a wider reach of customers. This is why they have partnered with various experienced logistics operators on every continent to ensure your goods get to you wherever you are. Visit chiscoexpress.com to learn more.