Unlock the full potential of air cargo and Africa
Even as the air freight mode of transport compete with increasingly more reliable and cheaper sea freight, shippers think that there is huge value waiting to be unlocked if the fastest mode of transport positions itself as the premium logistics mode taking into account the very critical first and last mile needs. And for Africa, with the roll out of a liberalised trade and aviation policy, it is indeed time for Africa to unlock its full potential, writes Reji John.
It is commonly understood that the air cargo mode of transport is essentially about two things – speed and reliability. If you want your shipments to travel long distances in short periods of time with high levels of security, air cargo is the type of freight service for your business to avail. This also becomes the best choice if you have an urgent need to ship a product or if the nature of your goods requires special standards of protection. As the eCommerce industry grows across the world, the significance of air cargo is only going to increase.
Come Valentine’s Day and Mother’s Day major cut flower exporting markets in Africa and South America scramble for air freight capacity. Lack of air freight capacity is a much serious concern for flower shippers from Kenya, one of the top cut roses exporting countries in the world. Lack of capacity, both main deck and belly, particularly through the pandemic and even post pandemic, made shippers to consider shipping cut roses using reefer containers through ocean freight, that takes three weeks of sailing to reach European destinations.
“We can only be a true premium service if that first and the last mile are also under control. That is the challenge we have. There’s a fantastic service level possible which is truly a premium service but if early on in the supply chain or if the last mile is not working we cannot unlock the value the premium service is offering.” Jeroen van der Hulst, FlowerWatch
So how can air cargo position itself as a premium mode of transport for perishable commodities like flowers? Is there a value to be unlocked for this premium mode of transport? Jeroen van der Hulst, owner and founder of FlowerWatch, a Netherlands-based centre of expertise and worldwide trendsetter in monitoring and ensuring the quality, value and vase life of fresh-cut flowers and plants, thinks that there is tremendous value to be unlocked.
Van der Hulst was evaluating the current position of air cargo as a mode of transport in the light of recent developments in Africa, particularly in Kenya, and earlier in South America, in how flower exporters have been experimenting container shipping as an option to transport cut roses.
“We need to position air cargo as a premium logistic mode. And I even dare to say that sea freight cannot be successful without an excellent air cargo. The two have to work together,” he said. He also argued that flower transport by ocean freight will be successful only if it ticks all the important boxes like temperature, packaging, excellent production, excellent handling before and after harvesting. He called them the big five ifs.
The pandemic had a devastating impact on Africa’s flower exporters, particularly on those from Kenya, as they faced severe shortfall in air freight capacity. The impact was so severe that small-scale flower farms were throwing away a fifth of their daily produce meant for export even in the early part of this year. However, the big players managed to lock-in capacity through advance bookings on airlines. This was largely because the air freight capacity out of Nairobi’s Jomo Kenyatta International Airport was yet recover fully from the interruptions caused by Covid-19 in 2020.
The cost of transport is a main concern for a large majority of Kenyan exporters of horticulture products, such as flowers. The air freight industry is well-developed in Kenya and highly flexible to meet demands. The sea freight industry of fresh produce, however, is less developed and could become many times larger.
“Capacity can be made available in the market. But it is all about rates, which has become very competitive. To get the freighter capacity, like for perishables, the rates have to compete with rate for eCommerce and other products shipped from Asia and other places. So it is really a question of right freight rates selling in the market.” Ken Mbogo, Saudi Airlines Cargo Company
Last year, a report published by the Embassy of the Kingdom of the Netherlands in Nairobi explored the potential of sea freight for exporting flowers from Kenya. The report titled, “Insights by Key Market Players on the Development of Sea Freight of Flowers from Kenya”, was based on extensive study conducted by ProVerde, a market research firm. Funded by The Netherlands Enterprise Agency, the report was compiled based on a survey among key market players carried out to get a better understanding of their view on the potential bottlenecks and opportunities regarding the further development of sea transportation as a viable alternative for air freight.
Talks with sector actors have indicated that a crucial factor for the success of sea freight is the acceptance of sea freight as an alternative by European market parties. Therefore, a survey among key market players was carried out to get a better understanding of their view on the potential bottlenecks and opportunities regarding the further development of sea transportation as a viable alternative for air freight.
From the insights gathered through conversations with importers, traders and retailers it looks like that there is a tremendous interest in sea freight. One of the reasons for such heightened interest in sea freight for flower transport stems from the fact that air freight capacity was becoming very scarce through the pandemic.
Therefore, the air cargo mode of transport has to now elevate itself to be true to its value proposition which is speed and reliability. “Air cargo can only be a true premium service, if that first and last mile segments are also under control. And I think that’s a challenge. There is a fantastic service level possible, which is truly premium. But if the first mile and the last mile are not working, we cannot unlock the value that its premium solution is offering,” said van der Hulst of FlowerWatch.
