Brutal realities of Uganda’s  logistics industry

Eight out of ten cargo containers offloaded in the country return empty. Prosper Magazine’s observation has been corroborated by transport and logistics industry players, many of whom noted that the chances of cargo containers leaving the country without any export merchandise happens more often than not. 

There seems to be a consensus that a change in mindset will be required for logistics industry to efficiently play its rightful role to the fullest.
Given the importance of transport and logistics sector, it is no brainer that without it, the country’s three main economic sectors, namely: Industry (comprising 24 per cent of the economy), agriculture (25.5 per cent of the economy) and services sector (single handedly taking the lion share of the economy with 50 per cent) cannot be competitive. 

For the three economic sectors to remain afloat, logistics, defined as the overall process of managing how resources are acquired, packaged, stored, and transported to their destination, cannot be relegated to the periphery. They must  be embedded in the day-to-day operations of these sectors.

This is because, according, Dr Fred Muhumuza, a development researcher and director, Economic Forum at MUBS, logistics goes far beyond transport to management, with, the Private Sector Foundation Uganda (PSFU) chairperson, Logistics Sector, Mr Kenneth Ayebare, noting that, “a well-functioning transport and logistics system should facilitate the safe and efficient movement of products from the economy from the sellers, up to consumers.

Globally, the transport and logistics market are quite a considerable industry, estimated at $1.2 billion in 2022, underscoring its significance in the grand scheme of things. However as a country, as gauged by the Logistics Performance Index (LPI) and (World Bank, 2023) report, Uganda is yet to make serious gains in the sector. 

According to the LPI, Uganda ranks 102 out of 139 countries, worse than Rwanda and Kenya, ranking 57th and 68th, respectively. 
This means Uganda is 50 places below Kenya and 34 places below Rwanda.

The index is generated when a country’s trading partners evaluate its speed of trade in six key dimensions, including efficiency of the clearance process (speed, simplicity and predictability of formalities) at customs.

Also in contention is the quality of trade and transport-related infrastructure (such as ports, railroads, roads, information technology); ease of arranging competitively priced shipments; competence and quality of logistics services (such as transport operators, customs brokers); ability to track and trace consignments; and timeliness of shipments in reaching destination within the scheduled or expected delivery time. 

According to the World Bank report, this implies that Uganda’s transport and logistics industry is small, weak, informal, fragmented, and inefficient, increasing the cost of production and trade, lowering optimal capacity utilisation of manufacturing firms, and reduces market access and economic growth.

It also emerged in the report that Uganda’s transport and logistics sector is inefficient and costs the country Shs3 trillion annually, which Mr Ayebare in his keynote address, tackling logistics competitiveness in Uganda, describes as considerable loss.

Speaking at the second National Export Logistics dialogue held in Kampala, while quoting the PSFU study on cost drivers of manufacturing firms, 2023, discloses that at the company level, transport, and automobile expenses alone account for nearly 17.5 percent of manufacturing firm’s cost.

Despite low levels of the regional competitiveness, the country’s geographical position as a central distribution hub, bordering all countries in the region with exception of Burundi, provides hope for ease of market expansion for local products and income generation from the logistics and transport Industry. But this, according to PSFU study, will only come to fruition if government and the entire sector players pull from the same side of the rope.

Import mentality
It should be noted that domestic and cross border supply chains dominate the logistics industry in the country. Being a net importer explains why most private sector investments in logistics have largely been vested in infrastructure that supports imports rather than exports.

Investment in domestic supply chains required to support the value chain are still minimal due to their capital intensiveness and low return on investment which discourages private sector investments.

“Lack of developed agri-logistics networks has limited small holder farmers from accessing more competitive markets through transportation of demand driven agricultural commodities from where they are produced to various consumption centres that link geographically specialised farmers to urbanised consumer and trading population,” Mr Ayebare revealed in his keynote address during the second National Export Logistics Dialogue, suggesting that such investments require either public investments or public private partnerships.

Uganda still faces unique challenges in logistics due to lack of direct access to the coastal ports, explaining limited warehousing facilities for exports, leaving majority of Micro, small and medium enterprise (MSMES) without warehouse facilities that accommodate consolidated exports yet they make 90 per cent of the producers.

According to Mr Ayebare who is also an industry player, government’s decision to heavily invest in transport modes such as air transport, road transport and currently railway transport is a step towards the right direction. However, transport makes only one component of accessibility in the whole supply chain management.

Other infrastructure such as logistics hubs along these modes of transport in different production areas and logistics systems that coordinate the main three economic sectors are still lacking. The absence of well-developed and affordable cold chain infrastructure also remain a big challenge mostly to the agriculture, pharmaceuticals, and processed food industries.

Export logistics woes
Lack of proper refrigerated and temperature-controlled facilities limits the storage and transportation of perishable goods leading to significant post-harvest losses and reduced product quality that meets international standards.

The PSFU study further reveals that the few available infrastructure is expensive, costing $10 per cubic metre a day - which is beyond the affordability range of the biggest percentage of MSMES.

The adoption of modern technologies and digital solutions in Uganda’s logistics and supply chain is relatively low, limiting standards of export logistics required to global competitiveness. Also the use of outdated manual systems results in inefficiencies, lack of real time visibility and difficulties in demand forecasting and collaboration with export markets.

Investments in export logistics require a lot of resources, but also with a low return on investment. Private sector targets investments in businesses that have a high return on investment with the objective of generating a profit. For instance, China and India use PPP investments for such capital-intensive infrastructure projects.

“This should be domesticated here, meaning a policy shift on establishment of logistics hubs will be required,” notes Mr Ayebare.  

Weak levels of coordination of the logistics sector in Uganda is another headache. Currently, the sector is coordinated through PSFU as there is no single centre coordinating logistics in government. Most of the focus is on transport which is only part of the industry.

Sector players speak out
Mr Issa Sekitto, the spokesperson for Kacita, says there is more of ‘lip service’ being offered to promotion of exports as demonstrated by limited facilities to support exports out of the country.

“Other countries put in place favourable tax regimes, make sure there is affordable financing for sector players and make it easy for MSMES to consolidate cargo where necessary,  for our case it is the contrary. So I believe to promote exports in logistics, there is need to walk the talk,” said Mr Sekitto.

Uganda Airlines cargo manager, Mr Morris Ongwech, was of the view that with cargo consolidation, negotiation on reduction in price is possible. This is because in airfreight rates drops as weight goes up.

Additionally, he told the meeting that cost in airfreight drops with economies of scale, saying a person shipping about 100 tonnes will pay more than the one shipping 500 tonnes, urging the MSMES to consider consolidation and bear in mind frequency, huge volumes and certainty will influence the cost of airfreight.  

For MSMES to be part of the logistics value chain, the Commissioner, external trade at the Trade Ministry, Mr Cleopas Ndorere notes: “Good quality products that are well-packaged and branded can be attractive for export.”