The reasoning of van der Hulst has to be considered taking into account how the African continent has been slowly and steadily opening up its aviation market to make trade and movement of goods easier and less expensive within African markets and economies. Perhaps, the time is just right for the continent to begin fully unlocking its air cargo potential. Two landmark developments that will help the continent to unlock its aviation and air cargo potential fully are the Africa Continental Free Trade Area (AfCFTA) and the Single African Air Transport Market (SAATM). While the former, established in 2018, will create the world’s largest free trade area, bringing transformative change and tremendous opportunity to African economies and business environments, the latter is the flagship project of the African Union Agenda created to expedite the full implementation of the Yamoussoukro Decision.
“As a Kenyan cargo airline it is our responsibility to our customers to make sure that we are able to provide low cost, reliable and direct air freight options to new markets so that we are not over dependent on European carriers.” Sanjeev Gadhia, Astral Aviation
AfCFTA’s adoption and implementation will accelerate intra-African trade and develop regional and local value chains, creating new business dynamics that offer investors access to a population of 1.7 billion people with combined business and consumer spending reaching $6.7 billion by 2030. Four sectors – the automotive industry, agriculture and agro-processing, pharmaceuticals, and transportation and logistics – are expected to accelerate in production and trade volumes under the AfCFTA.
Global businesses have an important role to play in accelerating the implementation of the AfCFTA, according to a new report from the World Economic Forum, in collaboration with the AfCFTA Secretariat and Forum partners. The report outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in successfully entering and expanding in this area.
The AfCFTA secretariat selected four key sectors that represent high-potential opportunities for companies looking to invest in Africa: the automotive industry, agriculture and agro-processing, pharmaceuticals, and transportation and logistics. These four sectors are expected to see rapid acceleration in production and trade volumes under the AfCFTA, given that they have a high potential to meet local demand with local production. Until now, local demand for these goods and services is currently being met through relatively high-cost imports, despite the region’s growing and lower cost production capabilities.
While the AfCFTA offers business opportunities in each of these four sectors, companies will also need to understand how the changing environments under the trade agreement will affect their strategies for success in the region. The World Economic Forum is actively working toward implementing trade and investment tools that are aligned with the negotiation process of the AfCFTA by identifying areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.
For example, public-private collaboration centered around implementing AfCFTA trade-facilitating provisions can facilitate trade in goods, on-the-ground initiatives can address fragmented investment regulatory frameworks, and bringing together groups committed to technology, digital payments, and information exchanges can support digital trade. To improve the societal outcomes of trade, the WEF’s Inclusive Trade Initiative is uncovering best practices that can be shared with AfCFTA negotiators and businesses. And an inventory of 25 key climate technologies and with country-specific studies helps identify opportunities for trade to align with circular economy goals.
If implemented fully, it is estimated that the AfCFTA could boost Africa’s regional income by 7 per cent or $450-billion. It will speed up wage growth for women and lift 30-million people out of extreme poverty by 2035. Trade-driven growth will be important to not only help African economies recover from the impact of the pandemic, but provide new markets for business growth, which presents a particular opportunity for the micro and small business sector, which make up about 80 per cent of Africa’s business environment, with around 44-million small, medium-sized and microenterprises in sub-Saharan Africa alone. According to the World Bank, for trade-driven growth to happen, there must be a determined effort to reduce all trade costs. This means simpler trade legislation, but also logistics that is straightforward and efficient.
The AfCFTA is expected to increase intra-African trade in transport services by nearly 50 per cent, according to the latest estimates by the Economic Commission for Africa (ECA). Vera Songwe, UN Under-Secretary-General and Executive Secretary of the ECA said the AfCFTA is “expected to significantly increase traffic flows on all transport modes: road, rail, maritime, and air,” but that such gains will only be optimized if the AfCFTA is accompanied by implementation of regional infrastructure projects.
The continent’s air transport network includes a total of 14,762 air routes (connecting each airport with the other 121 airports). Implementing the AfCFTA would double the number of tonnes transported by air from 2.3 to 4.5 million. In 2019, air accounted for only 0.9 per cent of intra-Africa freight transport. Implementation of AfCFTA would double airfreight from 2.3 to 4.5 million tonnes. Air traffic is therefore expected to double in 2030 compared to 2019.
Adefunke Adeyemi, Secretary General of African Civil Aviation Commission (AFCAC), says that the approach the commission has taken this time to implement SAATM is much more holistic and very practical. “So we are taking all the relevant stakeholders, right from the presidential level all the way to the operational level. We are also looking at the countries in batches so that we can start implementation in phases. What has been different between now and then is that in the past they’ve been looking at full steam liberalization, at the same pace, at the same time across all the 55 countries. That doesn’t happen; even in growth, some people grow tall, and some short; its normal,” said Adeyemi.
There is significant potential for increased intra-African trade to build a substantial case for industrialisation in the region and create greater and more inclusive economic growth. This is supported by the estimated benefits of properly implementing the AfCFTA and increasing the prevalence of e-commerce. The region has the benefit of learning from its European and Asian counterparts, which have trialled various trade facilitation initiatives as well as different digital solutions to improve operational effectiveness at trading ports.
Further, business organizations should place greater emphasis on collaboration with governments to create better networked ports and improve the efficiency of ports through avenues such as demand-driven interventions. Governments can also encourage this transition to greater efficiency by driving the adoption of modernized processes and enacting laws that support such interventions.